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Australia

Executive Summary

Australia is generally welcoming to foreign investment, which is widely considered to be an essential contributor to Australia’s economic growth and productivity. The United States is by far the largest source of foreign direct investment (FDI) for Australia. According to the U.S. Bureau of Economic Analysis, the stock of U.S. FDI totaled USD 170 billion in January 2020. The Australia-United States Free Trade Agreement, which entered into force in 2005, establishes higher thresholds for screening U.S. investment for most classes of direct investment. While welcoming toward FDI, Australia does apply a “national interest” test to qualifying investment through its Foreign Investment Review Board screening process.

Various changes to Australia’s foreign investment rules, primarily aimed at strengthening national security, have been made in recent years. This continued in 2020 with the passage of the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020, which broadens the classes of foreign investments that require screening, with a particular focus on defense and national security supply chains. All foreign investments in these industries now require screening, regardless of their value or national origin. The Foreign Investment Reform legislation commenced in January 2021. Despite the increased focus on foreign investment screening, the rejection rate for proposed investments has remained low and there have been no cases of investment from the United States having been rejected in recent years, although some U.S. companies have reported greater scrutiny of their investments in Australia.

In response to a perceived lack of fairness, the Australian government has tightened anti-tax avoidance legislation targeting multi-national corporations with operations in multiple tax jurisdictions. While some laws have been complementary to international efforts to address tax avoidance schemes and the use of low-tax countries or tax havens, Australia has also gone further than the international community in some areas.

Australia has increased funding for clean technology projects and both local and international companies can apply for grants to implement emission-saving equipment to their operations. Australia adopted a net-zero emissions target at the national level in November 2021 although made no change to its short-term goal of a 26-28 percent emission reduction by 2030 on 2005 levels. Australia’s eight states and territories have adopted both net-zero targets and a range of interim emission reduction targets set above the federal target. Various state incentive schemes may also be available to U.S. investors.

The Australian government is strongly focused on economic recovery from the COVID-driven recession Australia experienced in 2020, the country’s first in three decades. In addition to direct stimulus and business investment incentives, it has announced investment attraction incentives across a range of priority industries, including food and beverage manufacturing, medical products, clean energy, defense, space, and critical minerals processing. U.S. involvement and investment in these fields is welcomed.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 18 of 179 http://www.transparency.org/
research/cpi/overview
Global Innovation Index 2021 25 of 132 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 170 billion https://www.bea.gov/data/
intl-trade-investment/direct-investment-
country-and-industry
 
World Bank GNI per capita 2020 USD 53,690 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

In Australia, the term used for a Commonwealth Government State-Owned Enterprise (SOE) is “government business enterprise” (GBE). According to the Department of Finance, there are nine GBEs: two corporate Commonwealth entities and seven Commonwealth companies. (See: https://www.finance.gov.au/resource-management/governance/gbe/ ) Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to markets, credit, and other business operations, such as licenses and supplies. Public enterprises are not generally accorded material advantages in Australia. Remaining GBEs do not exercise power in a manner that discriminates against or unfairly burdens foreign investors or foreign-owned enterprises.

8. Responsible Business Conduct

There is general business awareness and promotion of responsible business conduct (RBC) in Australia. The Commonwealth Government states that companies operating in Australia and Australian companies operating overseas are expected to act in accordance with the principles set out in the OECD Guidelines for Multinational Enterprises and to perform to the standards they suggest. In seeking to promote the OECD Guidelines, the Commonwealth Government maintains a National Contact Point (NCP), the current NCP being currently the General Manager of the Foreign Investment and Trade Policy Division at the Commonwealth Treasury, who is able to draw on expertise from other government agencies through an informal inter-governmental network. An NCP Web site links to the “OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas” noting that the objective is to help companies respect human rights and avoid contributing to conflict through their mineral sourcing practices. The Commonwealth Government’s export credit agency, EFA, also promotes the OECD Guidelines as the key set of recommendations on responsible business conduct addressed by governments to multinational enterprises operating in or from adhering countries.

Australian companies have very few instances of human rights or labor rights abuses and domestic law prohibits such actions. In 2018 the Australian parliament passed the Modern Slavery Act, new legislation requiring large companies to assess risks of modern slavery in their supply chains and take action to limit these risks.

Australia began implementing the principles of the Extractive Industries Transparency Initiative (EITI) in 2016.

Australia has ratified the Montreux Document on Private Military and Security Companies, and was a founding member of the International Code of Conduct for Private Security Service Providers Association.

9. Corruption

Australia maintains a comprehensive system of laws and regulations designed to counter corruption. In addition, the government procurement system is generally transparent and well regulated. Corruption has not been a factor cited by U.S. businesses as a disincentive to investing in Australia, nor to exporting goods and services to Australia. Non-governmental organizations interested in monitoring the global development or anti-corruption measures, including Transparency International, operate freely in Australia, and Australia is perceived internationally as having low corruption levels.

Australia is an active participant in international efforts to end the bribery of foreign officials. Legislation exists to give effect to the anti-bribery convention stemming from the OECD 1996 Ministerial Commitment to Criminalize Transnational Bribery. Legislation explicitly disallows tax deductions for bribes of foreign officials. At the Commonwealth level, enforcement of anti-corruption laws and regulations is the responsibility of the Attorney General’s Department.

The Attorney-General’s Department plays an active role in combating corruption through developing domestic policy on anti-corruption and engagement in a range of international anti-corruption forums. These include the G20 Anti-Corruption Working Group, APEC Anti-Corruption and Transparency Working Group, and the United Nations Convention against Corruption Working Groups. Australia is a member of the OECD Working Group on Bribery and a party to the key international conventions concerned with combating foreign bribery, including the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention).

The legislation covering bribery of foreign officials is the Criminal Code Act 1995. Under Australian law, it is an offense to bribe a foreign public official, even if a bribe may be seen to be customary, necessary, or required. The maximum penalty for an individual is 10 years imprisonment and/or a fine of AUD 2. million (approximately USD 1.6 million). For a corporate entity, the maximum penalty is the greatest of: 1) AUD 22.2 million (approximately USD 16.4 million); 2) three times the value of the benefits obtained; or 3) 10 percent of the previous 12-month turnover of the company concerned.

A number of national and state-level agencies exist to combat corruption of public officials and ensure transparency and probity in government systems. The Australian Commission for Law Enforcement Integrity (ACLEI) has the mandate to prevent, detect, and investigate serious and systemic corruption issues in the Australian Crime Commission, the Australian Customs and Border Protection Service, the Australian Federal Police, the Australian Transaction Reports and Analysis Center, the CrimTrac Agency, and prescribed aspects of the Department of Agriculture.

Various independent commissions exist at the state level to investigate instances of corruption. Details of these bodies are provided below.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Australia has signed and ratified the United Nations Convention against Corruption and is a signatory to the OECD Anti-Bribery Convention.

Resources to Report Corruption

Western Australia – Corruption and Crime Commission
86 St Georges Terrace
Perth, Western Australia
Tel. +61 8 9215 4888
https://www.ccc.wa.gov.au/ 

Queensland – Corruption and Crime Commission
Level 2, North Tower Green Square
515 St Pauls Terrace
Fortitude Valley, Queensland
Tel. +61 7 3360 6060
https://www.ccc.qld.gov.au/ 

Victoria – Independent Broad-based Anti-corruption Commission
Level 1, North Tower, 459 Collins Street
Melbourne, Victoria
Tel. +61 1300 735 135
https://ibac.vic.gov.au 

New South Wales – Independent Commission against Corruption
Level 7, 255 Elizabeth Street
Sydney NSW 2000
Tel. +61 2 8281 5999
https://www.icac.nsw.gov.au/ 

South Australia – Independent Commission against Corruption
Level 1, 55 Currie Street
Adelaide, South Australia
Tel. +61 8 8463 5173
https://icac.sa.gov.au 

10. Political and Security Environment

Political protests (including rallies, demonstrations, marches, public conflicts between competing interests) form an integral, though generally minor, part of Australian cultural life. Such protests rarely degenerate into violence.

11. Labor Policies and Practices

Australia’s unemployment rate peaked at 7.5 percent during the COVID-19 pandemic but had fallen to 4 percent by early 2022. Average weekly earnings for full-time workers in Australia were AUD 1,748 (approximately USD 1,290) as of November 2021. The minimum wage is set annually and is significantly higher than that of the United States, currently sitting at AUD 2033 (USD 15.00). Overall wage growth has been low in recent years, growing at approximately the rate of inflation.

The Australian Government and its state and territory counterparts are active in assessing and forecasting labor skills gaps across industries. Tertiary education is subsidized by both levels of governments, and these subsidies are based in part on an assessment of the skills needed by industry. These assessments also inform immigration policy through the various working visas and associated skilled occupation lists. Occupations on these lists are updated annually based on assessment of the skills most needed by industry.

Immigration has always been an important source for skilled labor in Australia. The Department of Home Affairs publishes an annual list of occupations with skill shortages to be used by potential applicants seeking to work in Australia. The visas available to applicants, and length of stay allowed for, differ by occupation. The main working visa is the Temporary Skills Shortage visa (subclass 482). Applicants must have a nominated occupation when they apply which is applicable to their circumstances, and applications are subject to local labor market testing rules. These rules preference the hiring of Australian labor over foreign workers so long as local workers can be found to fill the advertised job.

Most Australian workplaces are governed by a system created by the Fair Work Act 2009. Enterprise bargaining takes place through collective agreements made at an enterprise level covering terms and conditions of employment. Such agreements are widely used in Australia. A Fair Work Ombudsman assists employees, employers, contractors, and the community to understand and comply with the system. The Fair Work Act 2009 establishes a set of clear rules and obligations about how this process is to occur, including rules about bargaining, the content of enterprise agreements, and how an agreement is made and approved. Unfair dismissal laws also exist to protect workers who have been unfairly fired from a job. Australia is a founding member of the International Labour Organization (ILO) and has ratified 58 of the ILO’s conventions.

Chapter 18 of the AUSFTA agreement deals with labor market issues. The chapter sets out the responsibilities of each party, including the commitment of each country to uphold its obligations as a member of the ILO and the associated ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up (1998).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2021 $1.33 trillion 2020 $1.50 trillion www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 $170 billion 2019 $158 billion BEA data available at
https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2020 $98 billion 2019 $112 billion BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-enterprises
-comprehensive-data
Total inbound stock of FDI as % host GDP 2020 59% 2019 53% UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html   

* Source for Host Country Data: Australian Bureau of Statistics

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 790,655 100% Total Outward 627,680 100%
USA 151,171 19% USA 127,563 20%
Japan 101,508 13% UK 103,597 17%
UK 95,093 12% New Zealand 55,338 9%
Netherlands 40,660 5% Canada 26,500 4%
Canada 35,554 4% Singapore 13,934 2%
“0” reflects amounts rounded to +/- USD 500,000.

14. Contact for More Information

Economic Counselor Doug Sonnek
U.S. Embassy Canberra
21 Moonah Place, Yarralumla, ACT+61 2 6214 5759
SonnekDE@state.gov 

Belize

Executive Summary

Belize has the smallest economy in Central America, with a gross domestic product (GDP) of US $1.3 billion in 2021, a 12.5 percent expansion over the previous year. Due to mounting fiscal pressures and a need to diversify and expand its economy, the Government of Belize (GoB) is open to, and actively seeks, foreign direct investment (FDI).  However, the small population of the country (2021 estimate – 432,516 persons), high cost of doing business, high public debt, bureaucratic delays, often insufficient infrastructure, and corruption constitute investment challenges. The Central Bank of Belize projects the country’s GDP will likely expand 6.0 percent in 2022 while the IMF’s projects 6.5 percent growth, led by a rebound of activity in the construction, retail and wholesale trade, transport and communication, and tourism sectors.

Public debt declined from 133 percent of GDP in 2020 to 108 percent in 2021. This was in large part due to the Blue Bond Agreement, a successful marine protection and conservation-driven financial transaction. International reserves increased from US $348 million (3.8 months of imports) in 2020 to US $420 million (3.9 months of imports) in 2021, partly due to the IMF’s Special Drawing Rights (SDR) 25.6 million allocation, which the authorities are keeping as reserve. Belize’s government encourages FDI to relieve fiscal pressure and transform the economy. The Central Bank of Belize recorded increased inflows of FDI at US $152.25 million in 2021 and outflows at US $24.4 million in the same period.  FDI inflows were concentrated primarily in real estate, construction, financial intermediation, and the hotel and restaurant industries.

Generally, Belize has no restrictions on foreign ownership and control of companies; however, foreign investments must be registered with the Central Bank of Belize and adhere to the Exchange Control Act and related regulations. The Government of Belize (GoB) made progress on the ease of doing business through trade license, stamp duty, exchange control, and land reforms to streamline business applications and related processes.

The banking system remains stable but fragile. Since January 2020, a domestic bank and an international bank each lost a correspondent banking relationship, a significant portion of the sector. In March 2022, the GoB lowered the business tax on the net interest income charged to banks and financial institutions to encourage lending in strategic foreign exchange earning sectors such as tourism, agriculture, and the Business Process Outsourcing (BPO) sectors.

There were incidents of property destruction at two American companies involved in sugar cane industry in the last year. In response, a prominent agro-productive organization wrote to the Government in January 2022 expressing concerns that the Belizean government’s failure to protect and support private sector investors in these instances led to damaging the investment climate and the Belizean economy.

Belize is categorized as a small island developing state (SIDS) that is highly vulnerable to the effects of climate change and is a relatively minor contributor to global greenhouse gas emissions. Belize’s updated National Determined Contributions (NDC) is nonetheless committed to developing a long-term strategy aligned with achieving net zero global emissions by 2050.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 N/A http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 64 million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD 4,110 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

State Owned Enterprises (SOEs) exist largely in the utilities sectors, generally as a result of nationalization.  The government is the majority shareholder in the Belize Water Services Limited, the country’s sole provider of water services, the Belize Electricity Limited, the sole distributor of electricity, and the Belize Telemedia Limited, the largest telecommunications provider in the country. The Public Utilities Commission regulates all utilities.

SOEs usually select senior government officials, members of local business bureaus and chambers of commerce, labor organizations, and quasi-governmental agencies to staff these companies’ boards of directors.  The board serves to direct policy and shape business decisions of the ostensibly independent SOE.  Current and previous administrations have been accused of nepotism and cronyism and criticized for having conflicts of interest when board members or directors are also represented in organizations that do business with the SOEs.

There is no published list of SOEs.  The following are the major SOEs operating in the country.  Information relating to their operations is available on their websites:  Belize Electricity Limited http://www.bel.com.bz ; Belize Telemedia Limited at https://www.livedigi.com ;  Belize Water Services Limited http://www.bws.bz 

There is no public third-party market analysis that evaluate whether SOEs receive non-market advantages by the government.  The Belize Electricity Limited and the Belize Water Services Limited are the only service providers in their respective sectors.  The Belize Telemedia Limited, on the other hand, competes with one other provider for mobile connectivity and there are multiple players that provide internet and data services.  U.S. firms have identified challenges in participating and competing in areas related to the bidding, procurement and dispute settlement processes, particular to SOEs.

8. Responsible Business Conduct

Belize generally lacks broad awareness of the expectations and standards for responsible business conduct (RBC).  However, many foreign and local companies engage in responsible corporate behaviors and partner with NGOs or international organizations to reinvest in community development and charitable work.  Companies sponsor educational scholarships, sports-related activities, community enhancement projects, and entrepreneurship activities, among other programs.  There is a strong thread of environmental awareness that also impacts business decision-making.  BELTRAIDE, in its official public outreach, promotes civic responsibility, especially in its outreach to entrepreneurs and aspiring businesspeople.

The Office of the Ombudsman is responsible for investigating complaints of official corruption and abuse of power.  As required by law, the Ombudsman is active in filing annual reports to the National Assembly and investigating incidents of alleged misconduct, particularly of police abuses.   This office continues to be constrained by the lack of enforcement powers, political pressure, and limited resources.

Belize has no recent cases of private-sector impact on human rights and no NGOs, investment funds, worker organizations/unions, or business associations specifically promote or monitor RBC.

Certain projects require the Department of the Environment’s approval for Environmental Impact Assessments or Environmental Compliance Plans. The Department of Environment website, http://www.doe.gov.bz , has more information on the Environmental Protection Act, various regulations, applications, and guidelines.

Belize has not adopted a particular accounting framework as its national standard. The International Financial Reporting Standards (IFRS) are required for domestic banks under the Domestic Bank and Financial Institutions Act (DBFIA) of Belize. Also, under the DBFIA, the Central Bank of Belize issues practice direction, directives, guidance, and advisories on corporate governance applicable to all banks and financial institutions operating and supervised by the Central Bank.

For other companies, Belize permits the use of IFRS Standards and the IFRS for SMEs as the standard financial reporting framework for preparing financial statements. The Institute of Chartered Accountants of Belize regards IFRS Standards as an allowed accounting framework under its professional standards. Alternatively, non-bank companies are permitted to use other internationally recognized standards. The U.S. Generally Accepted Accounting Principles (GAAP) and Canadian GAAP are often used. There are no government measures relating executive compensation standards and RBC policies are not factored into procurement decisions.  Opposition party political pronouncements often target official malfeasance in procurement and cronyism in government contracts, but these concerns are historically muted once the opposition takes power.

There are similarly no alleged or reported human or labor rights concerns relating to RBC. In recent years, labor unions and business associations have become actively engaged in advocating for stronger measures against corruption.

Belize does not have a developed mineral sector and is not a conflict or high-risk country.  As such, it does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.  Belize’s extractive/mining industry is not developed, and it does not participate in the Extractive Industries Transparency Initiative (EITI) and/or the Voluntary Principles on Security and Human Rights.

The country is not a signatory of The Montreux Document on Private Military and Security Companies, nor is it a supporter of the International Code of Conduct or Private Security Service Providers and is not a participant in the International Code of Conduct for Private Security Service Providers’ Association.

9. Corruption

Belize has anticorruption laws that are seldom enforced.  Under the Prevention of Corruption in Public Life Act, public officials are required to make annual financial disclosures, but there is little adherence and poor enforcement.  The Act criminalizes acts of corruption by public officials and includes measures on the use of office for private gain; code of conduct breaches; the misuse of public funds; and bribery.  This Act also established an Integrity Commission mandated to monitor, prevent, and combat corruption by examining declarations of physical assets and financial positions filed by public officers.  In practice, the office is understaffed and charges are almost never brought against officials.  It is not uncommon for politicians disgraced in corruption scandals to return to government after a short period of time has elapsed. The Money Laundering and Terrorism (Prevention) Act identifies “politically exposed persons” to include family members or close associates of any politician.

The Ministry of Finance issues the Belize Stores Orders and Financial Orders – policies and procedures for government procurement.  The Manual for the Control of Public Finances provides the framework for the registration and use of public funds to procure goods and services. Private companies are neither required to establish internal codes of conduct, ethics, or compliance programs, nor is it common to use them.

In June 2001, the Government of Belize signed the Organization of American States (OAS) Inter-American Convention on Corruption, which calls for periodic reviews.   In December 2016, Belize acceded to the United Nations Convention Against Corruption (UNCAC) amid public pressure and demonstrations from the teachers’ unions.  The Belizean government continues to be criticized for the lack of political will to fully implement UNCAC.

There are few non-governmental institutions that monitor government activities. The most active, the National Trade Union Congress of Belize (NTUCB), lobbies within narrow labor-related areas.  Environmental NGOs and the Belize Chamber of Commerce and Industry (BCCI) often make statements regarding government policy as it affects their respective spheres of activity.  The government does not provide protection to NGOs investigating corruption.

Despite these measures, many businesspeople complain that both major political parties practice bias that creates an unlevel playing field related to businesses seeking licenses, the importation of goods, winning government contracts for procurement of goods and services, and transfer of government land to private owners.  Some middle-class citizens and business owners have complained of government officials, including police, soliciting bribes.

10. Political and Security Environment

Belize has traditionally enjoyed one of the most stable political environments in the region, having held peaceful and transparent democratic elections since gaining independence on September 21, 1981.  In general elections, the two major political parties usually trade leadership. The current People’s United Party gained an overwhelming majority in the November 2020 General Elections, winning twenty-six of the thirty-one electoral divisions. The few times political candidates have questioned the result of elections, these have been settled by the court.

There were incidents of property destruction at two American companies involved in sugar cane industry in the last year. In December 2021, cane farmers from Belize’s largest cane farmers association blockaded the access road to a major American investment in Orange Walk for three days, preventing other farmers from delivering cane to the factory. An impasse between the cane farmer association and the sugar mill for a contract to deliver cane sparked the incident. The American investment subsequently initiated two legal suits against the cane farmer’s association for destruction to property and economic losses incurred. The second company located in the Cayo District, suffered arson in January 2022, presumably related to a conflict associated with land rights. Over 1,200 acres of sugar cane was lost in the fire, an estimated loss of US $1.15 million. In response, a prominent agro-productive organization wrote to the Government in January 2022 expressing concerns that the Belizean government’s failure to protect and support private sector investors in these instances led to damaging the investment climate and Belizean economy still further.

Neighboring Guatemala’s long-standing territorial claim on Belize has persisted for almost two centuries.  The International Court of Justice (ICJ) is currently deliberating the territorial dispute.  In December 2020, Guatemala filed its claim to Belize’s continental land, islands, and seas, and Belize will file its counter claim in June 2022. Despite legal efforts to resolve the claim, the Friends for Conservation and Development (FCD), a local Belizean NGO, continues to document illegal encroachments and settlements in and beyond the adjacency zone in Belize. In July 2021, FCD rangers accompanied by Belize Defence Force (BDF) members were fired upon by Guatemalan civilians as the former attempted to destroy illegal plantations in the Chiquibul forest reserve in Belize. The BDF retaliated, which in turn instigated the response of the Guatemalan Armed Forces (GAF). The incident did not escalate further and there were no casualties.

The second major security concern is the high level of crime countrywide. While Belize has a high murder rate per capita, it is primarily focused on the urban areas of Belize City. Corruption, human and drug trafficking, money laundering (institutional and trade-based), and local criminal gang activity remain significant problems exacerbated by the low conviction rate.

11. Labor Policies and Practices

According to the Statistical Institute of Belize (SIB), the population was estimated to be 432,516 as of September 2021.  The labor force was 191,881 as of September 2021.  Of this, the unemployed amounted to 17,644 persons for an unemployment rate of 9.2 percent, representing a 4.5 percent decrease from September 2020. The report noted that about 48 percent of working aged women participated in the labor force and 76.1 percent of men. The main reason women did not look for work was due to personal or family responsibilities, while men did not look for work mainly due to school or training.

In its Labor Force Survey of September 2021, the Statistical Institute of Belize estimated the number of persons in informal employment was 72,433 accounting for about 41.6 percent of all employed persons. Persons in informal employment earned about US $420 per month. A 2018/2019 Household Budget Survey assessed the country’s poverty level had increased from 41.3 percent in 2009 to 52 percent in 2012. The poverty line in 2018 was assessed at US $3,980 per annum or US $331.66 monthly. The Government of Belize asserts the COVID-19 pandemic raised the poverty rate, which hovers at almost 60 percent, and sparked significant growth of the informal sector. The agriculture sector has identified shortage of unskilled labor in the agriculture sector. The health sector faces a shortage of qualified nurses and high.

In general, there are no restrictions on employers adjusting their labor force in response to fluctuating market conditions.  Employers are flexible in offering salary increases, which are normally justified based on cost of living and prevailing practice consideration.  Severance payment is subject to local labor law, the Labour Act Chapter 297.  This Act differentiates between layoffs (voluntary termination and redundancy) and firing (dismissal).  In the cases of voluntary termination and redundancy, the law provides for an appropriate notice period, payment in lieu of notice, severance, etc.  In the case of redundancy, the employer must notify, where applicable, the recognized trade union or workers’ representative as well as the Labour Commissioner.

In addition to the general Social Security system, the government maintains a National Health Insurance scheme in certain marginalized communities throughout the country.  The government also provides some assistance to unemployed persons who represent marginalized sectors of the community, e.g., single women, single mothers, and young unemployed persons.

Foreign investors who have a development concession are permitted to bring in skilled personnel to complement their local labor force and, if appropriate, establish training programs for Belizean nationals. Labor laws are not generally waived to attract or retain investment.

Belize has eleven trade unions and an umbrella organization, the National Trade Union Congress of Belize (NTUCB).  Belize has ratified 50 International Labor Organization (ILO) conventions, of which 45 are in force, including Convention 182 against the worst forms of child labor.  Trade unions are independent of the government and employers both in practice and in law.  The Department of Labour recognizes registered unions and employers’ associations.  Trade union laws establish procedures for the registration and status of trade unions and employers’ organizations and for collective bargaining.  Unions are common in the public sector (teachers, general public servants), the Social Security Board, the utility and agriculture sectors, and among port stevedores.

Where employees are unionized, employers must refer to the laws relating to the operation of unions as well as the terms of existing collective bargaining agreements between the employer and unions. Where disputes arise between an employer and employee in the private sector and where the employee is not represented by a union, both parties may approach the Labour Department to mediate discussions for an amicable solution. Failing a resolution, the matter is then first referred to the labor tribunal then to the court.

The national fire service, postal service, monetary and financial services, civil aviation and airport security services, and port authority pilots and security services are all deemed essential services. The law allows authorities to refer disputes involving employees who provide “essential services” to compulsory arbitration, prohibit strikes, and terminate actions.   On January 21, 2022, stevedores at the port in Belize City undertook industrial action against the port. The Essential Services Arbitration Tribunal delivered a notice on January 27, 2022, mandating the port management confirm the selected stevedores as registered stevedores, pay contributions to retirement savings for stevedores, and commence negotiations for the payment of redundancy packages. Port management countered with a lawsuit that remains before the courts, claiming US $500,000 in damages and loss of business.

Belize does have laws and regulations relating to international labor standards.  There is also a system in place for labor inspectors to advocate on labor-related concerns and complaints, as well as to visit and inspect business facilities to ensure adherence to local labor laws. Belize’s legislation does not address a situation in which child labor is contracted between a parent and the employer. The penalty for employing a child below minimum age is a fine not exceeding US $10 or imprisonment not exceeding two months.

Additionally, while there are laws that prohibit a wide range of discrimination in the workplace, they are not effectively enforced and do not explicitly provide protections for persons with disabilities or against discrimination related to sexual orientation and/or gender identity. There is anecdotal evidence that certain vulnerable sectors, particularly migrant workers, undocumented persons, young service workers, and agricultural laborers, were regularly paid below the minimum wage and classified as contract and nonpermanent employees to avoid providing certain benefits.

The GoB established a minimum wage task force to oversee the implementation of the five-dollar minimum wage in a phased approach, which is expected to commence by July 1, 2022.

14. Contact for More Information

Andrea De Arment
Chief of Political/Economic Section
4 Floral Park Road
Belmopan, Belize
T: +501-822-4011
BelmopanPolEcon@state.gov 

Vincent Lowney
Environmental, Science, Technology and Health Officer
4 Floral Park Road
Belmopan, Belize
T: +501-822-4011
BelmopanPolEcon@state.gov 

Carmen Silva
Economic/Commercial Assistant
4 Floral Park Road
Belmopan, Belize
T: +501-822-4011
BelmopanPolEcon@state.gov 

Brazil

Executive Summary

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the seventh largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $58 billion, an increase of 133percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.8 billion). In recent years, Brazil has received more than half of South America’s total amount of incoming FDI, and the United States is a major foreign investor in Brazil. According to Brazilian Central Bank (BCB) measurements, U.S. stock was 24 percent ($123.9 billion) of all FDI in Brazil as of the end of 2020, the largest single-country stock by ultimate beneficial owner (UBO), while International Monetary Fund (IMF) measurements assessed the United States had the second largest single-country stock of FDI by UBO, representing 18.7 percent of all FDI in Brazil ($105 billion) and second only to the Netherlands’ 19.9 percent ($112.5 billion). The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019. The COVID-19 pandemic in 2020 delayed planned privatization efforts and despite government efforts to resume in 2021, economic and political conditions hampered the process.

The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global coronavirus pandemic in 2020. The country’s Gross Domestic Product (GDP) increased 4.6 percent in 2021, in comparison to a 4.1 percent contraction in 2020. As of February 2022, analysts had forecasted 0.3 percent 2022 GDP growth. The unemployment rate was 11.1 percent at the end of 2021, with over one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.4 percent of GDP ($72.4 billion) in 2021, and is projected to rise to 6.8 percent by the end of 2022 according to Brazilian government estimates. Brazil’s debt-to-GDP ratio reached 89.4 percent in 2020 and fell to around 82 percent by the end of 2021. The National Treasury projections show the debt-to-GDP ratio rising to 86.7 percent by the end of 2022, while the Independent Financial Institution (IFI) of Brazil’s Senate projects an 84.8 percent debt-to-GDP ratio. The BCB increased its target for the benchmark Selic interest rate from 2 percent at the end of 2020 to 9.25 percent at the end of 2021, and 11.75 percent in March 2022. The BCB’s Monetary Committee (COPOM) anticipates raising the Selic rate to 12.25 percent before the end of 2022.

President Bolsonaro took office on January 1, 2019, and in that same year signed a much-needed pension system reform into law and made additional economic reforms a top priority. Bolsonaro and his economic team outlined an agenda of further reforms to simplify Brazil’s complex tax system and complicated code of labor laws in the country, but the legislative agenda in 2020 was largely consumed by the government’s response to the COVID-19 pandemic. In 2021, the Brazilian government passed a major forex regulatory framework and strengthened the Central Bank’s autonomy in executing its mandate. The government also passed a variety of new regulatory frameworks in transportation and energy sectors, including a major reform of the natural gas market. In addition, the government passed a law seeking to improve the ease of doing business as well as advance the privatization of its major state-owned enterprise Electrobras.

Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property.

Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 57 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $70,742 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $7,850 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

Most state-owned and private sector corporations of any significant size in Brazil pursue corporate social responsibility (CSR) activities. Brazil’s new CFIAs (see sections on bilateral investment agreements and dispute settlement) contain CSR provisions. Some corporations use CSR programs to meet local content requirements, particularly in information technology manufacturing. Many corporations support local education, health, and other programs in the communities where they have a presence. Brazilian consumers, especially the local residents where a corporation has or is planning a local presence, generally expect CSR activity. Corporate officials frequently meet with community members prior to building a new facility to review the types of local services the corporation will commit to providing. Foreign and local enterprises in Brazil often advance United Nations Development Program (UNDP) Sustainable Development Goals (SDGs) as part of their CSR activity, and will cite their local contributions to SDGs, such as universal primary education and environmental sustainability. Brazilian prosecutors and civil society can be very proactive in bringing cases against companies for failure to implement the requirements of the environmental licenses for their investments and operations. National and international nongovernmental organizations monitor corporate activities for perceived threats to Brazil’s biodiversity and tropical forests and can mount strong campaigns against alleged misdeeds. A common challenge for foreign businesses, especially as it relates to child and forced labor, is a lack of transparency in supply chains.

The U.S. diplomatic mission in Brazil supports U.S. business CSR activities through the +Unidos Group (Mais Unidos), a group of multinational companies established in Brazil, which support public and private CSR alliances in Brazil. Additional information can be found at: www.maisunidos.org  

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

Brazil is the world’s 12th largest greenhouse gas emitter. At COP 26 in November 2021, Brazil committed to achieving net zero emissions by 2050, ten years ahead of its previous commitment, ending illegal deforestation by 2028, and announced a plan to implement a Brazilian carbon market in 2022. However, rates of illegal deforestation continue to rise from a 2012 low; in 2021, illegal deforestation increased by 22 percent from the previous year. Private sector operators, especially in the agricultural sector, are concerned that consumer reaction to environmental issues in Brazil, especially deforestation in the Amazon Basin, could result in the boycott of Brazilian exports and a loss of market share. Such boycotts have already occurred in some supermarket chains in Europe.

Brazil established a National Policy on Climate Change in 2009 for climate change mitigation, adaptation, and consolidation of a low carbon economy. During COP 26 in Glasgow, Brazil published guidelines to update its national climate strategy, focusing on consolidating various initiatives to develop a low carbon economy. The strategy includes goals such as eliminating illegal deforestation, restoring forests, a “National Green Growth Plan,” and financing directed at developing a green economy.

In biodiversity, the Brazilian Ministry of the Environment coordinates and supports actions aimed at identifying species of native fauna and flora, monitoring and evaluating the conservation status of an increasingly significant portion of these species. To ensure the conservation of native species, the Ministry creates development models that encourage the sustainable use of biodiversity, along the lines of what is encouraged under the Convention on Biological Diversity and the International Treaty on Plant Genetic Resources for Food and Agriculture.

In October 2021, the government launched the National Green Growth Program. The Program uses new resources from the BRICS Development Bank for forest conservation projects, the rational use of natural resources, and the generation of green jobs. The new program will have national and international resources, public and private, reimbursable and non-reimbursable impact funds and risk investments. The plan focuses on six areas: renewable energy, sustainable agriculture, low-emission industry, basic sanitation, waste treatment, and ecotourism. At the program launch, the Brazilian Ministry of Environment stated that the federal government has a total credit line of 411 billion reais ($82.2 million) allocated for green projects. However, critics argue that the program is just a repackaging of several initiatives that already existed in the government, claiming that of the 400 billion reais planned, only 12 billion ($2.4 million, 3 percent of the total) were new funds.

At COP 26, Brazil signed the Global Methane Pledge to reduce global methane emissions by 30 percent by 2030. In February 2022, the Ministry of Environment announced that it would soon present a “Methane Zero” plan that would incentivize biomethane capture/production from landfills, sugar cane waste, and dairy barns; however, as of March 2022 the plan has not been announced.

The government expects active participation from the private sector through contributions to the Ministry of Environment’s projects. For example, the “Adopt-a-Park” program was established to gather resources for the conservation of national parks and is directed at national and foreign companies or individuals that are interested in contributing to environmental protection in Brazil. Through the program, resources are invested by the adopter in services such as remote monitoring, wildland firefighting and prevention, actions against illegal deforestation, and recovery of degraded areas.

In 2019, Brazil launched the National Biofuels Policy (RenovaBio) to comply with its Paris Agreement commitments by promoting the expansion of biofuels in the energy matrix and the reduction of greenhouse gas emissions. The policy established annual national decarbonization targets for the fuel sector, divided into mandatory individual targets for fuel distributors. To comply with the targets, fuel distributors purchase Decarbonization Credits (CBIO), a financial asset tradable on the stock exchange since 2020 derived from the certification of the biofuel production process and that corresponds to one ton of carbon dioxide. According to the Brazilian government, the program reached 85 percent of its targets in 2021, preventing the emission of 24 million tons of greenhouse gases and trading $212 million-worth of CBIOs in the stock market.

9. Corruption

Brazil has laws, regulations, and penalties to combat corruption, but enforcement activities against corruption are inconsistent. Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years. Bribery is illegal, and a bribe by a Brazilian-based company to a foreign government official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts. A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level. U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).

Brazil signed the UN Convention against Corruption in 2003 and ratified it in 2005. Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery. It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.

In 1996, Brazil signed the Inter-American Convention Against Corruption (IACAC), developed within the Organization of American States (OAS). It was incorporated in Brazil by Legislative Decree 152 and went into force in 2002.

In 2020, Brazil ranked 96th out of 180 countries in Transparency International’s Corruption Perceptions Index. The full report can be found at: https://www.transparency.org/en/cpi/2021 

From 2014-2021, the complex federal criminal investigation known as Operação Lava Jato (Operation Carwash) investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras. The investigation led to the arrests and convictions of Petrobras executives, oil industry suppliers, executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operators. Appeals of convictions and sentences continue to work their way through the Brazilian court system. On December 25, 2019, Brazilian President Jair Bolsonaro signed a packet of anti-crime legislation into law, which included several anti-corruption measures. The new measures include regulation of immunity agreements – information provided by a subject in exchange for reduced sentence – which were widely used during Operation Carwash. The legislation also strengthens Brazil’s whistleblower mechanisms, permitting anonymous information about crimes against the public administration and related offenses. Operation Carwash was dissolved in February 2021. In March 2021, the OECD established a working group to monitor anticorruption efforts in Brazil.

In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world. The U.S. Department of Justice case stemmed directly from the Lava Jato investigation and focused on violations of the anti-bribery provisions of the FCPA. Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve  

In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for $3 billion, which was one of the largest securities class action settlements in U.S. history. The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of $853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.

In October 2020, Brazilian meatpacking and animal protein company JBS reached two settlements in the United States to pay fines to settle charges of corruption. The company is part of the J&F Group, which was also a part of the settlements. The group agreed to pay over $155 million in fines for violations of U.S. laws due to misconduct by J&F and failure to maintain accounting records by JBS. Lava Jato investigations also resulted in the arrest of several JBS executives who also signed plea bargains in the 2020 settlements.

Resources to Report Corruption

Secretaria de Cooperação Internacional – Ministério Público Federal

SAF Sul Quadra 04 Conjunto C Bloco “B” Sala 509/512

pgr-internacional@mpf.mp.br 
stpc.dpc@cgu.gov.br 
https://www.gov.br/cgu/pt-br/anticorrupcao 

Transparência BrasilR. Bela Cintra, 409; Sao Paulo, Brasil+55 (11) 3259-6986http://www.transparencia.org.br/contato

10. Political and Security Environment

Strikes and demonstrations occasionally occur in urban areas and may cause temporary disruption to public transportation. Brazil has over 41,000 murders annually, with low rates of murder investigation case completions and convictions.

Non-violent pro- and anti-government demonstrations have occurred periodically in recent years.

Although U.S. citizens usually are not targeted during such events, U.S. citizens traveling or residing in Brazil are advised to take common-sense precautions and avoid any large gatherings or any other event where crowds have congregated to demonstrate or protest. For the latest U.S. State Department guidance on travel in Brazil, please consult www.travel.state.gov.

11. Labor Policies and Practices

The Brazilian labor market is composed of approximately 107.8 million workers, including employed (95.7 million) and unemployed (12 million). Among employed workers, 38.95 million (40.7 percent) work in the informal sector. Brazil had an unemployment rate of 11.1 percent in the last quarter of 2021, although that rate was more than double (22.8 percent) for workers ages 18-24. Low-skilled employment dominates Brazil’s labor market. The nearly 40 million workers in the informal sector do not receive the full benefits that formal workers enjoy under Brazil’s labor and social welfare system. The informal market represents approximately 16.8 percent of Brazil’s GDP. In 2021, employees’ average monthly income reached the lowest level in recorded history, at R$ 2,587 ($488).

Since 2012, women have on average been unemployed at a higher rate than their male counterparts, a scenario worsened by the pandemic. Between 2012 and 2019, the difference in average employment rates between men and women was 3.3 percentage points. In 2020, the average rate difference reached 4.5 percentage points and in 2021, 5.8 percentage points. In the last quarter of 2021, the Brazilian men’s unemployment rate was 9 percent, while the women’s unemployment rate was 13.9 percent. This discrepancy in employment rates is also traditionally observed for people of color in Brazil: while unemployment rates for whites is 9 percent (below the national average), blacks and mixed-race unemployment rates are significantly higher, at 13.6 percent and 12.6 percent respectively.

Foreign workers made up less than one percent of the overall labor force, but the arrival of more than 305,000 economic migrants and refugees from Venezuela since 2016 has led to large local concentrations of foreign workers in the border state of Roraima and the city of Manaus. Since April 2018, the Brazilian government, through Operation Welcome’s voluntary interiorization strategy, has relocated more than 68,000 Venezuelans from the northern border region to cities with more economic opportunities. Migrant workers within Brazil play a significant role in the agricultural sector.

Workers in the formal sector contribute to the Time of Service Guarantee Fund (FGTS) the amount of one month’s salary over the course of a year. If a company terminates an employee, the employee can access the full amount of their FGTS contributions, or if the employee leaves voluntarily they are entitled to 20 percent of their contributions. Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause. Unemployment insurance also exists for laid-off workers, equal to the country’s minimum salary (or more depending on previous income levels) for six months. The government does not waive any labor laws to attract investment.

Collective bargaining is common, and there are 17,630 labor unions operating in Brazil in 2022. Labor unions, especially in sectors such as metalworking and banking, are well organized in advocating for wages and working conditions. In some sectors, federal regulations mandate collective bargaining negotiations across the entire industry. A new labor law in November 2017 ended mandatory union contributions, which has reduced union finances by as much as 90 percent according to the Inter-Union Department of Statistics and Socio-economic Studies (DIEESE). According to the Brazilian Institute of Geography and Statistics (IBGE), the share of unionized workers dropped to 11.2 percent of the workforce in 2019. The Ministry of Labor reported 7,854 collective bargaining agreements in 2021, an increase compared to the 6,118 agreements reported in 2020. Employer federations also play a significant role in both public policy and labor relations. Each state has its own federations of industry and commerce, which report respectively to the National Confederation of Industry (CNI), headquartered in Brasilia, and the National Confederation of Commerce (CNC), headquartered in Rio de Janeiro.

Brazil has a dedicated system of labor courts that are charged with resolving routine cases involving unfair dismissal, working conditions, salary disputes, and other grievances. Labor courts have the power to impose an agreement on employers and unions if negotiations break down and either side appeals to the court system. As a result, labor courts routinely are called upon to determine wages and working conditions in various industries across the country. The labor courts system has millions of pending legal cases on its docket, although the number of new filings has decreased since November 2017 labor law reforms.

Strikes occur periodically, particularly among public sector unions. A strike organized by truckers’ unions protesting increased fuel prices paralyzed the Brazilian economy in May 2018 and led to billions of dollars in losses to the economy. Trucker strikes in 2021, however, had more limited impact.

Brazil has ratified 98 International Labor Organization (ILO) conventions and is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination. For the past four years (2018-2021), the Department of Labor, in its annual publication “Findings on the Worst forms of Child Labor,” has recognized Brazil for its moderate advancement in efforts to eliminate the worst forms of child labor. On July 28, 2021, President Jair Bolsonaro re-established the Ministry of Labor and Welfare as a separate ministry, reversing its January 2019 merger into the Ministry of Economy. In 2021, the GoB inspected 443 properties, resulting in the rescue of 1,937 victims of forced labor. Additionally, in 2020 GoB officials removed 810 child workers from situations of child labor, compared to 1,040 children in 2019.

Brunei

Executive Summary

Brunei is a small, energy-rich sultanate on the northern coast of Borneo in Southeast Asia. Brunei boasts a well-educated, largely English-speaking population, excellent infrastructure, and a government intent on attracting foreign investment and projects. In parallel with Brunei’s efforts to attract foreign investment and create an open and transparent investment regime, the country has taken steps to streamline the process for entrepreneurs and investors to establish businesses and has improved its protections for Intellectual Property Rights (IPR).

Despite ambitions to diversify, Brunei’s economy remains dependent on the income derived from sales of oil and gas, contributing about 50 percent to the country’s GDP. Substantial revenue from overseas investment supplements income from domestic hydrocarbon production. These two revenue streams provide a comfortable quality of life for Bruneians by regional standards. Citizens are not required to pay taxes and have access to free education through the university level, free medical care, and subsidized housing and car fuel.

Brunei has a stable political climate and is generally sheltered from natural disasters. Its central location in Southeast Asia, with good telecommunications and airline connections, business tax credits in specified sectors, and no income, sales, or export taxes, offers a welcoming climate for potential investors. Sectors offering U.S. business opportunities in Brunei include aerospace and defense, agribusiness, construction, petrochemicals, energy and mining, environmental technologies, food processing and packaging, franchising, health technologies, information and communication, digital finance, and services. Brunei has ambitious climate change goals, aspiring to lower greenhouse gas emissions by more than 50 percent and increase its share of renewable energy to 30 percent of total capacity by 2035.

Brunei continues to take a cautious approach against the COVID-19 pandemic despite having fully immunized 95 percent of the population. As of March 2022, although the country is not under lockdown, Brunei has not fully opened its borders to non-essential travel. Travelers entering the country are required to obtain permission from the Prime Minister’s Office.

In 2014, Brunei began implementing sections of its Sharia Penal Code (SPC) that expanded preexisting restrictions on activities such as alcohol consumption, eating in public during the fasting hours in the month of Ramadan, and indecent behavior, with possible punishments including fines and imprisonment. The SPC functions in parallel with Brunei’s common law-based civil penal code. The government commenced full implementation of the SPC in 2019, introducing the possibility of corporal and capital punishments including, under certain evidentiary circumstances, amputation for theft and death by stoning for offenses including sodomy, adultery, and blasphemy. Government officials emphasize that sentencing to the most severe punishments is highly improbable due to the very high standard of proof required for conviction under the SPC. While the SPC does not specifically address business-related matters, potential investors should be aware that the SPC generated global controversy when it was implemented due to its draconian punishments and inherent discrimination toward LGBT communities. The sultan declared a moratorium on the death penalty for sharia crimes in response to the outcry and there have been no recorded incidents of U.S. citizens or U.S. investments directly affected by sharia law.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 35 of 175 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 82 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD $11.0 million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD $31,510 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Brunei’s state-owned enterprises (SOEs), managed by Darussalam Assets under the Ministry of Finance and Economy, lead key sectors of the economy including oil and gas, telecommunications, transport, and energy generation and distribution. These enterprises also receive preferential treatment when responding to government tenders. Some of the largest SOEs include the following:

The telecommunications industry is dominated by government-linked companies. The service providers are Datastream Digital, Imagine, and Progresif. In 2019, the government consolidated the infrastructure of all three companies under a state-owned wholesale network operator called Unified National Networks (UNN).

Royal Brunei Technical Services (RBTS), established in 1988 as a government owned corporation, is responsible for managing the acquisition of a wide range of systems and equipment.

Brunei Energy Services and Trading (BEST) is the national oil company owned by the Brunei government. The company was granted all mineral rights in eight prime onshore and offshore petroleum blocks totaling 20,552 sq. km. PB manages contracts with Shell and Petronas, which are exploring Brunei’s onshore and deep-water offshore blocks. The government continues to modify BEST’s role in the oil and gas industry. In 2019, the government established Petroleum Authority as the oil and gas sector’s regulatory body, a function which had been filled by BEST.

Royal Brunei Airlines started operations in 1974 and is the country’s national carrier. The airline flies a combination of Boeing and Airbus aircraft.

8. Responsible Business Conduct

Responsible business conduct is a relatively new concept in Brunei, and there are no specific government programs encouraging foreign and local enterprises to follow generally accepted corporate social responsibility (CSR) principles. However, there is broad awareness of CSR among producers and consumers, and individual private and public sector organizations have formalized CSR programs and policies. There are no reporting requirements and no independent NGOs in Brunei that promote or monitor CSR.

9. Corruption

Since 1982, Brunei has enforced the Emergency (Prevention of Corruption) Act. In 1984, the Act was renamed the Prevention of Corruption Act (Chapter 131) . The Anti-Corruption Bureau (ACB) was established in 1982 for the purpose of enforcing the Act. The Prevention of Corruption Act provides specific powers to the ACB for the purpose of investigating accusations of corruption. The Act authorizes ACB to investigate certain offences under other written laws, provided such offences were disclosed during the course of ACB investigation. Corrupt practices are punishable under the Prevention of Corruption Act, which also applies to Brunei citizens abroad. Brunei is a member of the International Association of Anti-Corruption Authorities.

In 2019, Brunei was ranked 35th of 180 countries worldwide in Transparency International’s corruption perception index. U.S. companies do not generally identify corruption as an obstacle to conducting business in Brunei. The level and extent of reported corruption in Brunei is generally low. In January 2020, however, the government convicted two former judges with embezzling large sums from the court system. The sultan has repeatedly stated in public addresses that corruption is unacceptable.

Apart from the Anti-Corruption Bureau, there are no international, regional, local, or nongovernmental organizations operating in Brunei that monitor corruption.

Brunei has signed and ratified the UN Anticorruption Convention.

Resources to Report Corruption

Government Point of Contact:

Name: Hjh Anifa Rafiza Hj Abdul Ghani
Title: Director
Organization: Anti-Corruption Bureau Brunei Darussalam
Address: Old Airport Berakas, BB 3510 Brunei Darussalam
Tel: +673 238-3575
Fax: +673 238-3193
Mobile: +673 8721002 / +673 8130002
Email: info.bmr@acb.gov.bn 

10. Political and Security Environment

Brunei is an absolute monarchy and has no recent history of political violence. Sultan Hassanal Bolkiah is an experienced and popular monarch who rules the country as Prime Minister while also retaining the titles of Minister of Finance and Economy, Minister of Defense, and Minister of Foreign Affairs. The country experienced an uprising in 1962 when it was a British protectorate, which ended through the intervention of British troops. The country has been ruled peacefully under emergency law ever since. Brunei has managed to avoid demands for political reform by making use of its hydrocarbon revenues to provide its citizens with generous welfare benefits and subsidies.

11. Labor Policies and Practices

Brunei relies heavily on foreign labor in lower-skill and lower-paying positions, with approximately 25 percent of the labor force coming in from abroad to fulfill specific contracts. The largest percentage of foreign employees work in construction, followed by wholesale and retail trade, with the balance serving in professional, technical, administrative and support roles. Most unskilled laborers in Brunei are from Bangladesh, Indonesia, and the Philippines, and enter the country on renewable two-year contracts.

The skilled labor pool includes both foreign workers on short-term visas and Bruneian citizens and permanent residents, who often are well-educated but who generally prefer to work for the government due to generous benefits such as bonuses, education allowances, interest-free loans, and housing allowances. In 2019, the Labor Force Survey stated that approximately 33.8 percent of the labor force was employed in the public sector. In 2016, the Department of Labor under the Ministry of Home Affairs introduced an improved Foreign Workers License process with stricter policies to create more employment opportunities for Brunei citizens.

While the law permits the formation of trade union federations, it forbids affiliation with international labor organizations unless there is consent from the Minister of Home Affairs and the Department of Labor. Under the Trade Unions Act of 1961, unions must be registered with the government. The government prohibits strikes, and the law makes no explicit provision for the right to collective bargaining. The law prohibits employers from discriminating against workers in connection with union activities, but it does not provide for reinstatement for dismissal related to union activity.

All workers, including civil servants other than those serving in the military and those working as prison guards or police officers, may form and join trade unions of their choice without previous authorization or excessive requirements. The only active union in the country, which is composed of Brunei Shell Petroleum workers, appears to have had minimal activity in recent years. There are no other active unions or worker organizations.

Various domestic laws prohibit the employment of children under the age of 16. Parental consent and approval by the Labor Commission are required for those under the age of 18. Female workers under 18 years of age may not work at night or on offshore oil platforms. The Department of Labor enforces laws related to the employment of children. There were no reports of violations of child labor laws.

The law does not set a minimum wage. The public sector pay scale covers all workers in government jobs. Wages for employed foreign residents are wide ranging. Some foreign embassies set minimum wage requirements for their nationals working in the country.

Government data indicated approximately 94,200 foreigners live in Brunei, although government officials have publicly stated the number exceeds 100,000. Foreign workers receive a mandatory brief on labor rights from the Department of Labor when they sign their contract. The government also inspects workplaces and maintains a telephone hotline for worker complaints. Immigration law allows prison sentences and caning for workers who overstay their work permits and for workers who fall into irregular status due to their employers’ negligence.

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) 2020 $12.211 billion 2020 $12.006 billion www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 $2.6 million 2020 $11.0 million BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A No data available
Total inbound stock of FDI as % host GDP 2020 $7.45 billion 2020 63.2% UNCTAD data available at

https://unctad.org/topic/investment/world-investment-report 

* Source for Host Country Data: Department of Economic Planning and Statistics, Ministry of Finance and Economy Brunei Darussalam 

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 (Not Available)
Total Inward 7,589 100% Total Outward Amount 100%
China 2,646 35% Country #1 Amount X%
United Kingdom 2,608 34% Country #2 Amount X%
The Netherlands 855 11% Country #3 Amount X%
Singapore 387 5% Country #4 Amount X%
Japan 259 3% Country #5 Amount X%
“0” reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey (2020)

14. Contact for More Information

U.S. Embassy Commercial Section
Simpang 336-52-16-9
Jalan Duta BC 4115
(+673) 238-4616
+637 238-4616 ext. 2232
BSBCommercial@state.gov 

Canada

Executive Summary

Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, proximity to the U.S. market, highly skilled work force, and abundant resources.  Canada encourages foreign direct investment (FDI) by promoting stability, global market access, and infrastructure. The United States is Canada’s largest investor, accounting for 44 percent of total FDI. As of 2020, the amount of U.S. FDI totaled USD 422 billion, a 5 percent increase from the previous year. Canada’s FDI stock in the United States totaled USD 570 billion, a 15 percent increase from the previous year.

Canada attracted USD 61 billion inward FDI flows in 2021 (the highest since 2007), a rebound from COVID-19-related decreases in 2020 according to Canada’s national statistical office.

The United States-Mexico-Canada Agreement (USMCA) came into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The USMCA supports a strong investment framework beneficial to U.S. investors. Foreign investment in Canada is regulated by the Investment Canada Act (ICA). The purpose of the ICA is to review significant foreign investments to ensure they provide an economic net benefit and do not harm national security. In March 2021, the Canadian government announced revised ICA foreign investment screening guidelines that include additional national security considerations such as sensitive technology areas, critical minerals, and sensitive personal data. The guidelines followed an April 2020 ICA update, which provides for greater scrutiny of foreign investments by state-owned investors, as well as investments involving the supply of critical goods and services.

Despite a generally welcoming foreign investment environment, Canada maintains investment stifling prohibitions in the telecommunication, airline, banking, and cultural sectors. The 2022 budget proposal included language that could limit foreign ownership of real estate for a two-year period (to cool an overheated market and lack of housing for Canadians). Ownership and corporate board restrictions prevent significant foreign telecommunication and aviation investment, and there are deposit acceptance limitations for foreign banks. Investments in cultural industries such as book publishing are required to be compatible with national cultural policies and be of net benefit to Canada. In addition, non-tariff barriers to trade across provinces and territories contribute to structural issues that have held back the productivity and competitiveness of Canada’s business sector.

Canada has taken steps to address the climate crisis by establishing the Canadian Net-Zero Emissions Accountability Act that enshrines in law the Government of Canada’s commitment to achieve net-zero greenhouse gas emissions by 2050 and issuing the 2030 Emissions Reduction Plan that describes the measures Canada is undertaking to reduce emissions to 40 to 45 percent below 2005 levels by 2030 and achieve net-zero emissions by 2050.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 13 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2020 16 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 402,255 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD 43,580 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

Canada defines responsible business conduct (RBC) as “Canadian companies doing business abroad responsibly in an economic, social, and environmentally sustainable manner.” The Government of Canada has publicly committed to promoting RBC and expects and encourages Canadian companies working internationally to respect human rights and all applicable laws, to meet or exceed international RBC guidelines and standards, to operate transparently and in consultation with host governments and local communities, and to conduct their activities in a socially and environmentally sustainable manner.

Canada encourages RBC by providing RBC-related guidance to the Canadian business community, including through Canadian embassies and missions abroad. Through its Fund for RBC, Global Affairs Canada provides funding to roughly 50 projects and initiatives annually. Canada also promotes RBC multilaterally through the OECD, the G7 Asia Pacific Economic Co-operation, and the Organization of American States. Canada promotes RBC through its trade and investment agreements via voluntary provisions for corporate social responsibility. Global Affairs Canada and the Canadian Trade Commissioner Service issued an Advisory to Canadian companies active abroad or with ties to Xinjiang, China in January 2021. The Advisory set clear compliance expectations for Canadian businesses with respect to forced labor and human rights involving Xinjiang.

The Canadian Ombudsperson for Responsible Enterprise is charged with receiving and reviewing claims of alleged human rights abuses involving Canadian companies foreign operations in the mining, oil and gas, and garment sectors. Contact information for making a complaint is available at: https://core-ombuds.canada.ca/core_ombuds-ocre_ombuds/index.aspx?lang=eng .

Canada is active in improving transparency and accountability in the extractive sector. The Extractive Sector Transparency Measures Act was brought into force on June 1, 2015. The Act requires extractive entities active in Canada to publicly disclose, on an annual basis, specific payments made to all governments in Canada and abroad. Canada joined the Extractive Industries Transparency Initiative (EITI) in February 2007, as a supporting country and donor. Canada’s Corporate Social Responsibility strategy, “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad” is available on the Global Affairs Canada website: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-strat-rse.aspx?lang=eng .

A comprehensive overview of Canadian RBC information is available at: https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-rse.aspx?lang=eng#:~:text=RBC%20is%20about%20Canadian%20companies,laws%20and%20internationally%20recognized%20standards .

Canada is working toward reconciliation between Indigenous and non-Indigenous peoples including through the settlement of historical claims. The claims, made by First Nations against the Government of Canada, relate to the administration of land and other First Nation assets. As of March 2018 (the latest data provided by Canada), the Government of Canada has negotiated settlements on more than 460 specific claims. Hundreds of specific claims remain outstanding including 250 accepted for negotiation, 71 before the Specific Claims Tribunal, and 160 under review or assessment.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

9. Corruption

Corruption in Canada is low and similar to that found in the United States. Corruption is not an obstacle to foreign investment. Canada is a party to the UN Convention Against Corruption, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the Inter-American Convention Against Corruption.

Canada’s Criminal Code prohibits corruption, bribery, influence peddling, extortion, and abuse of office. The Corruption of Foreign Public Officials Act prohibits individuals and businesses from bribing foreign government officials to obtain influence and prohibits destruction or falsification of books and records to conceal corrupt payments. The law has extended jurisdiction that permits Canadian courts to prosecute corruption committed by Canadian companies and individuals abroad. Canada’s anti-corruption legislation is vigorously enforced, and companies and officials guilty of violating Canadian law are effectively investigated, prosecuted, and convicted of corruption-related crimes. In March 2014, Public Works and Government Services Canada (now Public Services and Procurement Canada, or PSPC) revised its Integrity Framework for government procurement to ban companies or their foreign affiliates for 10 years from winning government contracts if they have been convicted of corruption. In August 2015, the Canadian government revised the framework to allow suppliers to apply to have their ineligibility reduced to five years where the causes of conduct are addressed and no longer penalizes a supplier for the actions of an affiliate in which it was not involved. PSPC has a Code of Conduct for Procurement, which counters conflict-of-interest in awarding contracts. Canadian firms operating abroad must declare whether they or an affiliate are under charge or have been convicted under Canada’s anti-corruption laws during the past five years to receive assistance from the Trade Commissioner Service.

10. Political and Security Environment

Canada is politically stable with rare instances of civil disturbance. In January and February 2022, however, various groups of protestors occupied large parts of the downtown core of Ottawa and blocked commercial trade at several U.S.-Canada ports of entry. The initial protest movement of several hundred individuals claimed to be focused on the reversal of cross-border vaccine mandates. The movement attracted thousands of additional followers with a spectrum of political philosophies and grievances including far right extremist and anti-government groups. The protestors hindered hundreds of millions of dollars in daily two-way trade causing production slowdowns at several factories on both sides of the border. Many Ottawa residents complained of acts of harassment, desecration, and destruction by the protestors including deafening horn honking. The federal government invoked the never-before-used Emergencies Act to provide additional police powers to end the protests. Some commentators characterized the protests as a demonstration of growing politization within Canada.

11. Labor Policies and Practices

The federal government and provincial/territorial governments share jurisdiction for labor regulation and standards. Federal employees and those employed in federally regulated industries, including the railroad, airline, and banking sectors, are covered under the federally administered Canada Labor Code. Employees in other sectors are regulated by provincial labor codes. As the laws vary somewhat from one jurisdiction to another, it is advisable to contact a federal or provincial labor office for specifics, such as minimum wage and benefit requirements.

Although labor needs vary by province, Canada faces a national labor shortage in skilled trades professions such as carpenters, engineers, and electricians. Canada launched several initiatives such as the Global Skills Visa to address its skilled labor shortage, including through immigration reform, the inclusion of labor mobility provisions in free trade agreements, including the Canada-EU CETA agreement, the Temporary Foreign Worker Program (TFWP), and the International Mobility Program. The TFWP is jointly managed by Employment and Social Development Canada (ESDC) and Immigration, Refugees, and Citizenship Canada (IRCC). The International Mobility Program (IMP) primarily includes high skill/high wage professions and is not subject to a labor market impact assessment. The number of temporary foreign workers a business can employ is limited. For more information, see the TFWP website: https://www.canada.ca/en/employment-social-development/services/foreign-workers.html 

The impact of COVID-19 on the labor force has yet to be fully realized. As of February 2022, the unemployment rate was 5.5 percent, below the pre-COVID 5.7 percent reported in February 2020. Statistics indicate women and marginalized communities were disproportionately affected by job and other economic losses during the height of the pandemic. The Canadian government administered an emergency wage benefit in response to a significant increase in unemployment caused by the pandemic. Many minority groups including women and Indigenous populations have experienced notable employment gains since the depths of the pandemic.

Canadian labor unions are independent from the government. Canada has labor dispute mechanisms in place and unions practice collective bargaining. As of 2015 (the most recent year of available data), there were 776 unions in Canada. Eight of those unions – five of which were national and three international – represented 100,000 or more workers each and comprised 45 percent of all unionized workers in Canada (https://www.canada.ca/en/employment-social-development/services/collective-bargaining-data/labour-organizations.html). Less than one third of Canadian employees belonged to a union or were covered by a collective agreement as of 2015. In June 2017, Parliament repealed legislation public service unions had claimed contravened International Labor Organization conventions by limiting the number of persons who could strike.

In March 2022, 3,000 Canadian Pacific Railway workers participated in a 2-day strike and concurrent lockout over wage, benefit, and pension concerns. The parties agreed to binding arbitration following federal government mediation.

In August 2021, 9,000 Canadian border agents went on strike over pay and work conditions. The Canadian government and border agents reached a tentative agreement on a new contract following the one-day strike.

14. Contact for More Information

Economic Section
490 Sussex Drive, Ottawa, Ontario
613-688-5335

China

Executive Summary

In 2021, the People’s Republic of China (PRC) was the number two global Foreign Direct Investment (FDI) destination, behind the United States. As the world’s second-largest economy, with a large consumer base and integrated supply chains, China’s economic recovery following COVID-19 reassured investors and contributed to high FDI and portfolio investments. The PRC implemented major legislation in 2021, including the Data Security Law in September and the Personal Information Protection Law in November.

China remains a relatively restrictive investment environment for foreign investors due to restrictions in key sectors and regulatory uncertainties. Obstacles include ownership caps and requirements to form joint venture (JV) partnerships with local firms, industrial policies to develop indigenous capacity or technological self-sufficiency, and pressures to transfer technology as a prerequisite to gaining market access. New data and financial rules announced in 2021 also created significant uncertainty surrounding the financial regulatory environment. The PRC’s pandemic-related visa and travel restrictions significantly affected foreign businesses operations, increasing labor and input costs. An assertive Chinese Communist Party (CCP) and emphasis on national companies and self-reliance has heightened foreign investors’ concerns about the pace of economic reforms.

Key developments in 2021 included:

  • The Rules for Security Reviews on Foreign Investments came into effect January 18, expanding PRC vetting of foreign investment that may affect national security.
  • The National People’s Congress (NPC) adopted the Anti-Foreign Sanctions Law on June 10.
  • The Cyberspace Administration of China (CAC) issued draft revisions to its Cybersecurity Review Measures to broaden PRC approval authority over PRC companies’ overseas listings on July 10.
  • China formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on September 16.
  • On November 1, the Personal Information Protection Law (PIPL) went into effect and China formally applied to join the Digital Economy Partnership Agreement (DEPA).
  • On December 23, President Biden signed the Uyghur Forced Labor Prevention Act. The law prohibits importing goods into the United States that are mined, produced, or manufactured wholly or in part with forced labor in the PRC, especially from Xinjiang.
  • On December 27, the National Reform and Development Commission (NDRC) and the Ministry of Commerce (MOFCOM) updated its foreign FDI investment “negative lists.”

While PRC pronouncements of greater market access and fair treatment of foreign investment are welcome, details and effective implementation are needed to ensure equitable treatment.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 66 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 12 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 123.8 https://apps.bea.gov/international/factsheet/  
World Bank GNI per capita 2020 USD 10,550 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

China has approximately 150,000 wholly-owned SOEs, of which 50,000 are owned by the central government, and the remainder by local or provincial governments.  SOEs account for 30 to 40 percent of total gross domestic product (GDP) and about 20 percent of China’s total employment. Non-financial SOE assets totaled roughly USD 30 trillion. SOEs can be found in all sectors of the economy, from tourism to heavy industries.  State funds are spread throughout the economy and the state may also be the majority or controlling shareholder in an ostensibly private enterprise. China’s leading SOEs benefit from preferential government policies aimed at developing bigger and stronger “national champions.” SOEs enjoy preferential access to essential economic inputs (land, hydrocarbons, finance, telecoms, and electricity) and exercise considerable power in markets like steel and minerals.  SOEs also have long enjoyed preferential access to credit and the ability to issue publicly traded equity and debt.  A comprehensive, published list of all PRC SOEs does not exist.

PRC officials have indicated China intends to utilize OECD guidelines to improve the SOEs independence and professionalism, including relying on Boards of Directors that are free from political influence.  However, analysts believe minor reforms will be ineffective if SOE administration and government policy remain intertwined, and PRC officials make minimal progress in primarily changing the regulation and business conduct of SOEs.  SOEs continue to hold dominant shares in their respective industries, regardless of whether they are strategic, which may further restrain private investment in the economy.  Among central SOEs managed by the State-owned Assets Supervision and Administration Commission (SASAC), senior management positions are mainly filled by senior party members who report directly to the CCP, and double as the company’s party secretary.  SOE executives often outrank regulators in the CCP rank structure, which minimizes the effectiveness of regulators in implementing reforms.  While SOEs typically pursue commercial objectives, the lack of management independence and the controlling ownership interest of the state make SOEs de facto arms of the government, subject to government direction and interference.  SOEs are rarely the defendant in legal disputes, and when they are, they almost always prevail.  U.S. companies often complain about the lack of transparency and objectivity in commercial disputes with SOEs.

9. Corruption

Since 2012, China has undergone a large-scale anti-corruption campaign, with investigations reaching into all sectors of the government, military, and economy. CCP General Secretary Xi labeled endemic corruption an “existential threat” to the very survival of the Party.  In 2018, the CCP restructured its Central Commission for Discipline Inspection (CCDI) to become a state organ, calling the new body the National Supervisory Commission-Central Commission for Discipline Inspection (NSC-CCDI). The NSC-CCDI wields the power to investigate any public official.  From 2012 to 2021, the NSC-CCDI claimed it investigated roughly four million cases. In the first three quarters of 2021, the NSC-CCDI investigated 470,000 cases and disciplined 414,000 individuals, of whom 22 were at or above the provincial or ministerial level. Since 2014, the PRC’s overseas fugitive-hunting campaign, called “Operation Skynet,” has led to the capture of more than 9,500 fugitives suspected of corruption who were living in other countries, including over 2,200 CCP members and government employees. In most cases, the PRC did not notify host countries of these operations. In 2021, the government reported apprehending 1,273 alleged fugitives and recovering approximately USD 2.64 billion through this program.

In March 2021, the CCP Amendment 11 to the Criminal Law, which increased the maximum punishment for acts of corruption committed by private entities to life imprisonment, from the previous maximum of 15-year imprisonment, took effect. In June 2020 the CCP passed a law on Administrative Discipline for Public Officials, continuing efforts to strengthen supervision over individuals working in the public sector. The law enumerates targeted illicit activities such as bribery and misuse of public funds or assets for personal gain. Anecdotal information suggests anti-corruption measures are applied inconsistently and discretionarily.  For example, to fight commercial corruption in the medical sector, the health authorities issued “blacklists” of firms and agents involved in commercial bribery, including several foreign companies. While central government leadership has welcomed increased public participation in reporting suspected corruption at lower levels, direct criticism of central leadership or policies remains off-limits and is seen as an existential threat to China’s political and social stability. China ratified the United Nations Convention against Corruption in 2005 and participates in the Asia-Pacific Economic Cooperation (APEC) and OECD anti-corruption initiatives. China has not signed the OECD Convention on Combating Bribery, although PRC officials have expressed interest in participating in the OECD Working Group on Bribery as an observer. Corruption Investigations are led by government entities, and civil society has a limited scope in investigating corruption beyond reporting suspected corruption to central authorities.

Liaoning set up a provincial watchdog, known as the “Liaoning Business Environment Development Department” to inspect government disciplines and provide a mechanism for the public to report corruption and misbehaviors through a “government service platform.” In 2021, Liaoning reported handling 8,091 cases and recovering approximately USD 290 million in ill-gotten gains by government agencies and SOEs through this program.

10. Political and Security Environment

Foreign companies operating in China face a growing risk of political violence, most recently due to U.S.-China political tensions. PRC authorities have broad authority to prohibit travelers from leaving China and have imposed “exit bans” to compel U.S. citizens to resolve business disputes, force settlement of court orders, or facilitate PRC investigations. U.S. citizens, including children, not directly involved in legal proceedings or wrongdoing have also been subject to lengthy exit bans to compel family members or colleagues to cooperate with Chinese courts or investigations. Exit bans are often issued without notification to the foreign citizen or without clear legal recourse to appeal the exit ban decision. A 2020 independent report presented evidence that since 2018, more than 570,000 Uyghurs were implicated in forced labor picking cotton. There was also reporting that Xinjiang’s polysilicon and solar panel industries are connected to forced labor. In 2021, PRC citizens, with the encouragement of the PRC government, boycotted companies that put out statements on social media affirming they do not use Xinjiang cotton in their supply chain. Some landlords forced companies to close retail outlets during this boycott due to fears of being associated with boycotted companies. The ongoing PRC crackdown on virtually all opposition voices in Hong Kong and continued attempts by PRC organs to intimidate Hong Kong’s judges threatens the judicial independence of Hong Kong’s courts – a fundamental pillar for Hong Kong’s status as an international hub for investment into and out of China.  Apart from Hong Kong, the PRC government has also previously encouraged protests or boycotts of products from countries like the United States, the Republic of Korea (ROK), Japan, Norway, Canada, and the Philippines, in retaliation for unrelated policy decisions such as the boycott campaigns against Korean retailer Lotte in 2016 and 2017 in response to the ROK government’s decision to deploy the Terminal High Altitude Area Defense (THAAD); and the PRC’s retaliation against Canadian companies and citizens for Canada’s arrest of Huawei’s Chief Financial Officer Meng Wanzhou.

11. Labor Policies and Practices

For U.S. companies operating in China, finding, developing, and retaining domestic talent at the management and skilled technical staff levels remain challenging for foreign firms, especially as labor costs, including salaries and inputs continue to rise. COVID-19 control and related travel measures have also made it difficult to recruit or retain foreign staff. Foreign companies also complain of difficulty navigating China’s labor and social insurance laws, including local implementation guidelines. Compounding the complexity, due to ineffective enforcement of labor laws and high mandatory social insurance contributions, many PRC domestic employers and employees will not sign formal employment contracts, putting foreign firms at a disadvantage. The All-China Federation of Trade Unions (ACFTU) is the only union recognized under PRC law.  Establishing independent trade unions is illegal.  The law allows for “collective bargaining,” but in practice, focuses solely on collective wage negotiations.  The Trade Union Law gives the ACFTU, a CCP organ chaired by a Politburo member, control over all union organizations and activities, including enterprise-level unions.  ACFTU enterprise unions require employers to pay mandatory fees, often through the local tax bureau, equaling a negotiated minimum of 0.5 percent to a standard two percent of total payroll.  While labor laws do not protect the right to strike, “spontaneous” protests and work stoppages occur.  Official forums for mediation, arbitration, and other mechanisms of alternative dispute resolution often are ineffective in resolving labor disputes.  Even when an arbitration award or legal judgment is obtained, getting local authorities to enforce judgments is problematic.

The PRC has not ratified the International Labor Organization (ILO) conventions on freedom of association, collective bargaining, or forced labor, but it has ratified conventions prohibiting child labor and employment discrimination. Uyghurs and members of other minority groups are subjected to forced labor in Xinjiang and throughout China via PRC government-facilitated labor transfer programs.

In 2021, the U.S government updated its business advisory on risks for businesses and individuals with exposure to entities engaged in forced labor and other human rights abuses linked to Xinjiang. This update highlights the extent of the PRC’s state-sponsored forced labor and surveillance taking place amid its ongoing genocide and crimes against humanity in Xinjiang. The Advisory stresses that businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law. In fiscal year 2021, CBP issued four Withhold Release Orders  (WROs) against PRC goods produced with forced labor. The Commerce Department added PRC commercial and government entities to its Entity List for their complicity in human rights abuses and the Department of Treasury sanctioned Wang Junzheng, the Secretary of the Party Committee of the Xinjiang Production and Construction Corps (XPCC) and Chen Mingguo, Director of the Xinjiang Public Security Bureau (XPSB) to hold human rights abusers accountable in Xinjiang. In June 2021, the U.S. Department of Labor added polysilicon for China to an update of the List of Goods Produced by Child Labor or Forced Labor. The Department of Labor has listed 18 goods as produced by forced labor in China. Some PRC firms continued to employ North Korean workers in violation of UN Security Council sanctions. Pursuant to UN Security Council resolution (UNSCR) 2397, all DPRK nationals earning income, subject to limited exceptions, were required to have been repatriated to the DPRK by 22 December 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) 2020 $14,724,435 2021 $14,343,000 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 $90,190 2020 $123,875 BEA data available at https://apps.bea.gov/international/factsheet/ https://apps.bea.gov/international/
factsheet/factsheet.html#650
Host country’s FDI in the United States ($M USD, stock positions) 2020 $80,048 2020 $37,995 BEA data available at
https://www.bea.gov/international/direct-investment
-and-multinational-enterprises-comprehensive-data
https://apps.bea.gov/international/
factsheet/factsheet.html#650
Total inbound stock of FDI as % host GDP 2020 $16.6% 2020 13% UNCTAD data available at
https://unctad.org/statistics 

* Source for Host Country Data: National Bureau of Statistics 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $3,214,115 100% Total Outward $2,580,658 100%
China, P.R., Hong Kong  $1,726,212 53.7% China, P.C., Hong Kong $1,438,531 55.7%
British Virgin Islands $403,903 12.5% Cayman Islands $457,027 17.7%
Japan $193,338 6.0% British Virgin Islands $155,645 6%
Singapore $148,721 4.6% United States $80,048 3.1%
United States $86,907 2.7% Singapore $59,858 2.3%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

France and Monaco

Executive Summary

France welcomes foreign investment and has a stable business climate that attracts investors from around the world. The French government devotes significant resources to attracting foreign investment through policy incentives, marketing, overseas trade promotion offices, and investor support mechanisms. France has an educated population, first-rate universities, and a talented workforce. It has a modern business culture, sophisticated financial markets, a strong intellectual property rights regime, and innovative business leaders. The country is known for its world-class infrastructure, including high-speed passenger rail, maritime ports, extensive roadway networks, a dense network of public transportation, and efficient intermodal connections. High-speed (3G/4G) telephony is nearly ubiquitous, and France has begun its 5G roll-out in key metropolitan cities.

In 2021, the United States was the leading foreign investor in France in terms of new jobs created (10,118) and second in terms of new projects invested (247). The total stock of U.S. foreign direct investment in France reached $91 billion. More than 4,500 U.S. firms operate in France, supporting over 500,000 jobs, making the United States the top foreign investor overall in terms of job creation.

Following the election of French President Emmanuel Macron in May 2017, the French government implemented significant labor market and tax reforms. By relaxing the rules on companies to hire and fire employees, the government cut production taxes by 15 percent in 2021, and corporate tax will fall to 25 percent in 2022. Surveys of U.S. investors in 2021 showed the greatest optimism about the business operating environment in France since 2008. Macron’s reform agenda for pensions was derailed in 2018, however, when France’s Yellow Vest protests—a populist, grassroots movement for economic justice—rekindled class warfare and highlighted wealth and, to a lesser extent, income inequality.

The onset of the pandemic in 2020 shifted Macron’s focus to mitigating France’s most severe economic crisis in the post-war era. The economy shrank 8.3 percent in 2020 compared to the year prior, but with the help of unprecedented government support for businesses and households, economic growth reached seven percent in 2021. The government’s centerpiece fiscal package was the €100 billion ($110 billion) France Relance plan, of which over half was dedicated to supporting businesses. Most of the support was accessible to U.S. firms operating in France as well. The government launched a follow-on investment package in late 2021 called “France 2030” to bolster competitiveness, increase productivity, and accelerate the ecological transition.

Also in 2020, France increased its protection against foreign direct investment that poses a threat to national security. In the wake of the health crisis, France’s investment screening body expanded the scope of sensitive sectors to include biotechnology companies and lowered the threshold to review an acquisition from a 25 percent ownership stake by the acquiring firm to 10 percent, a temporary provision set to expire at the end of 2022. In 2020, the government blocked at least one transaction, which included the attempted acquisition of a French firm by a U.S. company in the defense sector. In early 2021, the French government threated to block the acquisition of French supermarket chain Carrefour by Canada’s Alimentation Couche-Tard, which eventually scuttled the deal.

Key issues to watch in 2022 are: 1) the impact of the war in Ukraine and measures by the EU and French government to mitigate the fallout; 2) the degree to which COVID-19 and resulting supply chain disruptions continue to agitate the macroeconomic environment in France and across Europe, and the extent of the government’s continued support for the economic recovery; and 3) the creation of winners and losers resulting from the green transition, the degree to which will be largely determined by firms’ operating models and exposure to fossil fuels.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 22 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 11 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 91.153 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 39.480 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The 11 listed entities in which the French State maintains stakes at the federal level are Aeroports de Paris (50.63 percent); Airbus Group (10.92 percent); Air France-KLM (28.6 percent); EDF (83.88 percent), ENGIE (23.64 percent), Eramet (27.13 percent), La Française des Jeux (FDJ) (20.46 percent), Orange (a direct 13.39 percent stake and a 9.60 percent stake through Bpifrance), Renault (15.01 percent), Safran (11.23 percent), and Thales (25.67 percent). Unlisted companies owned by the State include SNCF (rail), RATP (public transport), CDC (Caisse des depots et consignations) and La Banque Postale (bank). In all, the government maintains majority and minority stakes in 88 firms in a variety of sectors.

Private enterprises have the same access to financing as SOEs, including from state-owned banks or other state-owned investment vehicles. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs may get subsidies and other financial resources from the government.

France, as a member of the European Union, is party to the Agreement on Government Procurement (GPA) within the framework of the World Trade Organization. Companies owned or controlled by the state behave largely like other companies in France and are subject to the same laws and tax code. The Boards of SOEs operate according to accepted French corporate governance principles as set out in the (private sector) AFEP-MEDEF Code of Corporate Governance. SOEs are required by law to publish an annual report, and the French Court of Audit conducts financial audits on all entities in which the state holds a majority interest. The French government appoints representatives to the Boards of Directors of all companies in which it holds significant numbers of shares, and manages its portfolio through a special unit attached to the Ministry for the Economy and Finance Ministry, the shareholding agency APE (Agence de Participations de l’Etat). The State as a shareholder must set an example in terms of respect for the environment, gender equality and social responsibility. The report also highlighted that the State must protect its strategic assets and remain a shareholder in areas where the general interest is at stake.

8. Responsible Business Conduct

The business community has general awareness of standards for responsible business conduct (RBC) in France. The country has established a National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises, coordinated and chaired by the Directorate General of the Treasury in the Ministry for the Economy and Finance. Its members represent State Administrations (Ministries in charge of Economy and Finance, Labor and Employment, Foreign Affairs, Ecology, Sustainable Development and Energy), six French Trade Unions (CFDT, CGT, FO, CFE-CGC, CFTC, UNSA) and one employers’ organization, MEDEF.

The NCP promotes the OECD Guidelines in a manner that is relevant to specific sectors. When specific instances are raised, the NCP offers its good offices to the parties (discussion, exchange of information) and may act as a mediator in disputes, if appropriate.  This can involve conducting fact-finding to assist parties in resolving disputes, and posting final statements on any recommendations for future action with regard to the Guidelines. The NCP may also monitor how its recommendations are implemented by the business in question. In April 2017, the French NCP signed a two-year partnership with Global Compact France to increase sharing of information and activity between the two organizations.

In France, corporate governance standards for publicly traded companies are the product of a combination of legislative provisions and the recommendations of the AFEP-MEDEF code (two employers’ organizations). The code, which defines principles of corporate governance by outlining rules for corporate officers, controls and transparency, meets the expectations of shareholders and various stakeholders, as well as of the European Commission. First introduced in September 2002, it is regularly updated, adding new principles for the determination of remuneration and independence of directors, and now includes corporate social and environmental responsibility standards. The latest amendments in February 2019 tackle the remuneration and post-employment benefits of Chief Executive Officers and Executive Officers: 60 percent variable remuneration based on quantitative objectives and 40 percent on quality objectives, including efforts in the corporate social responsibility.

Also relating to transparency, the EU passed a new regulation in May 2017 to stem the trade in conflict minerals and, in particular, to stop conflict minerals and metals from being exported to the EU; to prevent global and EU smelters and refiners from using conflict minerals; and to protect mine workers from being abused. The regulation goes into effect January 1, 2021, and will then apply directly to French law.

France has played an active role in negotiating the ISO 26000 standards, the International Finance Corporation Performance Standards, the OECD Guidelines for Multinational Enterprises, and the UN Guiding Principles on Business and Human Rights. France has signed on to the Extractive Industries Transparency Initiative (EITI), although, it has not yet been fully implemented. Since 2017, large companies based in France and having at least 5,000 employees are now required to establish and implement a corporate plan to identify and assess any risks to human rights, fundamental freedoms, workers’ health, safety, and risk to the environment from activities of their company and its affiliates.

The February 2017 “Corporate Duty of Vigilance Law” requires large companies to set up, implement, and publish a “vigilance plan” to identify risks and prevent “serious violations” of human rights, fundamental freedoms, and serious environmental damage.

In 2021, France enacted a Climate and Resilience Law covering consumption and food, economy and industry, transportation, housing, and strengthening sanctions against environmental violations. The production and work chapter aligns France’s national research strategy with its national low carbon and national biodiversity strategies. All public procurement must consider environmental criteria. To protect ecosystems, the law amends several mining code provisions, including the requirement to develop a responsible extractive model. The law translates France’s multi-year energy program into regional renewable energy development objectives, creates the development of citizen renewable energy communities, and requires installation of solar panels or green roofs on commercial surfaces, offices, and parking lots. The consumption chapter requires an environmental sticker and inscription to better inform consumers of a product or service’s impact on climate. The law bans advertising of fossil fuels by 2022 and advertising of the most carbon-emitting cars (i.e., those that emit more than 123 grams of carbon dioxide per kilometer) by 2028. The law also empowered local authorities with mechanisms to reduce paper advertisements and regulate electronic advertising screens in shop windows. Large- and medium-sized stores (i.e., those with over 400 square meters of sales area) must devote 20 percent of their sales area to bulk sales by 2030. In the agriculture sector, the law sets annual emissions reduction levels concerning nitrogen fertilizers; failure to meet these objectives will trigger a tax beginning in 2024. The law’s transportation chapter extends France’s 2019 Mobility law by creating 33 low-emission zones in urban areas that have more than 150,000 inhabitants by the end of 2024, and bans cars manufactured before 1996 in these large cities. In the top 10 cities that regularly exceed air quality limits on particulates, the law will ban vehicles that have air quality certification stickers of above a certain level. The law requires regions to offer attractive fares on regional trains, bans domestic flights when there is train transportation of less than 2.5 hours, requires airlines to conduct carbon offsetting for domestic flights beginning in 2022, and creates carpool lanes. The law creates a road ecotax starting in 2024, prohibits the sale of new cars that emit more than 95 gram of carbon dioxide per kilometer by 2030 and of new trucks, buses, and coaches with 95 gCO2/km emissions by 2040, and provides incentives to develop bicycle paths, parking areas, and rail and waterway transport.

The Climate and Resilience Law’s housing chapter seeks to accelerate the environmental renovation of buildings. Starting in 2023, owners of poorly insulated housing must undertake energy renovation work if they want to increase rent rates. The law forbids leasing non-insulated housing beginning in 2025 and bans leasing any type of poorly insulated housing beginning in 2028. It also provides information, incentives, and control mechanisms empowering tenants to demand landlords conduct energy renovation work. Beginning in 2022, the law requires an energy audit, including proposals, when selling poorly insulated housing. All households will have access to a financing mechanism to pay the remaining costs of their renovation work via government-guaranteed loans. The law regulates the laying of concrete, mandates a 50 percent reduction in the rate of land use by 2030, requires net zero land reclamation by 2050, and prohibits the construction of new shopping centers that lead to modifying natural environment. The law aims to protect 30 percent of France’s sensitive natural areas and supports local authorities in adapting their coastal territories against receding coastlines. The law’s final chapter focuses on environmental violations and reinforces sanctions for environmental damage, such as long-term degradation to fauna and flora (up to three years in prison and a €250,000 ($273,000) fine), as well as for the general offense of environmental pollution and “ecocide” (up to 10 years in prison and a €4.5 million ($4.9 million) fine or up to 10 times the profit obtained by the individual committing the environmental damage). The chapter uses the term “ecocide” to refer to the most serious cases of environmental damage, although the term is not defined in the law. Even if pollution has not occurred, these penalties apply as long as the individual’s behavior is considered to have put the environment in “danger.”

9. Corruption

In line with President Macron’s campaign promise to clean up French politics, the French parliament adopted in September 2017 the law on “Restoring Confidence in Public Life.” The new law bans elected officials from employing family members, or working as a lobbyist or consultant while in office. It also bans lobbyists from paying parliamentary, ministerial, or presidential staff and requires parliamentarians to submit receipts for expenses.

France’s “Transparency, Anti-corruption, and Economic Modernization Law,” also known as the “Loi Sapin II,” came into effect on June 1, 2017. It brought France’s legislation in line with European and international standards. Key aspects of the law include: creating a new anti-corruption agency; establishing “deferred prosecution” for defendants in corruption cases and prosecuting companies (French or foreign) suspected of bribing foreign public officials abroad; requiring lobbyists to register with national institutions; and expanding legal protections for whistleblowers. The Sapin II law also established a High Authority for Transparency in Public Life (HATVP). The HATVP promotes transparency in public life by publishing the declarations of assets and interests it is legally authorized to share publicly. After review, declarations of assets and statements of interests of members of the government are published on the High Authority’s website under open license. The declarations of interests of members of Parliament and mayors of big cities and towns, but also of regions are also available on the website. In addition, the declarations of assets of parliamentarians can be accessed in certain governmental buildings, though not published on the internet.

France is a signatory to the OECD Anti-Bribery Convention. The U.S. Embassy in Paris has received no specific complaints from U.S. firms of unfair competition in France in recent years. France ranked 22rd of 180 countries on Transparency International’s (TI) 2021 corruption perceptions index. See  https://www.transparency.org/country/FRA .

10. Political and Security Environment

France is a politically stable country. Large demonstrations and protests occur regularly (sometimes organized to occur simultaneously in multiple French cities); these can result in violence. When faced with imminent business closures, on rare occasions French trade unions have resorted to confrontational techniques such as setting plants on fire, planting bombs, or kidnapping executives or managers.

From mid-November 2018 through 2019, Paris and other cities in France faced regular protests and disruptions, including “Gilets Jaunes” (Yellow Vest) demonstrations that turned violent, initiated by discontent over high cost of living, gas, taxes, and social exclusion. In the second half of 2019, most demonstrations were in response to President Macron’s proposed unemployment and pension reform. Authorities permitted peaceful protests. During some demonstrations, damage to property, including looting and arson, in popular tourist areas occurred with reckless disregard for public safety.  Police response included water cannons, rubber bullets and tear gas.

Between 2012 and 2021, 271 people have been killed in terrorist attacks in France, including the January 2015 assault on the satirical magazine Charlie Hebdo, the November 2015 coordinated attacks at the Bataclan concert hall, national stadium, and streets of Paris, and the 2016 Bastille Day truck attack in Nice. While the terrorist threat remains high, the threat is lower than its peak in 2015. Terrorist attacks have since been smaller in scale. Security services remained concerned with lone-wolf attacks, carried out by individuals already in France, inspired by or affiliated with ISIS.  French security agencies continue to disrupt plots and cells effectively. Despite the spate of recent small-scale attacks, France remains a strong, stable, democratic country with a vibrant economy and culture. Americans and investors from all over the world continue to invest heavily in France.

11. Labor Policies and Practices

France’s has one of the lowest unionized work forces in the developed world (between 8-11 percent of the total work force). However, unions have strong statutory protections under French law that give them the power to engage in sector- and industry-wide negotiations on behalf of all workers. As a result, an estimated 98 percent of French workers are covered by union-negotiated collective bargaining agreements. Any organizational change in the workplace must usually be presented to the unions for a formal consultation as part of the collective bargaining process.

The number of apprenticeships in France peaked in 2021, at 718,000 (+37 percent compared with 2020), including 698,000 in the private sector, according to February 2, 2022 Labor Ministry figures. Apprenticeships, like vocational training, have been placed under the direct management of the government via a newly created agency called France Compétences. The government claims growth of apprenticeship and reform of vocational training help to explain the drop to from eight percent in 2020 to 7.4 percent in 2021.

During the COVID-19 crisis, France’s partial unemployment scheme, which allows firms to retain their employees while the government continues to pay a portion of their wages, expanded dramatically in scope and size and kept unemployment at pre-crisis levels (between eight and nine percent). The reform of unemployment insurance was launched in stages in November 2017 and twice postponed because of the COVID-19 pandemic. Labor Minister Elizabeth Borne presented on March 2, 2021, the last measures of the government’s final decree on unemployment insurance. These final measures include a new method for calculating the daily reference wage and the introduction of a tax on short-term contracts. In spite of strong labor union opposition, the government was able to enforce its reform in November 2021. Earlier measures of the reform, in place since January 1, 2021, cover a 30 percent cut in benefits of higher wage earners and an increase from one to four months of the threshold for recharging rights to unemployment benefits once they have ended. This reform is designed to tackle two issues: 1) ensuring that the jobless do not make more money from unemployment benefits than by working; and 2) reducing the deficit of France’s unemployment insurance system UNEDIC. The deficit is expected to turn to surplus by the end of 2022, according to an October 22, 2021 report by UNEDIC, due to the end of the government COVID-19 partial unemployment scheme and as a consequence of the unemployment insurance reform. Pension reform has been delayed until after the April 2022 presidential elections.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
French Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
France’s Gross Domestic Product (GDP) ($M USD) 2020 $2,542,370 2020 $ 2,630,317 www.worldbank.org/en/country 
Foreign Direct Investment French Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in France ($M USD, stock positions) 2020 $67,195 2020 $91,153 BEA data available at https://apps.bea.gov/international/factsheet/ 
France’s FDI in the United States ($M USD, stock positions) 2020 $213,390 2020 $314,979 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2020 34.1% 2019 37.2% UNCTAD data available at

https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html
 

* French Source : INSEE database for GDP figures and French Central Bank (Banque de France) for FDI figures. Accessed on March 21, 2022.

Table 3: Sources and Destination of FDI
Direct Investment from/in France Economy Data 2020
From Top Five Sources/To Top Five Destinations (U/S. Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 897,115 100% Total Outward 1,440,715 100%
Luxembourg 164,501 18% The Netherlands 221,098 15%
Switzerland 119,020 13%  United States 213,390 15%
United Kingdom 115,093 12% Belgium 166,713 11%
 The Netherlands 107,709 12% United Kingdom 137,138 9%
Germany 98,303 10% Italy 76,091 5%
“0” reflects amounts rounded to +/- USD 500,000.

Source: Bank of France.

Note: These figures represent the stock of foreign direct investment (FDI), not the annual flow of FDI. The United States was the second top investor by number of projects recorded in 2021 but remained in first place for jobs generated (10,118).

14. Contact for More Information

Dustin Salveson (from July 2022, Craig Pike)
Economic Officer
U.S. Embassy
2 Avenue Gabriel
75008 Paris, France
Tel: +33.1.43.12.2000
FranceICSeditor@state.gov

Germany

Executive Summary

As Europe’s largest economy, Germany is a major destination for foreign direct investment (FDI) and has accumulated a vast stock of FDI over time.  Germany is consistently ranked as one of the most attractive investment destinations based on its stable legal environment, reliable infrastructure, highly skilled workforce, and world-class research and development.

An EU member state with a well-developed financial sector, Germany welcomes foreign portfolio investment and has an effective regulatory system. Capital markets and portfolio investments operate freely with no discrimination between German and foreign firms. Germany has a very open economy, routinely ranking among the top countries in the world for exports and inward and outward foreign direct investment.

Foreign investment in Germany mainly originates from other European countries, the United States, and Japan, although FDI from emerging economies (and China) has grown in recent years. The United States is the leading source of non-European FDI in Germany. In 2020, total U.S. FDI in Germany was $162 billion. The key U.S. FDI sectors include chemicals ($8.7 billion), machinery ($6.5 billion), finance ($13.2 billion), and professional, scientific, and technical services ($10.1 billion). From 2019 to 2020, the industry sector “chemicals” grew significantly from $4.8 billion to $8.7 billion. Historically, machinery, information technology, finance, holding companies (nonbank), and professional, scientific, and technical services have dominated U.S. FDI in Germany.

German legal, regulatory, and accounting systems can be complex but are generally transparent and consistent with developed-market norms.  Businesses operate within a well-regulated, albeit relatively high-cost, environment. Foreign and domestic investors are treated equally when it comes to investment incentives or the establishment and protection of real and intellectual property.  Germany’s well-established enforcement laws and official enforcement services ensure investors can assert their rights.  German courts are fully available to foreign investors in an investment dispute. New investors should ensure they have the necessary legal expertise, either in-house or outside counsel, to meet all national and EU regulations.

The German government continues to strengthen provisions for national security screening of inward investment in reaction to an increasing number of high-risk acquisitions of German companies by foreign investors, particularly from China, in recent years.  German authorities screen acquisitions by foreign entities acquiring more than 10 percent of voting rights of German companies in critical sectors, including health care, artificial intelligence, autonomous vehicles, specialized robots, semiconductors, additive manufacturing, and quantum technology, among others. Foreign investors who seek to acquire at least 10 percent of voting rights of a German company in one of those fields are required to notify the government and potentially become subject to an investment review. Furthermore, acquisitions by foreign government-owned or -funded entities will now trigger a review.

German authorities are committed to fighting money laundering and corruption.  The government promotes responsible business conduct and German SMEs are aware of the need for due diligence.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 9 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2020 9 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 162,387 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 47,470 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The formal term for state-owned enterprises (SOEs) in Germany translates as “public funds, institutions, or companies,” and refers to entities whose budget and administration are separate from those of the government, but in which the government has more than 50 percent of the capital shares or voting rights. Appropriations for SOEs are included in public budgets, and SOEs can take two forms, either public or private law entities. Public law entities are recognized as legal personalities whose goal, tasks, and organization are established and defined via specific acts of legislation, with the best-known example being the publicly-owned promotional bank KfW (Kreditanstalt für Wiederaufbau). KfW’s mandate is to promote global development. The government can also resort to ownership or participation in an entity governed by private law if the following conditions are met: doing so fulfills an important state interest, there is no better or more economical alternative, the financial responsibility of the federal government is limited, the government has appropriate supervisory influence, and yearly reports are published.

Government oversight of SOEs is decentralized and handled by the ministry with the appropriate technical area of expertise. The primary goal of such involvement is promoting public interests rather than generating profits. The government is required to close its ownership stake in a private entity if tasks change or technological progress provides more effective alternatives, though certain areas, particularly science and culture, remain permanent core government obligations. German SOEs are subject to the same taxes and the same value added tax rebate policies as their private- sector competitors. There are no laws or rules that seek to ensure a primary or leading role for SOEs in certain sectors or industries. Private enterprises have the same access to financing as SOEs, including access to state-owned banks such as KfW.

The Federal Statistics Office maintains a database of SOEs from all three levels of government (federal, state, and municipal) listing a total of 19,009 entities for 2019, or 0.58 percent of the total 3.35 million companies in Germany. SOEs in 2019 had €646 billion in revenue and €632 billion in expenditures. Forty-one percent of SOEs’ revenue was generated by water and energy suppliers, 12 percent by health and social services, and 11 percent by transportation-related entities. Measured by number of companies rather than size, 88 percent of SOEs are owned by municipalities, 10 percent are owned by Germany’s 16 states, and two percent are owned by the federal government.

The Federal Ministry of Finance is required to publish a detailed annual report on public funds, institutions, and companies in which the federal government has direct participation (including a minority share) or an indirect participation greater than 25 percent and with a nominal capital share worth more than €50,000. The federal government held a direct participation in 106 companies and an indirect participation in 401 companies at the end of 2019 (per the Ministry’s April 2021 publication of full-year 2019 figures), most prominently Deutsche Bahn (100 percent share), Deutsche Telekom (32 percent share), and Deutsche Post (21 percent share). Federal government ownership is concentrated in the areas of infrastructure, economic development, science, administration/increasing efficiency, defense, development policy, and culture. As the result of federal financial assistance packages from the federally-controlled Financial Market Stability Fund during the global financial crisis of 2008/9, the federal government still has a partial stake in several commercial banks, including a 15.6 percent share in Commerzbank, Germany’s second largest commercial bank. In 2020, in the wake of the COVID-19 pandemic, the German government acquired shares of several large German companies, including CureVac, TUI, and Lufthansa in an attempt to prevent companies from filing for insolvency or, in the case of CureVac, to support vaccine research in Germany.

The 2021 annual report (with 2019 data) can be found here:

https://www.bundesregierung.de/breg-de/service/publikationen/beteiligungsbericht-des-bundes-2021-2016812 

Publicly-owned banks constitute one of the three pillars of Germany’s banking system (cooperative and commercial banks are the other two). Germany’s savings banks are mainly owned by the municipalities, while the so-called Landesbanken are typically owned by regional savings bank associations and the state governments. Given their joint market share, about 40 percent of the German banking sector is thus publicly owned. There are also many state-owned promotional/development banks which have taken on larger governmental roles in financing infrastructure. This increased role removes expenditures from public budgets, particularly helpful considering Germany’s balanced budget rules, which took effect for the states in 2020.

8. Responsible Business Conduct

In December 2016, the Federal Government passed the National Action Plan for Business and Human Rights (NAP), applying the UN Guiding Principles for Business and Human Rights to the activities of German companies though largely voluntary measures. A 2020 review found most companies did not sufficiently fulfill due diligence measures and in 2021 Germany passed the legally binding Human Rights Due Diligence in Supply Chains Act. From 2023, the act will apply to companies with at least 3,000 employees with their central administration, principal place of business, administrative headquarters, a statutory seat, or a branch office in Germany. From 2024 it will apply to companies with at least 1000 employees. The 2021 coalition agreement between the SPD, the Greens party, and the Free Democrats Party (FDP) committed to revising the NAP in line with the Supply Chains Act. Germany promoted EU-level legislation during its 2020 Council of the European Union presidency and the EU Commission published a legislative proposal in 2022.

Germany adheres to the OECD Guidelines for Multinational Enterprises; the National Contact Point (NCP) is housed in the Federal Ministry of Economic Affairs and Climate Action. The NCP is supported by an advisory board composed of several ministries, business organizations, trade unions, and NGOs. This working group usually meets once a year to discuss all Guidelines-related issues. The German NCP can be contacted through the Ministry’s website: https://www.bmwi.de/Redaktion/EN/Textsammlungen/Foreign-Trade/national-contact-point-ncp.html .

There is general awareness of environmental, social, and governance issues among both producers and consumers in Germany, and surveys suggest that consumers increasingly care about the ecological and social impacts of the products they purchase. In order to encourage businesses to factor environmental, social, and governance impacts into their decision-making, the government provides information online and in hard copy. The federal government encourages corporate social responsibility (CSR) through awards and prizes, business fairs, and reports and newsletters. The government also organizes so-called “sector dialogues” to connect companies and facilitate the exchange of best practices and offers practice days to help nationally as well as internationally operating small- and medium-sized companies discern and implement their entrepreneurial due diligence under the NAP. To this end it has created a website on CSR in Germany ( http://www.csr-in-deutschland.de/EN/Home/home.html  in English). The German government maintains and enforces domestic laws with respect to labor and employment rights, consumer protections, and environmental protections. The German government does not waive labor and environmental laws to attract investment.

Social reporting is currently voluntary, but publicly listed companies frequently include information on their CSR policies in annual shareholder reports and on their websites.

Civil society groups that work on CSR include Amnesty International Germany, Bund für Umwelt und Naturschutz Deutschland e. V. (BUND), CorA Corporate Accountability – Netzwerk Unternehmensverantwortung, Forest Stewardship Council (FSC), Germanwatch, Greenpeace Germany, Naturschutzbund Deutschland (NABU), Sneep (Studentisches Netzwerk zu Wirtschafts- und Unternehmensethik), Stiftung Warentest, Südwind – Institut für Ökonomie und Ökumene, TransFair – Verein zur Förderung des Fairen Handels mit der „Dritten Welt“ e. V., Transparency International, Verbraucherzentrale Bundesverband e.V., Bundesverband Die Verbraucher Initiative e.V., and the World Wide Fund for Nature (WWF, known as the “World Wildlife Fund” in the United States).

9. Corruption

Among industrialized countries, Germany ranks 10th out of 180, according to Transparency International’s 2021 Corruption Perceptions Index. Some sectors including the automotive industry, construction sector, and public contracting, exert political influence and political party finance remains only partially transparent. Nevertheless, U.S. firms have not identified corruption as an impediment to investment in Germany. Germany is a signatory of the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery.

Over the last two decades, Germany has increased penalties for the bribery of German officials, corrupt practices between companies, and price-fixing by companies competing for public contracts. It has also strengthened anti-corruption provisions on financial support extended by the official export credit agency and has tightened the rules for public tenders. Government officials are forbidden from accepting gifts linked to their jobs. Most state governments and local authorities have contact points for whistleblowing and provisions for rotating personnel in areas prone to corruption. There are serious penalties for bribing officials and price fixing by companies competing for public contracts.

To prevent corruption, Germany relies on the existing legal and regulatory framework consisting of various provisions under criminal law, public service law, and other rules for the administration at both federal and state levels. The framework covers internal corruption prevention, accounting standards, capital market disclosure requirements, and transparency rules, among other measures.

According to the Federal Criminal Office, in 2020, 50.6 percent of all corruption cases were directed towards the public administration (down from 73 percent in 2018), 33.2 percent towards the business sector (down from 39 percent in 2019), 13.4 percent towards law enforcement and judicial authorities (up from 9 percent in 2019), and 2 percent to political officials (unchanged compared to 2018).

Parliamentarians are subject to financial disclosure laws that require them to publish earnings from outside employment. Disclosures are available to the public via the Bundestag website (next to the parliamentarians’ biographies) and in the Official Handbook of the Bundestag. Penalties for noncompliance can range from an administrative fine to as much as half of a parliamentarian’s annual salary. In early 2021, several parliamentarians stepped down due to inappropriate financial gains made through personal relationships to businesses involved in the procurement of face masks during the initial stages of the pandemic.

Donations by private persons or entities to political parties are legally permitted. However, if they exceed €50,000, they must be reported to the President of the Bundestag, who is required to immediately publish the name of the party, the amount of the donation, the name of the donor, the date of the donation, and the date the recipient reported the donation. Donations of €10,000 or more must be included in the party’s annual accountability report to the President of the Bundestag.

State prosecutors are generally responsible for investigating corruption cases, but not all state governments have prosecutors specializing in corruption. Germany has successfully prosecuted hundreds of domestic corruption cases over the years, including large– scale cases against major companies.

Media reports in past years about bribery investigations against Siemens, Daimler, Deutsche Telekom, Deutsche Bank, and Ferrostaal have increased awareness of the problem of corruption. As a result, listed companies and multinationals have expanded compliance departments, tightened internal codes of conduct, and offered more training to employees.

10. Political and Security Environment

Overall, political acts of violence against either foreign or domestic business enterprises are extremely rare. Most protests and demonstrations, whether political acts of violence against either foreign or domestic business enterprises or any other cause or focus, remain peaceful. However, minor attacks by left-wing extremists on commercial enterprises occur. These extremists justify their attacks as a means to combat the “capitalist system” as the “source of all evil.” In the foreground, however, concrete connections such as “anti-militarism” (in the case of armament companies), “anti-repression” (in the case of companies for prison logistics or surveillance technology), or the supposed commitment to climate protection (companies from the raw materials and energy sector) are usually cited. In several key instances in larger cities with a strained housing market (low availability of affordable housing options), left-wing extremists target real estate companies in connection with the defense of autonomous “free spaces” and the fight against “anti-social urban structures.” Isolated cases of violence directed at certain minorities and asylum seekers have not targeted U.S. investments or investors.

11. Labor Policies and Practices

The German labor force is generally highly skilled, well-educated, and productive. Before the economic downturn caused by COVID-19, employment in Germany had risen for 13 consecutive years and reached an all-time high of 45.3 million workers in 2019. As a result of the COVID-19 pandemic, employment fell to 44.8 million in 2020 and remained stagnant in 2021 at 44.79 million workers. The pandemic had a disproportionate impact on female workers, who comprise most employees in the tourism, restaurant, retail, and beauty industries.

Unemployment has fallen by more than half since 2005, and, in 2019, reached the lowest average annual value since German reunification. In 2019, around 2.34 million people were registered as unemployed, corresponding to an unemployment rate of 5.2 percent, according to German Federal Employment Agency calculations. Using internationally comparable data from the European Union’s statistical office Eurostat, Germany had an average annual unemployment rate of 3.2 percent in 2019, the second lowest rate in the European Union. For the pandemic year 2020, the Federal Employment Agency reported an average unemployment rate of 5.9 percent and an average 2.7 million unemployed. In 2021, employment recovered despite the persistent pandemic, with the unemployment rate falling to 5.7 percent and the total number of unemployed dropping by 82,000. However, long-term effects on the labor market and the overall economy due to COVID-19 are not yet fully observable. All employees are by law covered by federal unemployment insurance that compensates for lack of income for up to 24 months. A government-funded temporary furlough program (“Kurzarbeit”) allows companies to decrease their workforce and labor costs with layoffs and has helped mitigate a negative labor market impact in the short term. At its peak in April 2020, the program covered more than six million employees. By December 2021 the number had decreased considerably to 790,000 but remained a key government tool to cope with the impact of COVID-19 on the labor market. The government, through the national employment agency, has spent more than €22 billion on this program, which it considers the main tool to keep unemployment low during the COVID-19 economic crisis. The government extended the program for all companies already meeting its conditions in March 2022 until the end of June 2022.

Germany’s average national youth unemployment rate was 6.9 percent in 2020, the lowest in the EU. The German vocational training system has garnered international interest as a key contributor to Germany’s highly skilled workforce and its sustainably low youth unemployment rate. Germany’s so-called “dual vocational training,” a combination of theoretical courses taught at schools and practical application in the workplace, teaches and develops many of the skills employers need. Each year there are more than 500,000 apprenticeship positions available in more than 340 recognized training professions, in all sectors of the economy and public administration. Approximately 50 percent of students choose to start an apprenticeship. The government promotes apprenticeship opportunities, in partnership with industry, through the “National Pact to Promote Training and Young Skilled Workers.”

An element of growing concern for German business is the country’s decreasing population, which (absent large-scale immigration) will likely shrink considerably over the next few decades. Official forecasts at the behest of the Federal Ministry of Labor and Social Affairs predict the current working-age population will shrink by almost three million between 2010 and 2030, resulting in an overall shortage of workforce and skilled labor. Labor bottlenecks already constrain activity in many industries, occupations, and regions. The government has begun to enhance its efforts to ensure an adequate labor supply by improving programs to integrate women, elderly, young people, and foreign nationals into the labor market. The government has also facilitated the immigration of qualified 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) 2020 €3.332,230 2020 $3.846,414 Federal Statistical Office,
www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 €88,748 2020 $162,387 Bundesbank, BEA data available at https://apps.bea.gov/international/factsheet/ 
Host country’s FDI in the United States ($M USD, stock positions) 2019 €324,992 2020 $564,294 Bundesbank, BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2019 29.7% 2020 27.9% Federal Statistical Office, Bundesbank, UNCTAD data available at
https://hbs.unctad.org/foreign-direct-investment/     

* Source for Host Country Data: Federal Statistical Office, www.destatis.de ; Bundesbank, www.bundesbank.de 

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 $1,129,900 100% Total Outward $1,955,383 100%
Luxembourg $220,284 19% United States $336,475 17%
The Netherlands $206,592 18% Luxembourg $291,412 15%
United States $115,320 10% The Netherlands $228,609 12%
Switzerland $91,434 8% United Kingdom $132,019 7%
United Kingdom $748,964 7% France $99,582 5%
“0” reflects amounts rounded to +/- USD 500,000.

14. Contact for More Information

U.S. Commercial Service
Pariser Platz 2, 14191 Berlin, Germany
Email: office.berlin@trade.gov

India

Executive Summary

The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms that should help attract private and foreign direct investment (FDI). In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing FDI limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.

Parliament passed the Taxation Laws (Amendment) Bill on August 6, 2021, repealing a law adopted by the Congress-led government of Manmohan Singh in 2012 that taxed companies retroactively. The Finance Minister also said the Indian government will refund disputed amounts from outstanding cases under the old law. While Prime Minister Modi’s government had pledged never to impose retroactive taxes, prior outstanding claims and litigation led to huge penalties for Cairn Energy and telecom operator Vodafone.  Both Indian and U.S. business have long advocated for the formal repeal of the 2012 legislation to improve certainty over taxation policy and liabilities.

India continued to increase and enhance implementation of the roughly $2 trillion in proposed infrastructure projects catalogued, for the first time, in the 2019-2024 National Infrastructure Pipeline. The government’s FY 2021-22 budget included a 35 percent increase in spending on infrastructure projects. In November 2021, Prime Minister Modi launched the “Gati Shakti” (“Speed Power”) initiative to overcome India’s siloed approach to infrastructure planning, which Indian officials argue has historically resulted in inefficacies, wasteful expenditures, and stalled projects. India’s infrastructure gaps are blamed for higher operational costs, especially for manufacturing, that hinder investment.

Despite this progress, India remains a challenging place to do business. New protectionist measures, including strict enforcement and potential expansion of data localization measures, increased tariffs, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards effectively closed off producers from global supply chains and restricted the expansion in bilateral trade and investment.

The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank/
Amount
Website Address
TI Corruption Perception Index 2021 85 of 180 https://www.transparency.org/en/countries/india 
Innovation Index 2021 46 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country (Million. USD stock positions) 2020 $41,904 usdia-position-2020.xlsx (live.com) 

 

 

World Bank GNI per capita (USD) 2020 $1,920 https://databank.worldbank.org/views/reports/reportwidget.aspx?Report_Name=CountryProfile&Id=b450fd57&tbar=y&dd=y&inf=
n&zm=n&country=IND
 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises ( http://dpe.gov.in ) controls and formulates all the policies pertaining to SOEs, and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The government has taken several steps to improve the performance of SOEs, also called Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. This was necessary as the government planned to disinvest its stake from these entities.

According to the Public Enterprise Survey 2019-20, as of March 2020 there were 366 CPSEs, of which 256 are operational with a total turnover of $328 billion. The report revealed that 96 CPSEs were incurring losses and 14 units are under liquidation.

Foreign investment is allowed in CPSEs in all sectors. The Master List of CPSEs can be accessed at http://www.bsepsu.com/list-cpse.asp . While the CPSEs face the same tax burden as the private sector, they receive streamlined licensing that private sector enterprises do not on issues such as procurement of land.

8. Responsible Business Conduct

Among Indian companies there is a general awareness of standards for responsible business conduct. The MCA administers the Companies Act of 2013 and is responsible for regulating the corporate sector in accordance with the law. The MCA is also responsible for protecting the interests of consumers by ensuring competitive markets. The Companies Act of 2013 also established the framework for India’s corporate social responsibility (CSR) laws, mandating that companies spend an average of two percent of their average net profit of the preceding three fiscal years. While the CSR obligations are mandated by law, non-government organizations (NGOs) in India also track CSR activities and provide recommendations in some cases for effective use of CSR funds. According to the MCA website, in FY 2020-21, 8,633 companies spent $2.72 billion on more than 25,000 CSR projects across India.

The MCA released the National Guidelines on Responsible Business Conduct, 2018 (NGRBC) on March 13, 2019, to improve the 2011 National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business. The NGRBC aligned with the United Nations Guiding Principles on Business & Human Rights (UNGPs).

India does not adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. There are provisions to promote responsible business conduct throughout the supply chain.

India is neither a member of Extractive Industries Transparency Initiative (EITI), nor a member of the Voluntary Principles on Security and Human Rights.

9. Corruption

India is a signatory to the United Nation’s Conventions Against Corruption and is a member of the G20 Working Group against corruption. India, with a score of 40, ranked 86 among 180 countries in Transparency International’s 2020 Corruption Perception Index.

Corruption is addressed by the following laws: The Companies Act, 2013; the Prevention of Money Laundering Act, 2002; the Prevention of Corruption Act, 1988; the Code of Criminal Procedures, 1973; the Indian Contract Act, 1872; and the Indian Penal Code of 1860. Anti- corruption laws amended since 2004 have granted additional powers to vigilance departments in government ministries at the central and state levels and elevated the Central Vigilance Commission (CVC) to be a statutory body. In addition, the Comptroller and Auditor General is charged with performing audits on public-private-partnership contracts in the infrastructure sector based on allegations of revenue loss to the exchequer.

Other statutes approved by parliament to tackle corruption include:

The Benami Transactions (Prohibition) Amendment Act of 2016

The Real Estate (Regulation and Development) Act, 2016, enacted in 2017

The Whistleblower Protection Act, 2011 was passed in 2014 but has yet to be operationalized

The Companies Act, 2013 established rules related to corruption in the private sector by mandating mechanisms for the protection of whistleblowers, industry codes of conduct, and the appointment of independent directors to company boards. However, the government has not established any monitoring mechanism, and it is unclear the extent to which these protections have been instituted. No legislation focuses particularly on the protection of NGOs working on corruption issues, though the Whistleblowers Protection Act, 2011 may afford some protection once implemented.

In 2013, Parliament enacted the Lokpal and Lokayuktas Act, which created a national anti- corruption ombudsman and required states to create state-level ombudsmen within one year of the law’s passage. A national ombudsman was appointed in March 2019.

10. Political and Security Environment

India is a multiparty, federal, parliamentary democracy with a bicameral legislature. The president, elected by an electoral college composed of the state assemblies and parliament, is the head of state, and the prime minister is the head of government. National parliamentary elections are held every five years. Under the constitution, the country’s 28 states and eight union territories have a high degree of autonomy and have primary responsibility for law and order. Electors chose President Ram Nath Kovind in 2017 to serve a five-year term. Following the May 2019 national elections, Prime Minister Modi’s Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) received a larger majority in the lower house of Parliament, or Lok Sabha, than it had won in the 2014 elections and returned Modi for a second term as prime minister. Observers considered the parliamentary elections, which included more than 600 million voters, to be free and fair, although there were reports of isolated instances of violence.

11. Labor Policies and Practices

Although there are more than 20 million unionized workers in India, unions still represent less than five percent of the total work force. Most of these unions are linked to political parties. Unions are typically strong in state-owned enterprises. A majority of the unionized work force can be found in the railroads, port and dock, banking, and insurance sectors. According to provisional figures from the Ministry of Labor and Employment (MOLE), over 672,000 workdays were lost to strikes and lockouts during 2021. Nonetheless, the International Labor Organization and International Monetary Fund both estimate India’s informal economy accounts for over 80 percent of overall employment. Labor unrest occurs throughout India, though the reasons and affected sectors vary widely. Most reported labor problems are the result of workplace disagreements over pay, working conditions, and union representation.

To reduce the number and complexity of India’s previous 29 national labor statutes, address statutory contradictions, improve compliance, and improve labor rights protections by shifting businesses and workers into the formal economy, the parliament consolidated and reformed India’s national labor laws, beginning with passage of the Code on Wages in 2019. During 2020, the parliament passed the Industrial Relations Code; the Occupational Safety, Health and Working Conditions Code; and the Code on Social Security. These laws’ reforms expanded minimum wage and social security coverage to informal sector workers in agriculture and the growing gig economy, raised the threshold for small and medium sized enterprise exemptions from 100 to 300 employees to foster growth of medium sized enterprises and move workers into the formal economy, expanded the authorized use of contract labor, and gave employers greater hiring and firing flexibility. Details of the laws can be accessed at https://labour.gov.in/labour-law-reforms . The new labor laws require adoption by India’s states for full implementation, which remains ongoing.

The Maternity Benefits Act, 1961, as amended in 2017, mandates 26 weeks of paid maternity leave for women. The Act also mandates for all industrial establishments employing 50 or more workers to have a creche for babies to enable nursing mothers to feed the child up to four times in a day.

The Child Labor Act, 1986 establishes a minimum age of 14 years for work and 18 years as the minimum age for hazardous work. The Bonded Labor Act, 1976 prohibits the use of bonded/forced labor.

There are no reliable unemployment statistics for India due to the informal nature of most employment. During the COVID-19 pandemic experts claimed the unemployment rate spiraled as people in the informal sector lost their jobs. The Centre for Monitoring Indian Economy (CMIE) reported that the average unemployment in October-December period of 2021 was around 7.54 percent.

14. Contact for More Information

Matt Ingeneri
Economic Growth Unit Chief
U.S. Embassy New Delhi
Shantipath, Chanakyapuri
New Delhi
+91 11 2419 8000
ingeneripm@state.gov

Israel

Executive Summary

Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in U.S. companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has 117 companies listed on the NASDAQ, the fourth most companies after the United States, Canada, and China. Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early-stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.

The COVID-19 pandemic shook Israel’s economy, but successful pre-pandemic economic policy buffers – strong growth, low debt, a resilient tech sector among them – mean Israel entered the COVID-19 crisis with relatively low vulnerabilities, according to the International Monetary Fund’s Staff Report for the 2020 Article IV Consultation. The fundamentals of the Israeli economy remain strong, and Israel’s economy rebounded strongly post-pandemic with 8.1 percent GDP growth in 2021. With low inflation and fiscal deficits that have usually met targets pre-pandemic, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.

The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods and services that reached USD 45.1 billion in 2021, according to the U.S. Bureau of Economic Analysis, and extensive commercial ties, particularly in high-tech and R&D. The total stock of Israeli foreign direct investment (FDI) in the United States was USD 40.4 billion in 2020. Since the signing of the U.S.-Israel Free Trade Agreement in 1985, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, mostly open, and led by a cutting-edge high-tech sector.

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

Israel has taken steps to meet its pledges to reduce greenhouse gas emissions, with planned investments in technologies and projects to slow the pace of climate change.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 36 of 175 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 15 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $40.4 billion https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $42,600 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Israel established the Government Companies Authority (GCA) as an auxiliary unit of the Ministry of Finance following the passage of the 1975 Government Companies Law. It is the administrative agency for state-owned companies in charge of supervision, privatization, and implementation of structural changes. The Israeli state only provides support for commercial SOEs in exceptional cases. The GCA leads the recruitment process for SOE board members. Board appointments are subject to the approval of a committee, which confirms whether candidates meet the minimum board member criteria set forth by law.

The GCA oversees some 100 commercial and noncommercial companies, government subsidiaries, and companies under mixed government-private ownership. Among these companies are some of the biggest and most complex in the Israeli economy, such as the Israel Electric Corporation, Israel Aerospace Industries, Rafael Advanced Defense Systems, Israel Postal Company, Mekorot Israel National Water Company, Israel Natural Gas Lines, the Ashdod, Haifa, and Eilat Port Companies, Israel Railways, Petroleum and Energy Infrastructures and the Israel National Roads Company. The GCA does not publish a publicly available list of SOEs.

Israel is party to the Government Procurement Agreement (GPA) of the World Trade Organization.

8. Responsible Business Conduct

There is awareness of responsible business conduct among enterprises and civil society in Israel. Israel adheres to the OECD Guidelines for Multinational Enterprises. Israel is not a member of the Extractive Industries Transparency Initiative.

Israel’s National Contact Point sits in the Responsible Business Conduct unit in the OECD Department of the Foreign Trade Administration in the Ministry of Economy and Industry. An advisory committee, including representatives from the Ministries of Economy, Finance, Foreign Affairs, Justice, and the Environment, assist the National Contact Point. The National Contact Point also works in cooperation with the Manufacturer’s Association of Israel, workers’ organizations, and civil society to promote awareness of the guidelines.

Israel is not a signatory of the Montreux Document on Private Military and Security Companies. One Israeli company, RS Logistical Solutions Ltd, is a member of the International Code of Conduct for Private Security Service Providers’ Association.

9. Corruption

Bribery and other forms of corruption are illegal under several Israeli laws and Civil Service regulations. Israel is a signatory to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions. Israel ranks 36 out of 175 countries in Transparency International’s 2021 Corruption Perceptions Index, dropping one place from its 2020 ranking. Several Israeli NGOs focus on public sector ethics in Israel and Transparency International has a local chapter.

The Israeli National Police, state comptroller, Attorney General, and Accountant General are responsible for combating official corruption. These entities operate effectively and independently and are sufficiently resourced. NGOs that focus on anticorruption efforts operate freely without government interference.

10. Political and Security Environment

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

The security situation remains complex in Israel and the West Bank, and can change quickly depending on the political environment, recent events, and geographic location. Terrorist groups and lone-wolf terrorists continue plotting possible attacks in Israel, the West Bank, and Gaza. Terrorists may attack with little or no warning, targeting tourist locations, transportation hubs, markets, shopping malls, and government facilities. Hamas, a U.S. government-designated foreign terrorist organization, controls security in Gaza, making it particularly dangerous and volatile.

11. Labor Policies and Practices

Central Bureau of Statistics data from February 2022 indicate there are 4.1 million people active in the Israeli labor force, with a 3.9 percent unemployment rate. According to OECD data from 2020, 47 percent of Israelis aged between 25 and 34 years have a tertiary education. Many university students specialize in fields with high industrial R&D potential, including engineering, computer science, mathematics, physical sciences, and medicine. According to the Investment Promotion Center, there are more than 145 scientists out of every 10,000 workers in Israel, one of the highest rates in the world. The rapid growth of Israel’s high-tech sector in the late 1990s increased the demand for workers with specialized skills. Tech sector executives report a significant shortage of qualified labor for the sector given its size and continuing growth.

The national labor federation, the Histadrut, organizes about 17 percent of all Israeli workers. Collective bargaining negotiations in the public sector take place between the Histadrut and representatives of the Ministry of Finance. The number of strikes has declined significantly as the public sector has gotten smaller. However, strikes remain a common and viable negotiating tactic in difficult negotiations.

Israel strictly observes the Friday afternoon to Saturday afternoon Jewish Sabbath and special permits must be obtained from the government authorizing Sabbath employment. At the age of 18, most Israelis are required to perform 2-3 years of national service in the military or in select civilian institutions. Until their mid-40s, many Israeli males are required to perform about a month of military reserve duty annually, during which time they receive compensation from national insurance companies.

The size of Israel’s informal economy is estimated to be 20.8 percent which represents approximately $97 billion at GDP PPP levels, according to OECD estimates. Black market lending is common in Israel’s Arab neighborhoods with some “money change” shops servings as fronts for such illegal businesses. According to the Israel Democracy Institute, a national reform program aims to address the trend of large segments of the workforce in Israel working under temporary contracts that offer minimal job security, weak social protections, and dwindling economic security.

14. Contact for More Information

Daniel Devries
Economic Officer
U.S. Embassy Jerusalem – Tel Aviv Branch Office
DevriesDJ@state.gov

Japan

Executive Summary

Japan is the world’s third largest economy, the United States’ fourth largest trading partner, and, as of 2020, the top provider of foreign direct investment (FDI) in the United States. The Japanese government welcomes and solicits inward foreign investment and has set modest goals for increasing inbound FDI. Despite Japan’s wealth, high level of development, and general acceptance of foreign investment, however, inbound FDI stocks, as a share of GDP, are the lowest among the OECD countries.

On the one hand, Japan’s legal and regulatory climate is highly supportive of investors. Courts are independent, but attorney-client privilege does not exist in civil, criminal, or administrative matters, with the exception of limited application in cartel anti-trust investigations. There is no right to have counsel present during criminal or administrative interviews. The country’s regulatory system is improving transparency and developing new regulations in line with international norms. Capital markets are fairly deep and broadly available to foreign investors. Japan maintains strong protections for intellectual property rights with generally robust enforcement. The country remains a large, wealthy, and sophisticated market with world-class corporations, research facilities, and technologies. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted. The sectors that have historically attracted the largest foreign direct investment in Japan are electrical machinery, finance, and insurance.

On the other, foreign investors in the Japanese market continue to face numerous challenges. A traditional aversion towards mergers and acquisitions within corporate Japan has inhibited foreign investment, and weak corporate governance, among other factors, has led to low returns on equity and cash hoarding among Japanese firms, although business practices are improving in both areas, at least among leading firms. Investors and business owners must also grapple with inflexible labor laws and a highly regimented system of labor recruitment and management that can significantly increase the cost and difficulty of managing human resources. The Japanese government has recognized many of these challenges and is pursuing initiatives to improve investment conditions.

A revised national Climate Law, which the National Diet passed unanimously in May 2021 and enters into full effect on April 1, 2022, will codify Japan’s decarbonization commitments under the Paris Agreement. The new legislation amends the law in three areas: requiring Japan to achieve net-zero greenhouse gas emissions by 2050, bolstering mechanisms to support and expedite decarbonization at the subnational level, and requiring digitalization and transparency of emissions-related information published by the Government of Japan (GOJ).

Levels of corruption in Japan are low, but deep relationships between firms and suppliers as well as between large business and the bureaucrats who regulate them may limit competition in certain sectors and inhibit the entry of foreign firms into local markets.

Future improvement in Japan’s investment climate is contingent largely on the success of structural reforms to raise economic growth.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 18 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 13 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 131,643 https://apps.bea.gov/international/factsheet/  
World Bank GNI per capita 2020 USD 40,360 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Japan has privatized most former state-owned enterprises (SOEs). Under the Postal Privatization Law, privatization of Japan Post group started in October 2007 by turning the public corporation into stock companies. The stock sale of the Japan Post Holdings Co. and its two financial subsidiaries, Japan Post Insurance (JPI) and Japan Post Bank (JPB), began in November 2015 with an IPO that sold 11 percent of available shares in each of the three entities. The postal service subsidiary, Japan Post Co., remains a wholly owned subsidiary of JPH. The Japanese government conducted additional public offerings of stock in September 2017 and October 2021, reducing the government ownership in the holding company to a little over one third. There were offerings in the insurance subsidiary in April 2019 and June 2021. JPH currently owns 88.99 percent of the banking subsidiary and 49.9 percent of the insurance subsidiary. Follow-on sales of shares in the two subsidiary companies will take place over time, but the government’s sale of JPH stocks in October 2021 is considered to be the last. The Postal Privatization Law requires the government to sell a majority share so that the government ownership would be “a little over one third” of all shares in JPH (which was completed in 2021), and JPH to sell all shares of JPB and JPI, as soon as possible.

These offerings mark the final stage of Japan Post privatization begun under former Prime Minister Junichiro Koizumi (2001-2006) and respond to long-standing criticism from commercial banks and insurers—both foreign and Japanese—that their government-owned Japan Post rivals have an unfair advantage.

While there has been significant progress since 2013 on private suppliers’ access to the postal insurance network, the U.S. government has continued to raise concerns about the preferential treatment given to Japan Post and some quasi-governmental entities compared to private sector competitors and the impact of these advantages on the ability of private companies to compete on a level playing field. A full description of U.S. government concerns regarding the insurance sector and efforts to address these concerns is available in the annual United States Trade Representative’s National Trade Estimate on Foreign Trade Barriers report for Japan.

8. Responsible Business Conduct

Japanese corporate governance has often been criticized for failing to sufficiently prioritize shareholder interests and detect wrongdoing by company executives in a timely way, due in part to a lack of independent corporate directors and to cross-shareholding agreement among firms. Previous governments made corporate governance reform a core element of their economic agendas with the goal of reinvigorating Japan’s business sector through encouraging a stronger focus by management on earnings and shareholder value. PM Kishida has pledged that his administration will facilitate reforms further, with an added emphasis on additional stakeholders, such as labor and the environment.

Progress has been made through efforts by the Financial Services Agency (FSA) and Tokyo Stock Exchange (TSE) to introduce non-binding reforms through changes to Japan’s Companies Act in 2014 and adoption of a Corporate Governance Code (CSR) in 2015. Together with the Stewardship Code for institutional investors launched by the FSA in 2014, these initiatives have encouraged companies to put cash stockpiles to better use by increasing investment, raising dividends, and taking on more risk to boost Japan’s growth. Positive results of these efforts are evidenced by rising shareholder returns, unwinding of cross-shareholdings, and increasing numbers of independent board members.  According to a TSE survey conducted in December 2018, 85.3 percent of companies had a compliance rate of 90 percent out of the 66 principles of the new code. As of August 2021, 97 percent of TSE First Section-listed firms had at least two independent directors, according to an August 2021 TSE report. In December 2019, the Diet approved a revision of the Companies Act, which will enable companies to provide documents for shareholders’ meetings electronically. Listed companies will be obligated to have at least one outside director. The bill went into effect on March 1, 2021.

Following Stewardship Code revision in March 2020, the TSE and FSA revised the Corporate Governance Code in spring of 2021 to reflect the realignment of the TSE segmentations, which will be implemented in 2022. The revised guidelines require companies, to be listed in the “Prime Section,” a top-tier TSE section, to have more than one-third external directors. As of October 2021, 72.8 percent had one-third external directors. The guidelines also urge listed companies to have more diversity in mid-level and managerial posts by hiring and training female and foreign workers. Awareness of corporate social responsibility (CSR) among both producers and consumers in Japan is high, and foreign and local enterprises generally follow accepted CSR principles. Business organizations also actively promote CSR. Japan encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

9. Corruption

Japan’s penal code covers crimes of official corruption, and an individual convicted under these statutes is, depending on the nature of the crime, subject to prison sentences and possible fines. With respect to corporate officers who accept bribes, Japanese law also provides for company directors to be subject to fines and/or imprisonment, and some judgments have been rendered against company directors.

The direct exchange of cash for favors from government officials in Japan is extremely rare. However, the web of close relationships between Japanese companies, politicians, government organizations, and universities has been criticized for fostering an inwardly “cooperative”—or insular—business climate that is conducive to the awarding of contracts, positions, etc. within a tight circle of local players. This phenomenon manifests itself most frequently and seriously in Japan through the rigging of bids on government public works projects. However, instances of bid rigging appear to have decreased over the past decade. Alleged bid rigging between construction companies was discovered on the Tokyo-Nagoya-Osaka maglev high-speed rail project in 2017, and the case was prosecuted in March 2018.

Japan’s Act on Elimination and Prevention of Involvement in Bid-Rigging authorizes the Japan Fair Trade Commission to demand that central and local government commissioning agencies take corrective measures to prevent continued complicity of officials in bid rigging activities and to report such measures to the JFTC. The Act also contains provisions concerning disciplinary action against officials participating in bid rigging and compensation for overcharges when the officials caused damage to the government due to willful or grave negligence. Nevertheless, questions remain as to whether the Act’s disciplinary provisions are strong enough to ensure officials involved in illegal bid rigging are held accountable.

Japan ratified the Organisation for Economic Co-Operation and Development (OECD) Anti-Bribery Convention, which bans bribing foreign government officials, in 1999. Japan detected only 46 allegations of foreign bribery, half of which the OECD brought to Japan’s attention, through 2019.

For vetting potential local investment partners, companies may review credit reports on foreign companies available from many private-sector sources, including, in the United States, Dun & Bradstreet and Graydon International.  Additionally, a company may inquire about the International Company Profile (ICP), which is a background report on a specific foreign company that is prepared by the U.S. Commercial Service at the U.S. Embassy, Tokyo.

10. Political and Security Environment

Political violence is rare in Japan. Acts of political violence involving U.S. business interests are virtually unknown.

11. Labor Policies and Practices

The Government of Japan has provided extensive and expanded employment subsidies to companies to encourage them to maintain employment during the COVID-19 pandemic. Despite the pandemic, worker shortages remain in sectors such as information service, restaurants, and construction. The unemployment rate as of January 2022 was 2.8 percent. The fact that Japan’s unemployment rate has risen so slowly during the pandemic is likely due to the social contract between worker and employer in Japan, as well as the continued government subsidies that expanded substantially under the pandemic. Traditionally, Japanese workers have been classified as either regular or non-regular employees. Companies recruit regular employees directly from schools or universities and provide an employment contract with no fixed duration, effectively guaranteeing them lifetime employment. Non-regular employees are hired for a fixed period. Companies have increasingly relied on such non-regular workers to fill short-term labor requirements and to reduce labor costs. The pandemic has particularly hurt non-regular workers whose employment was concentrated in hard-hit service sectors such as tourism, hospitality, restaurants, and entertainment.

Major employers and labor unions engage in collective bargaining in nearly every industry. Union members as of June 2021 made up 16.9 percent of employees (“koyo-sha”), down slightly compared to 2020 and in decline from 25 percent of the workforce in 1990. The government provides benefits for workers laid off for economic reasons through a national employment insurance program. Some National Strategic Special Zones allow for special employment of foreign workers in certain fields, but those and all other foreign workers are still subject to the same national labor laws and standards as Japanese workers. Japan has comprehensive labor dispute resolution mechanisms, including labor tribunals, mediation, and civil lawsuits. A Labor Standards Bureau oversees the enforcement of labor standards through a national network of Labor Bureaus and Labor Standards Inspection Offices.

The number of foreign workers has been rising but slowed down slightly during the past year due to the pandemic. At just over 1.73 million as of October 2021, they still represent a small fraction of Japan’s 68.6-million-worker labor force. The Japanese government has made changes to labor and immigration laws to facilitate the entry of larger numbers of skilled foreign workers in selected sectors. A revision to the Immigration Control and Refugee Recognition Law in December 2018, implemented in April 2019, created the “Specified Skilled” worker program designed specifically for lower-skilled foreign workers. Prior to this change, Japan had never created a visa category for lower-skilled foreign workers, and this law created two. Category 1 grants five-year residency to low-skilled workers who pass skills exams and meet Japanese language criteria and permits them to work in 14 designated industries, such as agriculture or nursing care, identified by the Japanese government to be experiencing severe labor shortage. Category 2 is for skilled workers with more experience, granting them long-term residency and a path to long-term employment, but currently permitted only in a few designated industries, such as construction and shipbuilding.

The Japanese government also operates the Technical Intern Training Program (TITP). Originally intended as an international skills-transfer program for workers from developing countries, TITP is currently used to address immediate labor shortages in over 85 designated occupations, such as jobs in the construction, agriculture, fishery, and elderly nursing care industries. As noted previously, the 2018 Immigration Control Law revision enabled TITP beneficiaries with at least three years of experience to qualify to apply for the Category 1 status of the Specified Skilled worker program without any exams.

To address the labor shortage resulting from population decline and a rapidly aging society, Japan’s government has pursued measures to increase participation and retention of older workers and women in the labor force. A law that entered into force in April 2013 requires companies to introduce employment systems allowing employees reaching retirement age (generally set at 60) to continue working until age 65. The law was revised again in March 2020 and entered into force in April 2021, asking companies to “make efforts” to secure employment for workers between 65 and 70.

Since 2013, the government has committed to increasing women’s economic participation. The Women’s Empowerment Law passed in 2015 requires large companies to disclose statistics about the hiring and promotion of women and to adopt action plans to improve the numbers. The COVID-19 pandemic has, however, had a disproportionately negative effect on women in Japan. Women were more likely than men to occupy non-regular positions, work in industries hardest hit by the downturn, and face greater pressure to prioritize family over work. As a result, women have experienced reductions in working hours, departure from the labor force, or furloughs in greater numbers than men, erasing part of the rise in their workforce participation through 2019. The Government of Japan has acknowledged this impact on women’s economic participation and convened a study group in September 2020 to consider solutions. Its final report, issued on April 28, 2021, urged that changes be made to systems and practices which persist in Japanese society, such as gender-based roles. The report also noted the importance of gender segregated data to be taken at the national and local government level, to help create effective measures.

In May 2019, a package law that revised the Women’s Empowerment Law, expanded the reporting requirements to SMEs that employ at least 101 persons (starting in April 2022) and increasing the number of disclosure items for larger companies (from June 2020). The package law also included several labor law revisions requiring companies to take preventive measures for power and sexual harassment in the workplace.

In June 2018, the Diet passed the Workstyle Reform package.  The three key provisions are:  (1) the “white collar exemption,” which eliminates overtime for a small number of highly paid professionals; (2) a formal overtime cap of 100 hours/month or 720 hours/year, with imprisonment and/or fines for violators; and (3) new “equal-pay-for-equal-work” principles to reduce gaps between regular and non-regular employees.

Japan has ratified 49 International Labor Organization (ILO) Conventions (including six of the eight fundamental conventions). As part of its agreement in principle on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership Japan agreed to adopt the fundamental labor rights stated in the ILO Declaration including freedom of association and the recognition of the right to collective bargaining, the elimination of forced labor and employment discrimination, and the abolition of child labor. The CPTPP entered into force on December 30, 2018.

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) 2020 $5,039,813 2020 $5,057,759 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 $62,930 2020 $131,643 BEA data available at https://apps.bea.gov/international/
factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2020 $563,367 2020 $647,718 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2020 7.37% 2020 4.9% UNCTAD data available at https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html
  

* Source for Host Country Data: *2020 Nominal GDP data from Economic and Social Research Institute, Cabinet Office, Japanese Government. February, 2022. (Note: uses exchange rate of 106.78 Yen to 1 U.S. Dollar and Calendar Year Average Data)

The discrepancy between Japan’s accounting of U.S. FDI into Japan and U.S. accounting of that FDI can be attributed to methodological differences, specifically with regard to indirect investors, profits generated from reinvested earnings, and differing standards for which companies must report FDI.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (IMF CDIS, 2020)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 232,313 100% Total Outward 1,837,075 100%
United States 62,748 27% United States 561,736 31%
Singapore 35,629 15% China 138,566 8%
France 30,774 13% Netherlands 134,492 7%
Netherlands 20,886 9% United Kingdom 131,675 7%
United Kingdom 14,466 6% Singapore 92,886 5%
“0” reflects amounts rounded to +/- USD 500,000.

 

Table 4: Portfolio Investment
Portfolio Investment Assets (IMF CPIS, 2020 end)
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 5,073,686 100% All Countries 2,078,430 100% All Countries 2,995,256 100%
United States 2,072,497 41% Cayman Islands 777,816 37 United States 1,325,961 44%
Cayman Islands 990,422 20% United States 746,535 36% France 263,330 9%
France 300,213 6% Luxembourg 103,926 5% Cayman Islands 212,605 7%
Australia 189,649 4% Ireland 59,243 3% Australia 163,873 5%
United Kingdom 185,243 4% United Kingdom 39,338 2% United Kingdom 145,905 5%

14. Contact for More Information

Pam Pontius
Economic Section
U.S. Embassy Tokyo
1-10-5 Akasaka, Minato-ku, Tokyo 107-8420
Japan+81 03-3224-5035
pontiuspr@state.gov

Kenya

Executive Summary

Kenya has a positive investment climate that has made it attractive to international firms seeking a location for regional or pan-African operations.  The novel coronavirus pandemic has negatively 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.  Despite this progress, U.S. businesses operating in Kenya still face aggressive tax collection attempts, burdensome bureaucratic processes, and significant delays in receiving necessary business licenses.  Corruption remains pervasive and Transparency International ranked Kenya 128 out of 180 countries in its 2021 Global Corruption Perception Index – reflecting modest progress over the last decade but still well below the global average.

Kenya has strong telecommunications infrastructure and a robust financial sector and is a developed logistics hub with 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 East Africa’s trade.  Kenya’s membership in the East African Community (EAC), the Africa Continental Free Trade Area (AfCFTA), and other regional trade blocs provides it with preferential trade access to growing regional markets.

In 2017 and 2018 Kenya instituted broad reforms to improve its business environment, including passing the Tax Laws Amendment (2018) and the Finance Act (2018), which established new procedures and provisions related to taxes, eased the payment of taxes through the iTax platform, simplified registration procedures for small businesses, reduced the cost of construction permits, and established a “one-stop” border post system to expedite the movement of goods across borders.  However, the Finance Act (2019) introduced taxes to non-resident ship owners, and the Finance Act (2020) enacted a Digital Service Tax (DST).  The DST, which went into effect in January 2021, imposes a 1.5 percent tax on any transaction that occurs in Kenya through a “digital marketplace.”  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, averaging five to six percent gross domestic product (GDP) growth since 2015 (excepting 2020due to the negative economic impact of the COVID-19 pandemic), five percent inflation since 2015, improving infrastructure, and strong consumer demand from a growing middle class.  There is relative political stability and President Uhuru Kenyatta has remained focused on his “Big Four” development agenda, seeking to provide universal healthcare coverage, establish national food and nutrition security, build 500,000 affordable new homes, and increase employment by growing the manufacturing sector.

Kenya is a regional leader in clean energy development with more than 90 percent of its on-grid electricity coming from renewable sources.  Through its 2020, second Nationally Determined Contribution to the Paris Agreement targets, Kenya has prioritized low-carbon resilient investments to reduce its already low greenhouse gas emissions a further 32 percent by 2030.  Kenya has established policies and a regulatory environment to spearhead green investments, enabling its first private-sector-issued green bond floated in 2019 to finance the construction of sustainable housing projects.

American companies continue to show strong interest to establish or expand their business presence and engagement in Kenya.  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 2021 128 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 85 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $339 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $11,067.86 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

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 (https://drive.google.com/file/d/0BytnSZLruS3GQmxHc1VtZkhVVW8/edit).  SOEs’ boards are independently appointed and published in Kenya Gazette notices by the Cabinet Secretary of the ministry responsible for the respective SOE.  The State Corporations Act (2015) mandated the State Corporations Advisory Committee to advise the GOK on matters related to SOEs.  Despite being public entities, only SOEs listed on the Nairobi Securities Exchange publish their financial positions, as required by Capital Markets Authority guidelines.  SOEs’ corporate governance is guided by the constitution’s chapter 6 on Leadership and Integrity, the Leadership and Integrity Act (2012) (L&I) and the Public Officer Ethics Act (2003), which establish integrity and ethics requirements governing the conduct of public officials.

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 accessing equity financing 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 focuses on lowering the cost of doing business in the country through the provision of cost effective and efficient transportation and logistics infrastructure.

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 or multilateral basis, commonly referred to as 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).

Kenya is neither party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) nor an Observer Government.

8. Responsible Business Conduct

The Environmental Management and Coordination Act (1999) establishes a legal and institutional framework for responsible environment management, while the Factories Act (1951) safeguards labor rights in industries.  The Mining Act (2016) directs holders of mineral rights to develop comprehensive community development agreements that ensure socially responsible investment and resource extraction and establish preferential hiring standards for residents of nearby communities.  The legal system, however, has remained slow to prosecute violations of these policies.

The GOK is not a signatory to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, and it is not yet an Extractive Industry Transparency Initiative (EITI) implementing country or a Voluntary Principles Initiative signatory.  Nonetheless, good examples of corporate social responsibility (CSR) abound as major foreign enterprises drive CSR efforts by applying international standards relating to human rights, business ethics, environmental policies, community development, and corporate governance.

9. Corruption

Corruption is pervasive and entrenched in Kenya and international corruption rankings reflect its modest progress over the last decade.  The Transparency International (TI) 2021 Global Corruption Perception Index ranked Kenya 128 out of 180 countries, its second-best ranking, and a marked improvement from its 2011 rank of 145 out of 176.  Kenya’s score of 30, however, remained below the global average of 43 and below the sub-Saharan Africa average of 33.  TI cited lack of political will, limited progress in prosecuting corruption cases, and the slow pace of reform in key sectors as the primary drivers of Kenya’s relatively low ranking.  Corruption has been an impediment to FDI, with local media reporting allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts.  Numerous reports have alleged that corruption influenced the outcome of government tenders, and some U.S. firms assert that compliance with the Foreign Corrupt Practices Act significantly undermines their chances of winning public procurements.

In 2018, President Kenyatta began a public campaign against corruption.  While GOK agencies mandated to fight corruption have been inconsistent in coordinating activities, particularly regarding cases against senior officials, cabinet, and other senior-level arrests in 2019 and 2020 suggested a renewed commitment by the GOK to fight corruption.  In 2020, the judiciary convicted a member of parliament to 67 years in jail or a fine of KES 707 million (approximately USD 7 million) for defrauding the government of KES 297 million (approximately USD 2.9 million).  The Ethics and Anti-Corruption Commission (EACC), in 2019, secured 44 corruption-related convictions, the highest number of convictions in a single year in Kenya’s history.  The EACC also recovered assets totaling more than USD 28 million in 2019 – more than the previous five years combined.  Despite these efforts, much work remains to battle corruption in Kenya.

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; however, government agencies’ compliance with this act remains inconsistent.  The 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 officials, and their spouses and dependent children under age 18, declare their income, assets, and liabilities every two years.  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 a public officer’s declarations without permission may be subject to fine or imprisonment.

The Access to Information Act (2016) requires government entities, and private entities doing business with the government, to proactively disclose certain information, such as government contracts, and comply with citizens’ requests for government information.  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.  However, the GOK has yet to issue the act’s implementing regulations and compliance remains inconsistent.

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 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) establishes protections for witnesses in criminal cases and created an independent Witness Protection Agency.  A draft Whistleblowers Protection Bill has been stalled in Parliament since 2016.

President Kenyatta directed government ministries, departments, and agencies to publish all information related to government procurement to enhance transparency and combat corruption.  While compliance is improving, it is not yet universal.  The information is published online (https://tenders.go.ke/website/contracts/Index).

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.

10. Political and Security Environment

Kenya’s 2017 national election was marred by violence, which claimed the lives of nearly 100 Kenyans, a contentious political atmosphere, which pitted the ruling Jubilee Party against the opposition National Super Alliance (NASA), as well as political interference and attacks on key institutions by both sides.  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.  In March 2018, President Kenyatta and Odinga publicly shook hands and pledged to work together to heal the political, social, and economic divides highlighted by the election.  The GOK, civil society actors, private sector, and religious leaders are implementing a number of initiatives to promote peace in advance of the next national election in August 2022.

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.  Due to the high risk of crime, it is common for private businesses and residences to have 24-hour guard services and well-fortified property perimeters.

Instability in Somalia has heightened concerns of terrorist attacks, leading businesses and public institutions nationwide to increase their security measures.  Tensions flare occasionally within and between ethnic communities in Kenya.  Regional conflict, most notably in Ethiopia, Somalia, and South Sudan, sometimes have spill-over effects in Kenya.  There could be an increase in refugees entering Kenya due to drought and instability in neighboring countries, adding to the already large refugee population in the country.

Kenya and its neighbors are working together to mitigate threats of terrorism and insecurity through African-led initiatives such as the African Union Mission in Somalia (AMISOM) and the Eastern African Standby Force (EASF).  Despite attacks against Kenyan forces in Kenya and Somalia, the Government of Kenya has maintained its commitment to promoting peace and stability in Somalia.

11. Labor Policies and Practices

In 2021, Kenya’s employed labor force was recorded at 17.4 million.  Kenya’s informal economy is estimated to employ about 80 percent of the work force and to contribute 34 percent to Kenya’s gross domestic product.  Informal enterprises are mainly run by women, have low levels of innovation, lack social security coverage, job security, and low levels of unionization.  Kenya’s constitution mandates that no gender hold more than two-thirds of any positions in all elective or appointive bodies.  Gender balance and regional inclusivity are key facets of public appointments.  The Government of Kenya has not, however, ensured regional inclusivity in its appointments and public service human capital reports show dominant regional communities in appointments.  The gender mandate is not mandatory for private sector companies.  The private sector, however, has been instrumental in advancing gender balance in its work force composition.  NSE-listed companies have 36 percent female board representations.

The Government of Kenya mandates local employment in the category of unskilled labor.  The Kenyan government regularly issues permit 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 required skills are not available in Kenya.  However, firms seeking to hire expatriates must demonstrate that they conducted an exhaustive search to find persons with the requisite skills in Kenya and were unable to find any such persons.  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 KES 400,000 (approximately USD 4,000).

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 permitted to work in Kenya provided they have a work (entry) permit issued under the Kenya Citizenship and Immigration Act (2011).  In December 2018, the Ministry of Interior and Coordination of National Government Cabinet Secretary issued a directive requiring foreign nationals to apply for their work permits prior to entering Kenya and to confirm that the skill they will provide is unavailable in Kenyan via the Ministry of Labor and Social Protection’s Kenya Labor Market Information System (KLMIS).  KLMIS provides information regarding demand, supply, and skills available in Kenya’s labor market (https://www.labourmarket.go.ke/labour/supply/).  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 (DIS) expanded the list of requirements to qualify for work permits and special passes.  Issuance of a work permit now requires an assured income of at least USD 24,000 annually or documented proof of capital of a minimum of USD 100,000 for investors.  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 some officials request bribes to speed the process.  Since 2018, the DIS has more stringently applied regulations regarding the issuance of work permits.  As a result, delayed or rejected work permit applications have become one of the most significant challenges for foreign companies 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, the formal sector, excluding agriculture, employed 18.1 million people, with nominal average earnings of KES 778,248 (USD 7,780) 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 2.8 million 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, published weekly in GOK’s “MyGov” newspaper insert.  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 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 the Wholesale and Retail trade sector recording the most, 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 compliance with labor standards.  The Ministry of Labor 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 regarding child labor violations.

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) (USD) 2020 $96.01 billion 2019 $101.01 billion https://data.worldbank.org/indicator/NY.GDP.
MKTP.CD?locations=KE
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $353 M BEA data available at http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $-16 M BEA data available at http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm
Total inbound stock of FDI as % host GDP 2019 1.2% 2020 0.1% https://unctad.org/webflyer/world-investment-report-2021

*Host Country Statistical Source: Central Bank of Kenya, Foreign Investment Survey 2020  

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

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

U.S. Embassy Economic Section
U.N. Avenue, Nairobi, Kenya
+254 (0)20 363 6050

Macau

Executive Summary

Macau became a Special Administrative Region (SAR) of the People’s Republic of China (PRC) on December 20, 1999. Macau’s status since reverting to Chinese sovereignty is defined in the Sino-Portuguese Joint Declaration (1987) and the Basic Law (the SAR’s de facto constitution). Under the concept of “one country, two systems” articulated in these documents, Macau enjoys a high degree of autonomy in economic matters, and its economic system is to remain unchanged for 50 years following the 1999 reversion to Chinese sovereignty. Macau, a separate customs territory, describes itself as a liberal economy and a free port.  Tourism is the basis of the Macau economy. The Government of Macau (GOM) maintains a transparent, non-discriminatory, and free-market economy. The GOM is committed to maintaining an investor-friendly environment.

In 2002, the GOM ended a long-standing gaming monopoly, awarding two gaming concessions and one sub-concession to consortia with U.S. interests.  This opening encouraged substantial U.S. investment in casinos and hotels and has spurred rapid economic growth in the tourism, gaming, and entertainment sector, in which the gaming industry constitutes the most important pillar of Macau’s economy. In 2021, gaming taxes accounted for 67 percent of $6 billion total tax revenue collected.

Macau is today the biggest gaming center in the world, having far surpassed Las Vegas in gambling revenue.  However, Macau has been hit worse by the pandemic than Las Vegas due to inbound travel restrictions mandated by the GOM since January 2020, which drastically reduced the number of travelers from mainland China, who account for about 70 percent of all tourists entering Macau.  Although the individual visa scheme that allows for mainland visitors to come to Macau resumed in August 2020, visa processing for tour groups, which have been the main source of tourists for years, is still on hold and its reactivation hinges on Beijing’s revising its rigid Zero-COVID policies. Macau recorded $10.82 billion in full-year casino gross gaming revenue in 2021, a 44 percent increase compared to 2020 figures, but still down 79 percent compared to the 2019 pre-pandemic numbers. U.S. investment over the past decade is estimated to exceed $24 billion.  In addition to gaming, Macau aspires to position itself as a regional center for incentive travel, conventions, and tourism, though to date it has experienced limited success in diversifying its economy.  In 2007, business leaders founded the American Chamber of Commerce of Macau.

Macau also seeks to become a “commercial and trade cooperation service platform” between mainland China and Portuguese-speaking countries.  The GOM has various policies to promote these efforts and to create business opportunities for domestic and foreign investors.  Many infrastructure projects are currently underway, such as new casinos, hotels, subways, airport expansion, and the Macau-Taipa 4th vehicle harbor crossing that started construction in August 2020.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 N/A of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 N/A of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $2,530 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $75,690 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

The six gaming concessionaires that dominate Macau’s economy pay four percent of gross gaming revenues to the government to fund cultural and social programs in the SAR. Several operators also directly fund gaming addiction rehabilitation programs. Some government-affiliated entities maintain active corporate social responsibility (CSR) programs. For example, Companhia de Electricidade de Macau, an electric utility, provides educational programs and repair services free-of-charge to underprivileged residents.

The GOM did not put any restrictions on the qualifications of the potential bidders in the 2002 public tender of gaming concession. Twenty-one companies, including those holding capital in Macau, Hong Kong, the U.S., Malaysia, Australia, United Kingdom, and Taiwan, submitted bidding papers, but the government eventually granted concessions to only three bidders: SJM, Wynn Macau, and Galaxy Entertainment Group. Subsequently, another three casino operators, Sands China, MGM China Holdings, and Melco Resorts and Entertainment Ltd, were allowed into the market via sub-concessions spun off from the three original concessionaires selected in the 2002 public tender. As all six gaming concessions and sub-concessionaires will expire by June 2022, the GOM is now revising the city’s gaming laws and plans to complete the task by the fourth quarter of 2021, before submitting a finalized draft bill to the Legislative Assembly. One of the nine factors that the GOM will consider for the renewal of the gaming licenses is the casino operator’s CSR (corporate social responsibility) performance. Unlike 2002, the GOM will likely require potential casino operators to increase their organization’s CSR efforts in Macau and to do more to facilitate Macau’s economic diversification. In November 2019, the Business Awards of Macau presented the Gold Award to Galaxy Entertainment Group for its CSR initiatives.

Macau is not a member of the OECD, and hence, the OECD Guidelines for Multinational Enterprises are not applicable to Macau companies.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

9. Corruption

Mainland China extended in February 2006 the United Nations Convention Against Corruption to Macau. Macau has laws to combat corruption by public officials and the private sector. Anti-corruption laws are applied in a non-discriminatory manner and effectively enforced. One provision stipulates that anyone who offers a bribe to foreign public officials (including officials from mainland China, Hong Kong, and Taiwan) and officials of public international organizations in exchange for a trade deal could receive a jail term of up to three years or fines.

The CCAC is a member of the International Association of Anti-Corruption Authorities and a member of the Anti-Corruption Action Plan for Asia and the Pacific. The CCAC’s guidelines on prevention and repression of corruption in the private sector and a booklet Corruption Prevention Tips for Private Companies provide rules of conduct that private companies must observe. In January 2019, the GOM completed a public consultation on public procurement to create a legal framework through which the GOM will seek to promote an efficient and transparent regime.

Resources to Report Corruption

CHAN Tsz King, CommissionerCommission Against Corruption105, Avenida Xian Xing Hai, 17/F, Centro Golden Dragon, Macau+853- 2832-6300 ccac@ccac.org.mo 

10. Political and Security Environment

Macau is politically stable. The U.S. Consulate General is not aware of any incidents in recent years involving politically motivated damage to projects or installations.

Macau enacted its own National Security Law (NSL) in 2009. While human rights groups raised concerns at the time that the NSL’s “vague and broad provisions” would erode freedom of association and expression in Macau, the passage of the Macau NSL was not as controversial as the one in Hong Kong, and no one has been charged under the Macau NSL since its enactment in 2009.

In 2021, Macau election authorities for the first time in the history of the SAR disqualified 21 pro-democracy candidates from running in its Legislative Assembly election. Macau’s pro-democracy politicians, which traditionally occupied a small minority in its legislature, were disqualified for disloyalty to the Macau SAR and PRC government. The absence of pro-democracy candidates on the ballot caused voter turnout to reach its lowest level in more than twenty years.

Macau continues to enforce restrictions of admission and travel controls due to COVID-19 related concerns, including compulsory COVID testing and self-quarantine upon arrival. As of March 16, 2021, foreign nationals from areas outside mainland China, Hong Kong, and Taiwan are still prohibited from entering Macau, though exceptions are in place for some foreigners related to Macau residents, students, and essential workers, or for select business or academic reasons. Foreign nationals entering from mainland China will need to have been physically present in mainland China for 21 consecutive days before entering Macau. The Macau government did not provide a timeline for re-opening the borders for foreign nationals apart from those from mainland China, Hong Kong, and Taiwan.

Since January 2020, U.S. citizens living in Macau have been unable to obtain in-person consular services due to ongoing COVID-19 restrictions mandated by the Macau government. Mail-in services can be an acceptable alternative in certain situations but cannot replace services that require a personal appearance before a consular officer such as the issuance of citizenship documents for children born in Macau and renewals of minor/first-time adult passports.

11. Labor Policies and Practices

Macau’s unemployment rate stood at 3.1 percent for the entire population in December 2021. Foreign businesses cite a constant shortage of skilled workers – a result of the past decade’s boom in entertainment facilities – as a top constraint on their operations and future expansion. The government is studying proposals to resolve the human resources problem. For example, Macau has labor importation schemes for unskilled and skilled workers who cannot be recruited locally. However, both local and foreign casino operators in Macau are required by law to employ only Macau residents as croupiers. Taxi and bus drivers must also be local residents. There is no such restriction imposed on any other sector of the economy.

Macau does not have any policies that waive labor laws to attract or retain investment. The rights for workers to form trade unions and to strike are both enshrined in the Basic Law, but there are no laws in Macau that specifically deal with those rights. The law does not provide that workers can collectively bargain, and while workers have the right to strike, there is no specific protection in the law from retribution if workers exercise this right. Labor unions are independent of the government and employers, by law and in practice.

According to the Labor Relations Law, a female worker cannot be dismissed, except with just cause (e.g., willful disobedience to orders given by superiors, or violation of regulations on occupational hygiene and safety), during her pregnancy or within three months of giving birth. In May 2020, the GOM amended the Labor Relations Law specifically to extend the minimum paid maternity leave period and introduce employer-paid paternity leave. Under the new amendment, female employees are entitled to at least 70 days of maternity leave while fathers are entitled to five working days of employer-paid paternity leave.

In practice, either the employer or the employee may rescind the labor contract with or without just cause. In general, any circumstance that makes it impossible to continue the labor relation can constitute just cause for rescission of the contract. If the employer terminates the contract with the worker without just cause, the employer must pay the employee severance pay. In the event of dismissal, with or without just cause, employees are entitled to compensation depending on the length of the employment relationship. In addition, Macau’s social security system, which is regulated by Decree 84/89/M, provides local workers with economic aid when they are elderly, unemployed, or sick.

Workers who believe they were dismissed unlawfully can bring a case to court or lodge a complaint with the Labor Affairs Bureau. Even without formal collective bargaining rights, companies often negotiate with unions, although the government may act as an intermediary. There is no indication that past disputes or appeals were subject to lengthy delays.

The Labor Relations Law does not contain provisions regarding collective bargaining, which is not common at the company or industry level.

The GOM has put measures in place to replace some foreign workers with Macau residents. Macau has a law imposing criminal penalties for employers of illegal migrants and preventing foreign workers from changing employers in Macau. The government has used the proceeds of a tax on the import of temporary workers for retraining local unemployed people.

Effective November 1, 2020, Macau employees are protected by the universal minimum wage law which stipulates that the monthly salary of Macau employees must be at least MOP 6,656 (USD 832), with a minimum hourly wage of MOP 32 (USD 4).

Special note on COVID-19: In May 2020, Macau imposed additional COVID entry restrictions to Blue Card holders (foreign workers holding non-resident work permits), effectively barring them from returning to Macau even if their Blue Card is still valid.

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) 2020 $24,300 2020 $25,586 https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=MO 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $398 2019 $2,530 BEA data available at https://apps.bea.gov/international/
factsheet/
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $17 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 80% 2019 71.3% UNCTAD data available at

https://unctad.org/topic/investment/
world-investment-report
  

*Source for Host Country Data: Macau Statistics and Census Service 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (through 2020)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 37,012 100% Total Outward 8,557 100%
China, P.R: Hong Kong 10,190 28% China, P.R: Mainland 7,480 87%
Cayman Island 8,720 24% China, P.R: Hong Kong 1,263 15%
China, P.R: Mainland 7,341 20% Vietnam 56 1%
British Virgin Islands 5,913 16%
United States 2,094 6%
“0” reflects amounts rounded to +/- USD 500,000.

 

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries  

134,753

100% All Countries  

46,333

100% All Countries  

88,420

100%
China, P.R: Mainland  

51,181

 

38%

China, P.R: Mainland  

16,612

36% China, P.R: Mainland  

34,569

39%
China, P.R.: Hong Kong  

16,327

 

12%

China, P.R.: Hong Kong  

8,218

18% British Virgin Islands  

10,039

11%
 

United States

 

14,743

11% Cayman Islands  

6,178

13% United States  

8,965

10%
 

Cayman Islands

 

12,119

9% United States  

5,777

12%  

China, P.R.: Hong Kong

 

8,109

9%
British Virgin Islands  

10,051

7% Luxembourg  

2,964

6% Cayman Islands 5,941 7%

 

14. Contact for More Information:

Timothy J, Giangarlo , Consul, Economic Affairs
U.S. Consulate General Hong Kong and Macau
26 Garden Road, Central

Maldives

Executive Summary

The Republic of Maldives comprises 1,190 islands in 20 atolls spread over 348 square miles in the Indian Ocean. Tourism is the main source of economic activity for Maldives, directly contributing close to 30 percent of GDP and generating more than 60 percent of foreign currency earnings. The tourism sector experienced impressive growth, from 655,852 arrivals in 2009 to 1.7 million in 2019, before a steep decline in 2020 resulting from the COVID-19 pandemic. Tourism began to recover in late 2020 and reached 1.3 million in 2021. This recovery in tourism will likely continue to drive the economy. Following the COVID-19 outbreak, the government re-emphasized the need to diversify, with a focus on the fisheries and agricultural sectors.

GDP growth averaged six percent during the decade through 2019, lifting Maldives to middle-income country status. Per capita GDP is estimated at USD 6,698 in 2020, the highest in South Asia. However, income inequality and a lack of employment opportunities remain a major concern for Maldivians, especially those in isolated atolls. Following the COVID-19 outbreak, GDP fell 33.5% percent in 2020. With the tourism industry’s recovery, GDP grew 31.6 percent in 2021.

Maldives is a multi-party constitutional democracy, but the transition from long-time autocracy to democracy has been challenging. Maldives’ parliament ratified a new constitution in 2008 that provided for the first multi-party presidential elections. In 2018, Ibrahim Mohamed Solih of the Maldivian Democratic Party was elected president, running on a platform of economic and political reforms and transparency, following former President Abdulla Yameen whose term in office was marked by corruption, systemic limitations on the independence of parliament and the judiciary, and restrictions on freedom of speech, press, and association. The MDP also won a super majority (65 out of 87) seats in parliamentary elections in April 2019, the first single-party majority in Maldives since 2008. President Solih pledged to restore democratic institutions and the freedom of the press, re-establish the justice system, and protect fundamental rights. Corruption across all sectors, including tourism, was a significant issue under the previous government and remains a concern.

Serious concerns also remain about a small number of violent Maldivian extremists who advocate for attacks against secular Maldivians and may be involved with transnational terrorist groups. In February 2020, attackers stabbed three foreign nationals – two Chinese and one Australian – in several locations in Hulhumalé. ISIS claimed responsibility for an April arson incident on Mahibadhoo Island in Alifu Dhaalu atoll that destroyed eight sea vessels, including one police boat, according to ISIS’ online newsletter al-Naba. There were no injuries or fatalities. Speaker of Parliament and former President Mohamed Nasheed was nearly killed in a May 6, 2021, IED attack motivated by religious extremism. Nasheed sustained life threatening injuries and several members of his security and bystanders were also injured. Nine individuals have been charged in connection with the attack, with one already convicted.

Large scale infrastructure construction in recent years contributed to economic growth but has resulted in a significant rise in debt. The Maldives’ debt-to-GDP ratio increased from 58.5 percent in 2018 to an estimated 61.8 percent in 2019 according to the World Bank (WB); this further increased to 138 percent in 2020 according to the Ministry of Finance (MoF), an increase driven by a sharp drop-off in government revenue.

Maldives welcomes foreign investment, although the ambiguity of codified law and competition from politically influential local businesses act as deterrents. U.S. investment in Maldives has been limited and focused on the tourism sector, particularly hotel franchising and air transportation. In 2021, construction, transportation, fisheries, and renewable energy also benefited from increased FDI.

On December 28, 2020, Maldives submitted an updated Nationally Determined Contribution (NDC) which includes an enhanced ambition of 26 percent decrease in emissions and carbon neutrality by 2030, conditioned on receiving financial, technological, and technical support.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 85 of 175 http://www.transparency.org/
research/cpi/overview
Global Innovation Index 2021 N/A https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 N/A https://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2020 $6,490 https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

There is limited but growing awareness of responsible business conduct (RBC) or corporate social responsibility (CSR) among the business elite and tourism resort owners.  All new government leases for tourism resorts contain CSR requirements and individual resorts often implement their own RBC programs.  However, the government does not have a consistent policy or national action plan to promote responsible business conduct. As of March 2022, the Ministry of Economic Development is in the final stages of drafting an Industrial Relations bill and an Occupational Health and Safety bill. Both bills are scheduled to be submitted to Parliament during the first session of 2022.

Several workers’ organizations monitor and advocate for RBC regarding workers’ rights, the most active of which is the Tourism Employees Association of the Maldives (TEAM). Further, many NGOs advocate for RBC in environment-related issues. Civil society organizations (CSOs) often work together to campaign for the introduction of new laws such as an Industrial Relations Law and an Occupational Health and Safety Law. These CSOs can function without harassment from the government, though COVID-related restrictions during the pandemic made conducting their activities difficult.

9. Corruption

Maldives made significant progress in its efforts to increase its transparency, jumping from 130 out of 180 countries in the Transparency International Corruption Perception index in 2019 to 75th in 2020. Its score increased from 29 out of 100 to 43 out of 100, surpassing that of regional competitors like Sri Lanka, India, and Pakistan. In 2021, Maldives fell ten spots in the rankings and saw its score fall to 40. Still, corruption practices exist at all levels of society, threatening inclusive and sustainable economic growth.

The Solih administration has publicly pledged to tackle widespread corruption and judicial reform.  As part of President Solih’s first 100 business day agenda, he established a Presidential Commission on Corruption and Asset Recovery to investigate corruption cases originating between February 2012 and November 2018.  As of March 2022, the commission had not issued a report of its findings.  Additional measures towards increased transparency include requiring public financial disclosures for cabinet members, political appointees, and all members of parliament. On December 15, 2021, the Parliament voted to dismiss all members of the Anti-Corruption Commission (ACC) following a performance audit, which found that more than 16,000 cases were still pending.

Maldives law provides criminal penalties for corruption by officials, but enforcement is weak.  The law on prevention and punishment of corruption (2000) defines bribery and improper pecuniary advantage and prescribes punishments.  The law also outlines procedures for the confiscation of property and funds obtained through the included offenses.  Penalties range from six months to 10 years banishment, or jail terms.  According to non-governmental organizations, a narrow definition of corruption in the law, and the lack of a provision to investigate and prosecute illicit enrichment, limited the Anti-Corruption Commission’s work.

Maldives acceded to the United Nations Convention against Corruption in March 2007, and under the 2008 Constitution, an independent Anti-Corruption Commission was established in December 2008.  The responsibilities of the Commission include inquiring into and investigating all allegations of corruption by government officials; recommending further inquiries and investigations by other investigatory bodies; and recommending prosecution of alleged offenses to the prosecutor general, where warranted.  The Commission does not have a mandate to investigate cases of corruption of government officials by the private sector.

Maldives is a party to the UN Anticorruption Convention.  Maldives is not a party to the OECD Convention on Combatting Bribery.

A number of domestic human rights groups generally operated without government restriction, investigating and publishing their findings on human rights cases.  Government officials, however, often have not been cooperative or responsive to their views.  Upon assumption of office, President Solih’s administration pledged to submit a new NGO bill that would increase protections for non-government organizations. The bill completed parliamentary debate and is undergoing committee review as of March 2022.

10. Political and Security Environment

Maldives is a multi-party constitutional democracy, but the transition from long term autocracy to democracy has been challenging.  Maldives gained its independence from Britain in 1965.  For the first 40 years of independence, Maldives was run by President Ibrahim Nasir and then President Maumoon Abdul Gayoom, who was elected to six successive terms by single-party referenda.  August 2003 demonstrations forced Gayoom to begin a democratic reform process, leading to the legalization of political parties in 2005, a new constitution in August 2008, and the first multiparty presidential elections later that year, through which Mohamed Nasheed was elected president.

In February 2012 Nasheed resigned under disputed circumstances. President Abdulla Yameen’s tenure, beginning in 2013, was marked by corruption, systemic limitations on the independence of parliament and the judiciary, and restrictions on freedom of speech, press, and association.  Yameen’s tenure was also characterized by increased reliance on PRC-financing for large scale infrastructure projects, which were decided largely under non-transparent circumstances and procedures. External debt rose rapidly during his tenure.

In September 2018, Solih won his campaign for president running on a platform of economic and political reforms and transparency.  His party, the MDP, then won a super majority (65 out of 87) seats in parliamentary elections in April 2019, the first single-party majority since the advent of multi-party democracy.  President Solih pledged to restore democratic institutions and the freedom of the press, re-establish the justice system, and protect fundamental rights.

There is a global threat from terrorism to U.S. citizens and interests.  Attacks could be indiscriminate, including in places visited by foreigners and “soft targets” such as restaurants, hotels, recreational events, resorts, beaches, maritime facilities, and aircraft.  Concerns have increased about a small number of potentially violent Maldivian extremists who advocate for attacks against secular Maldivians and are involved with transnational terrorist groups.  For more information, travelers may consult the 2020 Country Reports on Terrorism at https://www.state.gov/reports/country-reports-on-terrorism-2020/maldives/.

U.S. citizens traveling to Maldives should be aware of violent attacks and threats made against local media, political parties, and civil society.  In the past there have been killings and violent attacks against secular bloggers and activists. For more information, travelers may consult the State Department’s 2020 Human Rights Report at https://www.state.gov/reports/2020-country-reports-on-human-rights-practices/maldives/ and https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Maldives.html.

Maldives has a history of political protests. Some of these protests have involved use of anti-Western rhetoric. There are no reports of unrest or demonstrations on the resort islands or at the main Velana International Airport.  Travelers should not engage in political activity in Maldives. Visitors should exercise caution, particularly at night, and should steer clear of demonstrations and spontaneous gatherings.  Those who encounter demonstrations or large crowds should avoid confrontation, remain calm, and depart the area quickly.  While traveling in Maldives, travelers should refer to news sources, check the U.S. Mission to Maldives website and https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Maldives.html for possible security updates, and remain aware of their surroundings at all times.

The U.S. Mission to Maldives is based in Colombo, Sri Lanka. There are no U.S. diplomatic personnel resident in Maldives, constraining the U.S. government’s ability to provide services to U.S. citizens in an emergency.  Many tourist resorts are several hours’ distance from Malé by boat, necessitating lengthy response times by authorities in case of medical or criminal emergencies. For more information, visit https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Maldives.html.

11. Labor Policies and Practices

Expatriate labor is allowed into Maldives to meet shortages.  Maldives Immigration reported approximately 200,000 registered expatriate workers in the country in 2019, mostly in tourism, construction, and personal services.  The government reported 63,000 unregistered expatriate migrant workers, but non-governmental sources estimate the number is even higher.  During May 2020, President Solih announced that the government would repatriate unregistered Bangladeshi nationals in the Maldives, following which the Ministry of Foreign Affairs, the Ministry of Economic Development and the Bangladeshi High Commission collaboratively began a repatriation exercise, with the assistance from the Bangladeshi government. Close to 9,000 unregistered migrant workers were repatriated under the program as of March 2022.

Notwithstanding the labor shortage, unemployment in Maldives is high, as many youths leaving lower secondary school have few in-country avenues to pursue higher secondary education.  Although resorts may offer employment opportunities, locals are less likely to take advantage of these jobs as resort employment practices require employees to live and work on the island for long stretches of time, away from family.  Religious and cultural reasons also discourage women from seeking employment on distant islands.

The Law on Foreign Investments requires Maldivian nationals to be employed unless employment of foreigners is necessary.  See section on “Performance and Data Localization” for more detail.

The 2008 the Employment Act and a subsequent amendment to the Employment Act recognize workers’ right to strike and establish trade unions; however, current law does not adequately govern the formation of trade unions, collective bargaining, and the right to association.  While the constitution provides for workers’ freedom of association, there is no law protecting it, which is required to allow unions to register and operate without interference and discrimination.  As a matter of practice, workers’ organizations are treated as civil society.

A regulation on strikes requires employees to negotiate with the employer first, and if this is unsuccessful, then the employees must file advance notice prior to a strike.  The Freedom of Peaceful Assembly Act effectively prohibits strikes by workers in the resort sector, the country’s largest money earner.  Employees in the following services are also prohibited from striking: hospitals and health centers, electricity companies, water providers, telecommunications providers, prison guards, and air traffic controllers.

Maldives became a member of the International Labor Organization in 2008 and has ratified the eight core ILO Conventions.  Maldives has not ratified the four priority governance ILO Conventions.  In 2019, the ILO called on the Government to take the necessary measures to eliminate child labor, including through adopting a national policy and a national action plan to combat child labor in the country. In November 2019, President Solih ratified the Child Rights Protection Act, which prohibits child labor. On August 2020, the government published the General Regulations under the Child Rights Protection Act.

14. Contact for More Information

Brian Husar
Political and Economic Officer
U.S. Mission Maldives
Colombo, Sri Lanka
Phone: +94-11-249-8500
Email:  commercialcolombo@state.gov 

Malta

Executive Summary

The Republic of Malta is a small, strategically located country 60 miles south of Sicily and 180 miles north of Libya, astride some of the world’s busiest shipping lanes. A politically stable parliamentary republic with a free press, Malta is considered a safe, secure, and welcoming environment for American investors to do business.

Malta joined the European Union in 2004, the Schengen visa system in 2007, and the Eurozone in 2008. With a population of about 516,100 and a total area of only 122 square miles, it is the EU’s smallest country in geographic size. The economy is based on services, primarily shipping, banking and financial services, online gaming, tourism, and professional, scientific, and technical activities. Manufacturing also plays a small, but important role. Maltese and English are the official languages.

Given its central location in one of the world’s busiest trading regions, as well as its relatively small economy, Malta recognizes the important contribution that international trade and investment provides to the generation of national wealth.

After robust economic growth of 5.3 percent in 2019, the Maltese economy registered a severe contraction in 2020 of -8.2 percent brought about by the COVID-19 pandemic. However, thanks to the improvement of the public health situation in Malta, which allowed for a significant relaxation of restrictive measures, real GDP growth rebounded strongly to 5.9 percent in 2021. Malta’s unemployment rate stood at 3.1 percent in February 2022.

While the top three credit rating agencies predicted the economic impact of the pandemic would be less pronounced on the Maltese economy when compared to other EU neighboring countries, Moody’s moved from a stable to a negative outlook. The current sovereign credit ratings are A-/A-2 with a stable outlook (S&P); A2 with a negative outlook (Moody’s); and A+ with a stable outlook (Fitch). Moody’s recent change to a negative outlook on the government’s debt burden is attributed to the Financial Action Task Force’s greylisting and risks linked to the recovery of the tourism sector.

In 2020, the Government of Malta revamped its citizenship-by-investment program, which provides citizenship by naturalization to applicants (and their dependents). The new program still offers a track to citizenship through the introduction of a residency requirement before the acquisition of Maltese citizenship. The residency program offers two investment routes to acquire citizenship: i) individuals can apply after a one-year residency period if they invest €750,000 ($875,000) or more; or ii) applicants can opt to pay €600,000 ($700,500) if they apply after a three-year residency period.  IIP conditions include a €700,000 ($814,000) minimum for purchasing immovable property, or a €16,000 per year minimum for leasing immovable property (which must be retained for at least five years), and a €150,000 minimum for investment in stocks, bonds, or debentures. Applicants must also make a mandatory €10,000 ($11,600) philanthropic donation and pass a due diligence test before filing the application. In March 2022, the government suspended the processing of applications for nationals of the Russian Federation and Belarus. The suspension applies to both Malta’s citizenship-by-investment scheme as well as a residency through investment scheme, which must be renewed on a yearly basis.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 49 of 175 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 27 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $1.5 billion https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD 25,370 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The Malta Investment Management Company Limited (MIMCOL) was established in 1988 to manage, restructure, and selectively divest the Government of Malta from state-owned enterprises (SOEs). MIMCOL also promotes private sector investment using cost-effective business practices across various SOEs. MIMCOL created strategies leading to the dissolution of SOEs with limited commercial prospects, as well as the profitable spin-off of non-core operations with commercial potential. MIMCOL’s focus then turned to SOEs deemed of strategic national value, but whose inefficient operations were reflective of a lack of competition. Eventually, MIMCOL prepared most SOEs for privatization and sold them off. Today, MIMCOL’s role has evolved into specialized assignments, such as strategic reviews of the management and operations of important parastatal companies and corporations operating in various sectors.MIMCOL’s sister company Malta Government Investments (MGI) holds a portfolio of 17 companies (excluding companies falling under the responsibility of other ministries and investments held directly by the government). This portfolio is not well defined. Most government investments are held by either the Board of Trustees within the Ministry for the Economy, European Funds and Lands or by Malta Government Investments Limited (MGI) as an agent for the Government of Malta.

8. Responsible Business Conduct

Corporate social responsibility (CSR) has become more prevalent in Malta in recent years, as global concerns such as climate change have risen to the forefront and as the EU has raised expectations for its member states regarding CSR. An increasing number of companies in Malta recognize the importance of their role in society and the real benefits of adopting a proactive approach to CSR.

The Maltese government does not specifically request adherence to OECD Guidelines for Multinational Enterprises; however, it is expected that multinationals follow generally accepted CSR principles.

Under the Code of Good Corporate Governance Guidelines, issued by the Malta Financial Services Authority in 2006, boards should seek to adhere to accepted CSR principles in day-to-day management practices and work closely with “suppliers, customers, employees, and public authorities.” Although corporate governance guidelines are non-binding in nature, public interest companies should highlight the adherence to such corporate governance principles in their annual reports.

In line with recent amendments to the Companies Act, the directors’ report that accompanies the annual financial statements should include an analysis of both financial and non-financial key performance indicators relevant to the particular business, including information relating to environmental matters.

9. Corruption

Maltese law provides criminal penalties for official corruption, and the government generally implements these laws effectively. The Malta Police Force and the Permanent Commission against Corruption are responsible for combating official corruption. Past news reports suggest a number of government corruption allegations, which have resulted in legal action and resignations.

While corruption remains an area of concern more broadly, public sector corruption, including bribery of public officials, is not a significant challenge for U.S. firms operating in Malta. The Council of Europe’s Group of States against Corruption (GRECO) completed its fifth evaluation of Malta in the autumn of 2018 and its findings were published in September 2019. Following the four previous rounds of evaluation and a follow-up compliance review, Malta introduced a number of legislative measures to combat corruption and is currently in the process of introducing further measures to improve its financial oversight.

In 2019, the Committee of the Experts on the Evaluation of Anti Money Laundering Measures and the Financing of Terrorism (MONEYVAL) identified several shortcomings an gaps within the local AML/CFT framework, which triggered an assessment by the Financial Action Task Force (FATF). FATF placed Malta on the Jurisdictions under Increased Monitoring list, also known as the grey list in June 2021.

In May 2021, MONEYVAL conducted their follow-up report on Malta, where they found that the country made considerable effort in its fight against money laundering and terrorist financing, giving the country a clean bill of health.

In March 2022, the FATF plenary noted positive developments in Malta’s efforts on AML/CFT and announced that an evaluation team would visit the country to assess the implemented reforms up close, with an eye to discuss the country’s position on the grey list during the June 2022 Plenary.

The latest MONEVAL follow up report is available at https://rm.coe.int/moneyval-2021-7-fur-malta/1680a29c70 

In the wake of the FATF greylisting, Malta has taken significant steps over the years to combat corruption, including the establishment in 2002 of the Financial Intelligence Analysis Unit (FIAU) to support domestic and international law enforcement investigative efforts. The Prevention of Money Laundering and Funding of Terrorism Regulations were transposed into Maltese law in July 2008, and conform to EU Directive 2005/60/EC (the Third Directive) and Directive 2006/70/EC. Malta transposed the Fourth Anti-Money Laundering Directive in December 2017 and, in April 2018, announced its first national Anti-Money Laundering and Countering the Funding of Terrorism (AML/CFT) Strategy.

Local Laws: U.S. firms should familiarize themselves with local anti-corruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s Foreign Commercial Service (FCS) can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the FCS can provide services that may assist U.S. companies in conducting due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The FCS can be reached directly through its offices in major U.S. and foreign cities or through its website at www.trade.gov/cs . The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Department of Commerce’s Advocacy Center and Department of State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” website at http://tcc.export.gov/Report_a_Barrier/index.asp .

Guidance on the U.S. Foreign Corrupt Practices Act (FCPA): The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of DOJ’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section website: http://www.justice.gov/criminal/fraud/fcpa . Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce website at https://ogc.commerce.gov/collection/office-chief-counsel-international-commerce .

Additional Anti-Corruption Resources

Useful resources for individuals and companies regarding combating corruption in global markets include the following:

Information about the OECD Anti-Bribery Convention, including links to national implementing legislation, good practice guidance and country monitoring reports, is available at: http://www.oecd.org/daf/anti-bribery/oecdantibriberyconvention.htm .

Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. http://www.transparency.org/cpi2015 .

TI also publishes an annual Global Corruption Report that provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools.

The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. http://info.worldbank.org/governance/wgi/index.aspx#home .

The World Bank Business Environment and Enterprise Performance Surveys are available at http://www.enterprisesurveys.org/ .

The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. The latest reports are available at: http://reports.weforum.org/global-enabling-trade-report-2016/ .

Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/g/drl/rls/hrrpt/.

Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 92 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. https://www.globalintegrity.org/annual-reports/ .

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Malta signed the UN Anticorruption Convention in 2005 and ratified it in 2008, but it has not signed the OECD Convention on Combatting Bribery.

10. Political and Security Environment

Malta has faced some political turmoil since the 2017 assassination of journalist Daphne Caruana Galizia, whose reporting focused on local government corruption and allegations of money laundering. Civil society protests led to resignations of a number of high-level officials, including the Prime Minister. Since then the country has elected a new Prime Minister who expressed commitment to good governance and rule of law reform, including increased protections for journalists. Despite this isolated cased of targeted violence against a journalist, Malta is generally considered to have a safe political system and is secure relative to other countries in the region.

11. Labor Policies and Practices

Malta’s labor force at the end of 2021 stood at 274,110 (69.3 percent male), the employment rate of women remains low, parenthood has a significant effect on the participation of women on the labor market, and the gender employment gap is currently one of the highest in the EU. The country’s population is about 516,100, the smallest in the EU. Employed foreign nationals in Malta and Gozo at the end of 2020 amounted to 70,402. Since the joining of the Maltese Islands in the European Union, employment of foreign nationals increased drastically. EU member states share 44% of total foreign employment, Third Country Nationals (TCNs) share 55% of total foreign employment; and EFTA countries (such as Iceland, Liechtenstein, Norway and Switzerland) share 1% of total foreign employment. For 2021, the national minimum monthly wage was $872 (€784.72). The estimated average gross annual salary of employees stood at $23,307 (€20,969); this amount refers to the basic salary and excludes extra payments such as overtime, bonuses, and allowances. In 2021, on a sectoral basis, the highest recorded average gross annual salary for employees was in financial and insurance activities. Social insurance contributions add ten percent to the wage bill, together with a 0.3 percent contribution to the government maternity fund. Free or subsidized meals, commuting allowances, and health insurance are the most common fringe benefits. In addition, employees are entitled to 25 days of annual leave and public holidays that fall on a weekday. National law establishes a minimum number of sick leave days.

Foreign companies that have invested in Malta have a high regard for the ability, productivity, and learning potential of Maltese workers, nearly all of whom speak English. In some industries, labor productivity is comparable to other countries in Western Europe. Maltese managers now run most of the foreign firms in Malta. Malta enjoys one of the lowest strike rates in Western Europe, and labor unrest is unlikely in the foreseeable future. The Government of Malta strictly adheres to the ILO convention protecting workers’ rights.

14. Contact for More Information

Maria Cassar
Economic and Commercial Specialist
U.S. Embassy, Malta
+356 2561 4120
maltabusiness@state.gov

Mauritius

Executive Summary

Mauritius is an island nation with a population of 1.3 million people. The Government of Mauritius (GoM) claims an Exclusive Economic Zone (EEZ) of approximately 2.3 million square kilometers, but its undisputed EEZ amounts to approximately 1.3 million square kilometers, in addition to jointly managing about 388,000 square kilometers of continental shelf with Seychelles. Mauritius has maintained a stable and competitive economy. Real GDP grew at an average of 4.7 percent from 1968 to 2017, enabling the country to achieve middle-income status in less than 50 years. In 2020, Mauritius’ GDP was $11 billion and its gross national income per capita amounted to $10,230. In July 2020, the World Bank classified Mauritius as a high-income country based on 2019 data, but Mauritius reverted to upper-middle income status in 2021 due to the effects of the COVID-19 pandemic.

The pandemic severely damaged the economy. Tourism, which contributed around 20 percent to the economy pre-COVID, did not return as expected following the reopening of borders in October 2021. There was a moderate rebound in exports of goods, but exports of services declined further due to the difficult situation in the tourism sector. The GoM estimated that GDP growth would increase 4.8 percent in 2021, with contractions in tourism (18.8 percent) and sugar (9.6 percent), according to Statistics Mauritius.  The IMF forecasted that the economy would grow 6.7 percent growth in 2022. Unemployment was estimated at 9.2 percent at the end of 2020, while inflation for 2021 was 4.0 percent.

One of the poorest countries in Africa at independence in 1968, Mauritius has become one of the continent’s wealthiest. It successfully diversified its economy away from sugarcane monoculture to a manufacturing and service-based economy driven by export-oriented manufacturing (mainly textiles), tourism, financial and business services, information and communication technology, seafood processing, real estate, and education/training. Before COVID-19, authorities planned to stimulate economic growth in five areas: serving as a gateway for investment into Africa; increasing the use of renewable energy; developing smart cities; growing the blue economy; and modernizing infrastructure, especially public transportation, the port, and the airport.

In November 2021 at the Conference of Parties 26 (COP 26), the GoM pledged to reduce its greenhouse gas emissions to 40 percent of the business-as-usual scenario 2030 figures. To achieve this target, the government plans to undertake major reforms in its energy, transport, waste, refrigeration and air-conditioning, agriculture, and conservation sectors. The government aims to produce 60 percent of the country’s energy from green sources by 2030, to phase out the total use of coal before 2030, and to increase energy efficiency by 10 percent based on 2019 figures. As part of the national strategy to modernize the public transport system, the light rail network that launched in 2019 is expected to be extended. The government was also working to diversify 70 percent of waste from the landfill by 2030 through the implementation of composting plants, sorting units, biogas plants and waste-to-energy plants.

In 2020 and 2021, however, officials focused on supporting sectors whose revenue disappeared due to the pandemic. In May 2020, the Bank of Mauritius (BoM) set up the Mauritius Investment Corporation (MIC) to mitigate the economic downturn due to the pandemic. The BoM invested $2 billion of foreign exchange reserves in the MIC which were largely directed towards the pharmaceutical and blue economy sectors, in addition to assisting companies that suffered during the pandemic. The BoM also intervened regularly on the domestic foreign exchange market to supply foreign currency.

Government policy in Mauritius is pro-trade and investment. The GoM has signed Double Taxation Avoidance Agreements with 46 countries and maintains a well-regarded legal and regulatory framework. Mauritius has been eager to attract foreign direct investment from China and India, as well as courting more traditional markets like the United Kingdom, France, and the United States. The China-Mauritius free-trade agreement went into effect on January 1, 2021. Mauritius also signed a preferential trade agreement with India, which went into effect in April 2021. The GoM promotes Mauritius as a safe, secure place to do business due to its favorable investment climate and tradition as a stable democracy. Corruption in Mauritius is low by regional standards, but recent political and economic corruption scandals illustrated there was room for improvement in terms of transparency and accountability. For instance, a commercial dispute between a U.S. investor and a parastatal partner that turned into a criminal investigation has raised questions of governmental impartiality.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 49 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 52 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $8,300 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $10,230 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The government’s stated policy is to act as a facilitator to business, leaving production to the private sector. The government, however, still controls key services directly or through parastatal companies in the power and water, television broadcasting, and postal service sectors.

The government also holds controlling shares in the State Bank of Mauritius, Air Mauritius (the national airline), and Mauritius Telecom. These state-controlled companies have Boards of Directors on which seats are allocated to senior government officials. The government nominates the chairperson and CEO of each of these companies. In April 2020, Air Mauritius requested voluntary administration, similar to Chapter 11 bankruptcy in the United States, because it could not comply with financial obligations. The national airline exited voluntary administration in September 2021 following a $280 million government bailout in the form of a loan arrangement through the central bank’s Mauritius Investment Corporation. In October 2021, a newly created state-owned enterprise, Airport Holdings Ltd., acquired 9.43 million shares in Air Mauritius, gaining effective control of the airline.

The government also invests in a wide variety of Mauritian businesses through its investment arm, the State Investment Corporation. The government is also the owner of Maubank and the National Insurance Company.

Two parastatal entities are involved in the importation of agricultural products: the Agricultural Marketing Board (AMB) and the State Trading Corporation (STC). The AMB’s role is to ensure that the supply of certain basic food products is constant, and their prices remain affordable. The STC is the only authorized importer of petroleum products, liquefied petroleum gas, and flour. SOEs purchase from or supply goods and services to private sector and foreign firms through tenders.

Audited accounts of SOEs are published in their annual reports. Mauritius is part of the OECD network on corporate governance of state-owned enterprises in southern Africa.

The Declaration of Assets Act (DoA Act) was enacted in December 2018 and took effect in June 2019. It provides that certain key officials of the public sector, including chief executives of state-owned enterprises, must declare their assets and liabilities with the Independent Commission Against Corruption (ICAC). The declaration includes the assets and liabilities of spouses and minor children. This declaration is published on the website of ICAC. A list of SOEs is published in the Declaration of Assets (State-owned Enterprises) Regulations 2019: https://www.icac.mu/declaration-of-assets/ .

8. Responsible Business Conduct

The National Committee for Corporate Governance (NCCG) was established under Section 63 of the Financial Reporting Act (2004) and is the coordinating body responsible for all matters pertaining to corporate governance in Mauritius. The NCCG was attached to the Ministry of Financial Services and Good Governance until 2021, when it was recognized as a corporate body following an amendment to the Financial Reporting Act. The purpose of the Committee is to: (i) establish principles and practices of corporate governance; (ii) promote the highest standards of corporate governance; (iii) promote public awareness about corporate governance principles and practices; and (iv) act as the national coordinating body responsible for all matters pertaining to corporate governance. The latest Code of Corporate Governance for Mauritius (2016) was launched on February 13, 2017 and can be accessed at https://nccg.mu/full-code. In 2021, the NCCG also launched a Corporate Governance Scorecard to introduce an objective and quantitative element for companies to report on compliance. The Financial Reporting Council (FRC), also set up under the Financial Reporting Act (2004), aims to advocate for the provision of high-quality reporting of financial and non-financial information by public interest entities and to improve the quality of accountancy and audit service. Mauritius does not have a dedicated center for research on corporate governance.

The Ministry of Financial Services and Good Governance was established following the December 2014 elections. Its mandate is to provide guidance and support for enforcement of good governance and the eradication of corruption. In 2015, the Financial Services Commission introduced a Code of Business Conduct as part of its Fair Market Conduct Program. The Financial Services Commission has also introduced several measures in 2020 and 2021 to comply with recommendations made by the Financial Action ask Force for enhancing anti-money laundering and combatting terrorism financing standards.

The Mauritius Institute of Directors (MIoD) is an independent, private sector-led organization that also promotes high standards and best practices of corporate governance, with additional information available at http://www.miod.mu .

In 2017, the government set up a National Corporate Social Responsibility (CSR) Foundation, which operated under the Ministry of Social Integration and Economic Empowerment. In 2019, this foundation became the National Social Inclusion Foundation (NSIF). The NSIF is managed by a council consisting of members from the private and public sectors, civil society, and academia. Under the 2016 Finance Act, every company registered in Mauritius must set up a CSR fund and annually contribute the equivalent of 2 percent of its taxable income from of the previous year. In 2017 and 2018, companies were required to remit at least 50 percent of their CSR funds to tax authorities for the National CSR Foundation. The required contribution increased in 2019 to 75 percent for CSR funds set up on or after January 1, 2019. The NSIF is supposed to channel the money to NGO projects in priority areas identified by the government. These priority areas are poverty alleviation, educational support, social housing, family protection, people with severe disabilities, and victims of substance abuse. Further details can be found on the NSIF and MRA websites: https://www.nsif.mu  and https://www.mra.mu/download/CSRGuide.pdf .

9. Corruption

The prevalence of corruption in Mauritius is low by regional standards, but graft and nepotism nevertheless remain concerns and are increasingly a source of public frustration. Several high-profile cases involving corruption have reinforced the perception that corruption exists at the highest political levels, despite the fact that Mauritian law provides for criminal penalties for corruption by officials. According to Transparency Mauritius, the absence of a law regulating the financing of political parties fuels corruption. A former prime minister was arrested in 2015 on allegations of money laundering, though courts have since dismissed all charges. The state prosecutors appealed the last dismissal in late 2019 and court proceedings are ongoing, with the latest hearing held in February 2022. A minister in the previous government stepped down in 2016 after allegations of bribery. In March 2017, allegations surfaced concerning possible political interference in the Financial Services Commission’s issuance of an investment banking license to Angolan billionaire Alvaro Sobrinho, who is being investigated for alleged corruption in Portugal. In March 2018, the president of Mauritius resigned after press reported that she bought apparel, jewelry, and a laptop computer with a credit card provided by an NGO financed by the same Angolan businessman. In June 2020, the prime minister dismissed his deputy prime minister following allegations of bribery and corruption in a public energy contract. In February 2021, the minister of commerce stepped down amid allegations of corruption and abuse of power.

Investors should know that while the constitution and law require arrest warrants to be based on sufficient evidence and issued by a magistrate, police may detain an individual for up to 21 days under a “provisional charge” based on a reasonable suspicion, with the concurrence of a magistrate. Two French businessmen claimed that, in February 2015, authorities held them against their will. A U.S. investor has been unable to leave Mauritius since February 1, 2020, without charges filed against him.

In 2002, the government adopted the Prevention of Corruption Act, which led to the establishment of an Independent Commission Against Corruption (ICAC). ICAC has the power to investigate corruption and money laundering offenses and can also seize the proceeds of corruption and money laundering. The director and board members of ICAC are nominated by the prime minister. The Good Governance and Integrity Reporting Act of 2015 was announced as a measure to recover “unexplained wealth” and came into force in early 2016. Critics of the act dislike its presumption of guilt, which requires the accused to demonstrate a lawful source of questionable assets, as well as the application of the law retroactively for seven years. The 2018 Declaration of Assets Act (DoA) entered into force in June 2019 and defines which public officials are required to declare assets and liabilities to the ICAC. These public officials include members of the National Assembly, mayors, chairpersons and chief executive officers of state-owned enterprises and statutory bodies, among others. This declaration is published on the website of ICAC: https://www.icac.mu/declaration-of-assets/disclosure-of-declarations/ .

Mauritius’ rating by the Corruption Perceptions Index of Transparency International improved in 2021. The country was rated the 49th least-corrupt nation out of 180 countries, compared to 52nd in 2020 and 56th in 2019. However, Mauritius retained its first rank in overall governance in Africa for the 10th consecutive year, according to the 2020 Ibrahim Index of African Governance.

U.S. investors, in conversations with embassy personnel, have not identified corruption as an obstacle to investment in the country. They have, however, encountered attempts for bribery.

Although the country lacks laws on political party financing, Mauritius has legislation to combat corruption by public officials. These include laws dealing with the declaration of assets, asset recovery, prevention of corruption, anti-money laundering, and criminal offenses related to abuse of office by public officials.

However, legal loopholes exist, and enforcement is weak. Allegations of corruption and misallocation of government contracts by public entities occurred in 2020, namely the use of emergency procurement procedures during the pandemic to allegedly enrich friends and family of those in power.

According to Transparency Mauritius, more companies have introduced control and risk management protocols and adopted code of ethics and good business conduct, even if these do no target government officials. The Prevention of Corruption Act targets mainly the public sector, but there is no whistleblower protection law.

Mauritius has ratified the UNCAC, but has not yet adopted all the recommendations, such as the criminalization of corruption in the private sector. According to Transparency Mauritius, NGOs involved in fighting corruption are not given enough protection and funding.

10. Political and Security Environment

Mauritius has a long tradition of political and social stability. Civil unrest and political violence are uncommon. Free and fair national elections are held every five years with the last general elections held in November 2019. Those most recent elections took place without incident. The current prime minister, Pravind Jugnauth previously served as finance minister, and was appointed prime minister 2017 after his father resigned (in accordance with the constitution). Jugnauth won reelection in 2019. In August 2020 and February 2021, civilians engaged in mass protests following allegations of corruption and mismanagement by the government. The protests were orderly and without incident.

Crime rates are low, but petty and violent crime can occur. Visitors should keep track of their belongings at all times due to the potential for pickpocketing and purse-snatching, especially in crowded and tourist areas. Visitors should also avoid walking alone, particularly on isolated beaches and at night, and should avoid demonstrations.

11. Labor Policies and Practices

According to the GoM, employment of Mauritians stood at 476,100 in September 2021 (289,100 males and 187,000 females), a decrease from 507,100 in 2020, and 591,000 in 2019. The number of unemployed stood at 49,800 in September 2021, a decrease from 52,200 in 2020. In 2019, the number of unemployed was estimated at 39,700. The unemployment rate for the third quarter of 2021 was estimated at 9.5 percent, compared to 10.5 percent in the second quarter of 2021 and 10.4 percent in the third quarter of 2020. Employment in large establishments (employing 10 or more persons) as of March 2021 was estimated at 305,532 (186,227 male and 119, 305 female) out of which 30, 013 were foreign workers (23,961 males and 6,052 females).

The labor market remains restricted by rising unemployment among graduates and low-skilled workers, and a high number of unemployed women. It is further characterized by a persistent mismatch between qualifications of the unemployed and the skills required in an increasingly services-oriented economy. Government labor market programs aimed at building human capital have been extended, with policies to develop skills of the unemployed focusing on apprenticeships and placements. In November 2016, the government introduced the National Skills Development Program (NSDP), a fully-funded technical training program for youth, which was still running as of April 2020. The NSDP is managed by the Human Resource Development Council (HRDC), which operates under the Ministry of Education and is responsible for promoting the development of the labor force in Mauritius. The HRDC, with technical and financial support from the French development agency, is also devising a National Skills Development Strategy (NSDS) for 2020-2024. The aim of the NSDS is to improve the effectiveness and efficiency of skills development programs. The HRDC, in collaboration with the Economic Development Board (EDB), has also established a Skills Development Support Scheme for Foreign Direct Investment to support foreign investors in training their employees. Through this scheme, the HRDC provides eligible employers up to 80 percent of the total amount disbursed on training; the remaining 20 percent is incurred by the employer. The objective is to develop technical expertise and specialization, and likewise boost the skills base for attracting FDI.

In 2018, the government introduced the SME Employment Scheme, which allows SMEs to employ recent graduates, whose monthly stipends are paid by the government for one year. In 2019, the government expanded the program to diploma holders.

In 2017, the National Assembly passed the National Employment Act. This act repealed the Employment and Training Act and introduced a modern legislative framework. The act provides the labor market with information on supply and demand of skills, job seekers, and training institutions; promotes placement and training of job seekers, including young persons and persons with disabilities; and promotes labor migration and home-based work.

In November 2017, the Equal Opportunities Act was amended to protect prospective employees with criminal records from discrimination when being considered for recruitment or promotion.

In 2018, the government introduced a minimum monthly wage of 9,000 Mauritian rupees (approximately $209) for all workers, which impacted over 100,000 low-paid workers. In November 2019, the cabinet, following a recommendation from the National Wage Consultative Council, increased the minimum wage again to 10,200 rupees ($237), effective January 2020. The minimum wage was further increased to 10,575 rupees ($246) in January 2022.

Workers’ rights are protected under the 2019 Workers’ Rights Act. The legislation provides, among others: a portable retirement gratuity fund; fair compensation in case of termination; harmonization of working conditions in different sectors; the flexibility to request the right to work from home either on a full- or part-time basis; and equal remuneration for equal work. The act also expands the Equal Opportunities Act through several measures against discrimination in employment and occupation.

Trade unions are independent of the government and employers. Mauritius has an active trade union movement that about 25 percent of the workforce, and labor-management relations are generally positive. The last major strike affecting the economy took place in 1979. The government generally seeks to avoid strikes through a system that promotes settlement through negotiation or arbitration. Disputes are resolved at the Conciliation and Mediation Section of the Ministry of Labor or at the Commission for Conciliation and Mediation. If the matter is not resolved, it is referred to the Employment Relations Tribunal. Mauritius participates actively in the annual International Labor Organization (ILO) conference in Geneva, Switzerland, and adheres to ILO core conventions protecting workers’ rights.

14. Contact for More Information

Anjana Khemraz-Chikhuri
Economic & Commercial Assistant
U.S. Embassy to Mauritius and Seychelles, Port-Louis, Mauritius
+ 230 202 4400
ChikhuriA@state.gov

Mexico

Executive Summary

In 2021, Mexico was the United States’ second largest trading partner in goods and services.  It remains one of our most important investment partners.  Bilateral trade grew 482 percent from 1993-2020, and Mexico is the United States’ second largest export market.  The United States is Mexico’s top source of foreign direct investment (FDI) with a stock of USD 184.9 billion (2020 per the International Monetary Fund’s Coordinated Direct Investment Survey).

The Mexican economy averaged 2.1 percent GDP growth from 1994 to 2021, contracted 8.3 percent in 2020 — its largest ever annual decline — and rebounded 5 percent in 2021.  Exports surpassed pre-pandemic levels by five percent thanks to the reopening of the economy and employment recovery.  Still, supply chain shortages in the manufacturing sector, the COVID-19 omicron variant, and increasing inflation caused the economic rebound to decelerate in the second half of 2021.  Mexico’s conservative fiscal policy resulted in a primary deficit of 0.3 percent of GDP in 2021, and the public debt decreased to 50.1 percent from 51.7 percent of GDP in 2020.  The newly appointed Central Bank of Mexico (or Banxico) governor committed to upholding the central bank’s independence.  Inflation surpassed Banxico’s target of 3 percent ± 1 percent at 5.7 percent in 2021.  The administration maintained its commitment to reducing bureaucratic spending to fund an ambitious social spending agenda and priority infrastructure projects, including the Dos Bocas Refinery and Maya Train.

The United States-Mexico-Canada Agreement (USMCA) entered into force July 1, 2020 with Mexico enacting legislation to implement it.  Still, the Lopez Obrador administration has delayed issuance of key regulations across the economy, complicating the operating environment for telecommunications, financial services, and energy sectors.  The Government of Mexico (GOM) considers the USMCA to be a driver of recovery from the COVID-19 economic crisis given its potential to attract more foreign direct investment (FDI) to Mexico.

Investors report the lack of a robust fiscal response to the COVID-19 crisis, regulatory unpredictability, a state-driven economic policy, and the shaky financial health of the state oil company Pemex have contributed to ongoing uncertainties.  The three major ratings agencies (Fitch, Moody’s, and Standard and Poor’s) maintained their sovereign credit ratings for Mexico unchanged from their downgrades in 2020 (BBB-, Baa1, and BBB, lower medium investment grade, respectively).  Moody’s downgraded Pemex’s credit rating by one step to Ba3 (non-investment) July 2021, while Fitch and S&P maintained their ratings (BB- and BBB, lower medium and non-investment grades, respectively.  Banxico cut Mexico’s GDP growth expectations for 2022, to 2.4 from 3.2 percent, as did the International Monetary Fund (IMF) to 2.8 percent from the previous 4 percent estimate in October 2021.  The IMF anticipates weaker domestic demand, ongoing high inflation levels as well as global supply chain disruptions in 2022 to continue impacting the economy.  Moreover, uncertainty about contract enforcement, insecurity, informality, and corruption continue to hinder sustained Mexican economic growth.  Recent efforts to reverse the 2013 energy reforms, including the March 2021 changes to the electricity law (found to not violate the constitution by the supreme court on April 7 but still subject to injunctions in lower courts), the May 2021 changes to the hydrocarbon law (also enjoined by Mexican courts), and the September 2021 constitutional amendment proposal prioritizing generation from the state-owned electric utility CFE, further increase uncertainty.  These factors raise the cost of doing business in Mexico.

Table 1:  Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 124 of 180 https://www.transparency.org/en/cpi#
Global Innovation Index 2021 55 of 132 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2020 $184,911

1st out of top 5

https://data.imf.org/?sk=40313609-
F037-48C1-84B1-E1F1CE54D6D5&
sId=1482331048410
World Bank GNI per capita  (current US$) 2020 $8,480 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

There are two main SOEs in Mexico, both in the energy sector.  Pemex operates the hydrocarbons (oil and gas) sector, which includes upstream, mid-stream, and downstream operations.  Pemex historically contributed one-third of the Mexican government’s budget but falling output and global oil prices alongside improved revenue collection from other sources have diminished this amount over the past decade to about 8 percent.  The Federal Electricity Commission (CFE) operates the electricity sector.  While the GOM maintains state ownership, the 2013 constitutional reforms granted Pemex and CFE management and budget autonomy and greater flexibility to engage in private contracting.

8. Responsible Business Conduct

Mexico’s private and public sectors have worked to promote and develop corporate social responsibility (CSR) during the past decade.  CSR in Mexico began as a philanthropic effort.  It has evolved gradually to a more holistic approach, trying to match international standards such as the OECD Guidelines for Multinational Enterprises and the United Nations Global Compact.

Responsible business conduct reporting has made progress in the last few years with more companies developing a corporate responsibility strategy.  The government has also made an effort to implement CSR in state-owned companies such as Pemex, which has published corporate responsibility reports since 1999.  Recognizing the importance of CSR issues, the Mexican Stock Exchange (Bolsa Mexicana de Valores) launched a sustainable companies index, which allows investors to specifically invest in those companies deemed to meet internationally accepted criteria for good corporate governance.

In October 2017, Mexico became the 53rd member of the Extractive Industries Transparency Initiative (EITI), which represents an important milestone in its Pemex effort to establish transparency and public trust in its energy sector.

9. Corruption

Corruption exists in many forms in the GOM and society, including corruption in the public sector (e.g., demand for bribes or kickbacks by government officials) and private sector (e.g., fraud, falsifying claims, etc.), as well as conflict of interest issues, which are not well defined in the Mexican legal framework.

Government and law enforcement officials are sometimes complicit with criminal elements, posing serious challenges for the rule of law.  Some of the most common reports of official corruption involve government officials stealing from public coffers, creating fake companies to divert public funds, or demanding bribes in exchange for not prosecuting criminal activity or awarding public contracts.  The current administration supported anti-corruption reforms (detailed below) and judicial proceedings in several high-profile corruption cases, including former governors.  However, Mexican civil society asserts that the government must take more systematic, effective, and frequent action to address corruption at the institutional level.

Mexico adopted a constitutional reform in 2014 to transform the current Office of the Attorney General into an Independent Prosecutor General’s office to increase its independence.  President Lopez Obrador’s choice for Prosecutor General was confirmed by the Mexican Senate January 18, 2019.  In 2015, Mexico passed a constitutional reform creating the National Anti-Corruption System (SNA) with an anti-corruption prosecutor and a citizens’ participation committee to oversee efforts.  The system is designed to provide a comprehensive framework for the prevention, investigation, and prosecution of corruption cases, including delineating acts of corruption considered criminal acts under the law.  The legal framework establishes a basis for holding private actors and private firms legally liable for acts of corruption involving public officials and encourages private firms to develop internal codes of conduct.  After seven years of operation, commentators attribute few successes to the SNA.  The implementation status of the mandatory state-level anti-corruption legislation varies.

The reform mandated a redesign of the Secretariat of Public Administration to give it additional auditing and investigative functions and capacities in combatting public sector corruption.  Congress approved legislation to change economic institutions, assigning new responsibilities and in some instances creating new entities.  Reforms to the federal government’s structure included the creation of a General Coordination of Development Programs to manage the federal-state coordinators (“superdelegates”) in charge of federal programs in each state.  The law also created the Secretariat of Public Security and Citizen Protection, and significantly expanded the power of the president’s Legal Advisory Office (Consejería Jurídica) to name and remove each federal agency’s legal advisor and clear all executive branch legal reforms before their submission to Congress.  The law eliminated financial units from ministries, with the exception of the Secretariat of Finance, SEDENA, and SEMAR, and transferred control of contracting offices in other ministries to the Hacienda.  Separately, the law replaced the previous Secretariat of Social Development (SEDESOL) with a Welfare Secretariat in charge of coordinating social policies, including those developed by other agencies such as health, education, and culture.  The Labor Secretariat gained additional tools to foster collective bargaining, union democracy, and to meet International Labor Organization (ILO) obligations.

Mexico ratified the OECD Convention on Combating Bribery and passed its implementing legislation in May 1999.  The legislation includes provisions making it a criminal offense to bribe foreign officials.  Mexico is also a party to the Organization of American States (OAS) Convention against Corruption and has signed and ratified the United Nations Convention against Corruption.  The government has enacted or proposed laws attacking corruption and bribery, with average penalties of five to 10 years in prison.

Mexico is a member of the Open Government Partnership and enacted a Transparency and Access to Public Information Act in 2015, which revised the existing legal framework to expand national access to information.  Transparency in public administration at the federal level improved noticeably but expanding access to information at the state and local level has been slow.  According to Transparency International’s 2021 Corruption Perception Index, Mexico ranked 124 of 180 nations.  Civil society organizations focused on fighting corruption are high-profile at the federal level but are few in number and less powerful at the state and local levels.

Business representatives, including from U.S. firms, believe public funds are often diverted to private companies and individuals due to corruption and perceive favoritism to be widespread among government procurement officials.  The GAN Business Anti-Corruption Portal states compliance with procurement regulations by state bodies in Mexico is unreliable and that corruption is extensive, despite laws covering conflicts of interest, competitive bidding, and company blacklisting procedures.

The U.S. Embassy has engaged in a broad-based effort to work with Mexican agencies and civil society organizations in developing mechanisms to fight corruption and increase transparency and fair play in government procurement.  Efforts with specific business impact include government procurement best practices training and technical assistance under the U.S. Trade and Development Agency’s Global Procurement Initiative.  Mexico ratified the UN Convention Against Corruption in 2004.  It ratified the OECD Anti-Bribery Convention in 1999.

10. Political and Security Environment

Mass demonstrations are common in the larger metropolitan areas and in the southern Mexican states of Guerrero and Oaxaca. While political violence is rare, drug and organized crime-related violence has increased significantly in recent years. Political violence is also likely to accelerate in the run-up to the June 2022 elections as criminal actors seek to promote election of their preferred candidates. The national homicide rate dropped to 27 homicides per 100,000 residents in 2021 from 29 homicides per 100,000 residents in 2020, although aggregate homicides remain near all-time highs. For complete security information, please see the Safety and Security section in the Consular Country Information page at https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Mexico.html. Conditions vary widely by state. For a state-by-state assessment please see the Consular Travel Advisory at https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/mexico-travel-advisory.html.

Companies have reported general security concerns remain an issue for those looking to invest in the country. The American Chamber of Commerce in Mexico estimates in a biannual report that security expenses cost business as much as 5 percent of their operating budgets. Many companies choose to take extra precautions for the protection of their executives. They also report increasing security costs for shipments of goods. The Overseas Security Advisory Council (OSAC) monitors and reports on regional security for U.S. businesses operating overseas. OSAC constituency is available to any U.S.-owned, not-for-profit organization, or any enterprise incorporated in the United States (parent company, not subsidiaries or divisions) doing business overseas ( https://www.osac.gov/Country/Mexico/Detail ).

11. Labor Policies and Practices

Mexican labor law requires at least 90 percent of a company’s employees be Mexican nationals. Employers can hire foreign workers in specialized positions as long as foreigners do not exceed 10 percent of all workers in that specialized category. Mexico’s 56 percent rate of informality remains higher than countries with similar GDP per capita levels. High informality, defined as those working in unregistered firms or without social security protection, distorts labor market dynamics, contributes to persistent wage depression, drags overall productivity, and slows economic growth. In the formal economy, there exist large labor shortages due to a system that incentivizes informality. Manufacturing companies, particularly along the U.S.-Mexico border and in the states of Aguascalientes, Guanajuato, Jalisco, and Querétaro, report labor shortages and an inability to retain staff due to wages sometimes being less that what can be earned in the informal economy, although the recent increases in the minimum wage are leading to increases in entry level wages which are attracting more workers. Shortages of skilled workers and engineers continue due to a mismatch between industry needs and what schools teach. Mexico has one of the lowest female labor participation rates in the OECD, 45 percent to a 76 percent male participation rate among people legally allowed to work (15 years or older). Barriers for female workers include the culturally assigned role for them as caretakers of children and the elderly. Most Mexican workers work for a micro business (41 percent) and 59 percent earn between USD 8.6 and USD 17 per day. The unemployment rate in Mexico has maintained a stable path ranging from 3.5 percent to 4.9 percent (its highest peak during the pandemic). This rate, however, masks the high level of underemployment (14.8 percent) in Mexico (those working part time or in the informal sector when they want full time, formal sector jobs). For 2020 the informal economy accounted for 22 percent of total Mexican GDP according to the National Institute of Statistics and Geography. Informal businesses span across all economic activities from agriculture to manufacturing. In Mexico labor informality also spans across all economic activities with formal businesses employing both formal and informal workers to reduce their labor costs.

On May 1, 2019, Lopez Obrador signed into law a sweeping reform of Mexico’s labor law, implementing a constitutional change and focusing on the labor justice system. The reform replaces tripartite dispute resolution entities (Conciliation and Arbitration Boards) with independent judicial bodies and conciliation centers. In terms of labor dispute resolution mechanisms, the Conciliation and Arbitration Boards (CABs) previously adjudicated all individual and collective labor conflicts. Under the reform, collective bargaining agreements will now be adjudicated by federal labor conciliation centers and federal labor courts.

Labor experts predict the labor reform will result in a greater level of labor action stemming from more inter-union and intra-union competition. The Secretariat of Labor, working closely with Mexico’s federal judiciary, as well as state governments and courts, created an ambitious state-by-state implementation agenda for the reforms, which started November 18, 2020, and will end during the second semester of 2022. On November 18, 2020 the first phase of the labor reform implementation began in eight states: Durango, State of Mexico, San Luis Potosi, Zacatecas, Campeche, Chiapas, Tabasco, and Hidalgo. On November 3, 2021 the second phase started in 13 additional states, and the third phase will start during 2022 in 11 states. Further details on labor reform implementation can be found at: www.reformalaboral.stps.gob.mx .

Mexico’s labor relations system has been widely criticized as skewed to represent the interests of employers and the government at the expense of workers. Mexico’s legal framework governing collective bargaining created the possibility of negotiation and registration of initial collective bargaining agreements without the support or knowledge of the covered workers. These agreements are commonly known as protection contracts and constitute a gap in practice with international labor standards regarding freedom of association. The percentage of the economy covered by collective bargaining agreements is between five and 10 percent, of which more than half are believed to be protection contracts. As of March 7, 2022, 3,267 collective bargaining contracts have been legitimized (reviewed and voted on by the workers covered by them), according to the Secretariat of Labor. The reform requires all collective bargaining agreements to be submitted to a free, fair, and secret vote every two years with the objective of getting existing protectionist contracts voted out. The increasingly permissive political and legal environment for independent unions is already changing the way established unions manage disputes with employers, prompting more authentic collective bargaining. As independent unions compete with corporatist unions to represent worker interests, workers are likely to be further emboldened in demanding higher wages.

The USMCA’s labor chapter (Chapter 23) contains specific commitments on union democracy and labor justice which relate directly to Mexico’s 2019 labor reform and its implementation. In addition, the USMCA’s dispute settlement chapter (Chapter 31) includes a facility-specific labor rapid response mechanism to address labor rights issues and creates the ability to impose facility specific remedies to ensure remediation of such situations.

According to the International Labor Organization (ILO), government enforcement was reasonably effective in enforcing labor laws in large and medium-sized companies, especially in factories run by U.S. companies and in other industries under federal jurisdiction. Enforcement was inadequate in many small companies and in the agriculture and construction sectors, and it was nearly absent in the informal sector. Workers organizations have made numerous complaints of poor working conditions in maquiladoras and in the agricultural production industry. Low wages, poor labor conditions, long work hours, unjustified dismissals, lack of social security benefits and safety in the workplace, and lack of freedom of association were among the most common complaints.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2021 MXN 26,213 billion* 2021 USD 1,293 billion *https://www.inegi.org.mx/

https://www.imf.org/en/
Publications/WEO

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 ($billion USD, stock positions) N/A N/A 2020 USD 184.9  billion IMF’s CDIS:
https://data.imf.org/?sk=40313609-
F037-48C1-84B1-E1F1CE54D6D5&sId=
1482331048410
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2020 USD 20.9 billion BEA data available at
https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2021 2.45%* 2020 2.7% *https://www.inegi.org.mx/
UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html

 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data* 2020
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 545,612 100 % Total Outward 189,536 100 %
United States 184,911 34 % United States 96,706 51 %
Netherlands 112,657 21 % Spain 21,543 11 %
Spain 88,430 16 % United Kingdom 17,163 9 %
Canada 35,664 7 % Brazil 10,203 5 %
United Kingdom 25,423 5 % Netherlands 8,908 5 %
“0” reflects amounts rounded to +/- USD 500,000.

* data from the IMF’s Coordinated Direct Investment Survey (CCIS)
( https://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410 )

14. Contact for More Information

William Ayala
AyalaWM@state.gov
Economic Section
U.S. Embassy in Mexico
Paseo de la Reforma 305
Colonia Cuauhtemoc
06500 Mexico, CDMX

Norway

Executive Summary

Norway is a modern, highly developed country with a small but very strong economy. Per capita GDP is among the highest in the world, boosted by decades of success in the oil and gas sector and other world-class industries like shipping, shipbuilding, and aquaculture. The major industries are supported by a strong and growing professional services industry (finance, ICT, legal), and there are emerging opportunities in fintech, cleantech, medtech, and biotechnology. Strong collaboration between industry and research institutions attracts international R&D activity and funding. Norway is a safe and straightforward place to do business, ranked 9 out of 190 countries in the World Bank’s 2020 Doing Business Report, and fourth out of 180 on Transparency International’s 2021 Corruption Perceptions Index. Norway is politically stable, with strong property rights protection and an effective legal system. Productivity is significantly higher than the EU average.

Norway has managed the coronavirus pandemic with relative success two years in, maintaining a low death rate, protecting health facilities’ capacity, and cushioning economic shocks. Swift implementation of social mobility restrictions, strong political unity, and broad public support were among the country’s key success factors. Norway’s solid financial footing, including fiscal reserves in its trillion-dollar sovereign wealth fund and monetary policy maneuverability, enabled the government to finance generous support packages to mitigate the pandemic’s economic impact on workers and businesses.

Norwegian lawmakers and businesses welcome foreign investment as a matter of policy and the government generally grants national treatment to foreign investors. Some restrictions exist on foreign ownership and use of natural resources and infrastructure. The government remains a major owner in the Norwegian economy and retains monopolies on a few activities, such as the retail sale of alcohol.

While not a member of the European Union (EU), Norway is a member of the European Economic Area (EEA, which also includes Iceland and Liechtenstein) with access to the EU single market’s movement of persons, goods, services, and capital. The Norwegian government continues to liberalize its foreign investment legislation with the aim of conforming more closely to EU standards and has cut bureaucratic regulations over the last decade to make investment easier. Foreign direct investment in Norway stood at USD 160 billion at the end of 2021 and has more than doubled over the last decade. There are approximately 8,100 foreign-owned companies in Norway, and over 700 U.S. companies have a presence in the country, employing more than 58,000 people.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 4 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 20 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 21.5 billion https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 78,290 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The government continues to play a strong role in the Norwegian economy through its ownership or control of many of the country’s leading commercial firms. The public sector accounts for nearly 66 percent of GDP. The Norwegian government is the largest owner in Norway, with ownership stakes in a range of key sectors (e.g., energy, transportation, finance, and communications). 74 State-Owned Enterprises (SOEs) are managed directly by the relevant government ministries, and approximately 33 percent of the stock exchange’s capitalization is in government hands. State ownership in companies can be used as a means of ensuring Norwegian ownership and domicile for these firms.

Norway is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) and a signatory to all relevant annexes. SOEs are thus covered under the agreement.

Successive Norwegian governments have sustained stable levels of strong, transparent, and predictable government ownership. The former center-right government took limited steps to reduce ownership stakes.

The GON publishes the annual state ownership report, available in English here: https://www.regjeringen.no/en/topics/business-and-industry/state-ownership/statlig-eierskap-publikasjoner/id737457/  and a white paper on state ownership in companies available here: https://www.regjeringen.no/no/dokumenter/meld.-st.-8-20192020/id2678758 .

8. Responsible Business Conduct

Corporate Social Responsibility (CSR) is very much part of Norwegian corporate and political consciousness. Significant attention has been given to ethical and sustainable business practices over the last several years; the GON has issued a series of white papers, most recently in 2015, on promoting human rights through foreign policy and foreign development assistance. In 2009, a white paper laid out responsibility of Norwegian businesses in the global economy and in 2006-2007, the GON set down guidelines for ethical and responsible conduct in state-owned enterprises, and incorporated climate policy, procurement policy, and development policy as parts of the GON’s broader CSR vision.

As an OECD member, Norway adheres to the OECD Guidelines for Multinational Enterprises. Norway’s National Contact Point (NCP) for the OECD Guidelines raises awareness of the due diligence approach of the Guidelines and handles complaints against Norwegian businesses with international operations, in the event they are not behaving in accordance with the Guidelines. The NCP facilitates resolution of these complaints through dialogue and mediation. Kompakt is the Government’s consultative body on matters relating to CSR: https://www.regjeringen.no/en/topics/foreign-affairs/business-cooperation-abroad/innsikt/kompakt_en/id633619/ 

The Norwegian Accounting Act requires companies listed on the Oslo Stock Exchange to provide a report on their policies and practices for corporate governance. The Norwegian Corporate Governance Board, composed of nine independent organizations, issues and updates the Norwegian Code of Practice for the above-mentioned companies. Transparency and disclosure are key to the development of corporate social responsibility. Large enterprises are required under Section 3-3c of the Accounting Act to report on their CSR activities. Public disclosure requirements are increasingly regulated. The work of the EU in this area may lead to the development of regulations of relevance to Norway.

In the mining sector, Norway encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and participates in the Extractive Industries Transparency Initiative (EITI).

In order to prevent tax evasion and the use of tax havens to conceal financial information, large enterprises and public-interest entities that are active in the extractive industry or in the logging of primary forests are required to report on a country-by-country basis. In addition, Norway has entered into a number of new bilateral tax information exchange agreements in recent years.

Norway is a signatory of The Montreux Document on Private Military and Security Companies, a supporter of the International Code of Conduct or Private Security Service Providers, and a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

9. Corruption

Business is generally conducted “above the table” in Norway, and Norway ranks fourth out of 180 countries on Transparency International’s 2021 Corruption Perceptions Index.  Corrupt activity by Norwegian or foreign officials is a criminal offense under Norway’s Penal Code. Norway’s anti-corruption laws cover illicit activities overseas, subjecting Norwegian nationals/companies who bribe officials in foreign countries to criminal penalties in Norwegian courts. In 2008, the Ministry of Foreign Affairs launched an anti-corruption initiative, focused on limiting corruption in international development efforts.

Norway is a member of the Council of Europe’s anti-corruption watchdog Group of States against Corruption (GRECO) and ratified the Criminal Law Convention on Corruption in 2004, without any reservations. Norway has ratified the UN Anticorruption Convention (2006) and is a signatory of the OECD Convention on Combating Bribery.

10. Political and Security Environment

Norway is a vibrant, stable democracy. Violent political protests or incidents are extremely rare, as are politically motivated attacks on foreign commercial projects or property. However, on July 22, 2011, a Norwegian individual motivated by extreme anti-Islam ideology carried out twin attacks on Oslo’s government district and on the Labor Party’s youth summer camp in Utøya, killing 77 people. The individual, now in prison, operated alone and this incident is not generally considered an indicator of increased political violence in the future.

11. Labor Policies and Practices

Obtaining work permits for foreign labor, particularly for semi-skilled workers, can be cumbersome.

Skilled and semi-skilled labor is usually available in Norway. The labor force as of year-end 2021 totaled about 2.917 million persons, representing 72.3 percent of the working-age population. 2.817 million persons were employed at year end 2021 (72.3% of male labor force and 67.3% of female labor force), with unemployment at 3.4 percent.

Union membership is in excess of 1.94 million persons, 68 percent of the labor force. The unions are independent of the government but some, such as the largest (LO), have close and historic ties with the Labor Party. Norway has a highly centralized and constructive system of collective bargaining. The government may impose mandatory wage mediation should strikes threaten key sectors of the economy, particularly the oil and gas and transportation sectors. Mandatory wage mediation has been used 120 times since 1953, most recently in 2021 to end a strike among municipality workers ranging from nurses and teachers to janitors.

Employee benefits are generous, e.g., one year paid parental leave (shared between parents, and financed chiefly by the government), and unemployment benefits for up to 104 weeks. There are special provisions for layoffs linked to lower activity for the employer.

The average number of hours worked per week in one’s primary job, 33.6 in 2020, is the third lowest in the OECD, after the Netherlands and Denmark. Productivity, however, is high – significantly higher than the EU average. Sickness and absenteeism rates have been between 6-8 percent over the last decade and stood at 6.1 percent at the end of 2020. Relatively high disability rates, especially among young people, are a concern.

Norwegian blue-collar hourly earnings are comparatively high. High wages encourage the use of relatively capital-intensive technologies in Norwegian industry. Top-level executives and highly skilled engineers, on the other hand, are generally paid considerably less than their U.S. counterparts, which, when combined with relatively high wages at the bottom of the wage scale, contributes to Norway’s very high level of income equality relative to other OECD countries.

14. Contact for More Information

Stephen SCHLIEMAN
Economic Officer
Embassy of the United States of America
Morgedalsvegen 36
0378 Oslo
Norway
+47 2130 8665
oslopolecon@state.gov

Panama

Executive Summary

Panama’s investment climate is mixed. Over the last decade, Panama was one of the Western Hemisphere’s fastest growing economies. Its economic recovery from the COVID-19 pandemic is outpacing most other countries in the region, with a 15.3 percent growth rate in 2021 (after a contraction of 17.9 percent in 2020) and a projected growth rate of 7.8 percent for 2022, according to the World Bank. Panama also has one of the highest GDP per capita rates in the region and has several investment incentives, including a dollarized economy, a stable democratic government, the world’s second largest free trade zone, and 14 international free trade agreements. Although Panama’s market is small, with a population of just over 4 million, the Panama Canal provides a global trading hub with incentives for international trade. However, Panama’s structural deficiencies weigh down its investment climate with high levels of corruption, a reputation for government non-payment, a poorly educated workforce, a weak judicial system, and labor unrest. Panama’s presence on the Financial Action Task Force (FATF) grey list since June 2019 for systemic deficiencies in combatting money laundering and terrorist financing increases the risk of investing in Panama, notwithstanding the government’s ongoing efforts to increase financial transparency.

The government is eager for international investment and has several policies in place to attract foreign direct investment (FDI). As such, it continues to attract one of the highest rates of FDI in the region, with $4.6 billion in 2020, according to the U.S. Bureau of Economic Analysis. As of March 18, 2022, Panama’s sovereign debt rating remains investment grade, with ratings of Baa2 (Moody’s), BBB- (Fitch), and BBB (Standard & Poor’s with a negative outlook).

Panama’s high vaccination rates of 80 percent of the eligible population with at least one dose and 70 percent with at least two doses as of March 21 have contributed to its economic recovery. As the global economy rebounded, Panama’s services and infrastructure-reliant industries bounced back significantly in 2021. Sectors with the highest economic growth in 2021 included mining (148 percent increase), construction (29 percent), commerce (18 percent), industrial manufacturing (11 percent), and transportation, storage, and communications (11 percent). Panama ended 2021 with a year-on-year inflation rate variation of 2.6 percent, according to data from the National Institute of Statistics and Census (INEC).

The government’s assertion that it is climate-negative creates opportunities for economic growth, aided by laws 37, 44, and 45 that provide incentives to promote investment in clean energy sources, specifically wind, solar, hydroelectric, and biomass/biofuels.

Panama’s investment climate is threatened, however, by high government fiscal deficits, unemployment, and inequality. The pandemic resulted in government debt ballooning by $3 billion in 2021 to over $40 billion. The country’s debt-to-GDP ratio stands at around 64 percent, well above the 46 percent it stood at before the pandemic. Unemployment peaked at 18.5 percent in September 2020, a 20-year high, but has since fallen to 11.3 percent as of October 2021. Yet high levels of labor informality persist. Additionally, Panama is one of the most unequal countries in the world, with the 14th highest Gini Coefficient and a national poverty rate of 14 percent. The World Bank’s 2022 Global Economic Prospects Report and the World Economic Forum’s 2022 Global Risks Report noted that Panama should focus on inclusive economic growth and structural reforms to avoid economic stagnation and an employment crisis.

Table 1: Key Metrics and Rankings 
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 105 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 83 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $4.6 billion https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $12,420 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Panama has 16 non-financial State-Owned Enterprises (SOE) and 8 financial SOEs that are included in the budget and broken down by enterprise. Each SOE has a Board of Directors with Ministerial participation. SOEs are required to send a report to the Ministry of Economy and Finance, the Comptroller General’s Office, and the Budget Committee of the National Assembly within the first ten days of each month showing their budget implementation. The reports detail income, expenses, investments, public debt, cash flow, administrative management, management indicators, programmatic achievements, and workload. SOEs are also required to submit quarterly financial statements. SOEs are audited by the Comptroller General’s Office.

The National Electricity Transmission Company (ETESA) is an example of an SOE in the energy sector, and Tocumen Airport and the National Highway Company (ENA) are SOEs in the transportation sector. Financial allocations and earnings from SOEs are publicly available at the Official Digital Gazette ( http://www.gacetaoficial.gob.pa/ ). There is a website under construction that will consolidate information on SOEs: https://panamagov.org/organo-ejecutivo/empresas-publicas/ #.

8. Responsible Business Conduct

Panama maintains strict domestic laws relating to labor and employment rights and environmental protection. While enforcement of these laws is not always stringent, major construction projects are required to complete environmental assessments, guarantee worker protections, and comply with government standards for environmental stewardship.

The ILO program “Responsible Business Conduct in Latin America and the Caribbean” is active in Panama and has partnered with the National Council of Private Enterprise (CoNEP) to host events on gender equality. Panama does not yet have a State National Action Plan on Business and Human Rights.

In February 2012, Panama adopted ISO 26000 to guide businesses in the development of corporate social responsibility (CSR) platforms. In addition, business groups, including the Association of Panamanian Business Executives (APEDE) and the American Chamber of Commerce (AmCham), are active in encouraging and rewarding good CSR practices. Since 2009, the AmCham has given an annual award to recognize member companies for their positive impact on their local communities and environment.

Panama has two goods on the U.S. Department of Labor’s (DOL) “List of Goods Produced by Child Labor or Forced Labor”: melons and coffee. DOL removed sugarcane from the list in 2019. Child labor is also prevalent among street vendors and in other informal occupations.

There have been several disputes over the resettlement of indigenous populations to make room for hydroelectric projects, such as at Barro Blanco and Bocas del Toro. The government mediates in such cases to ensure that private companies are complying with the terms of resettlement agreements.

Despite human resource constraints, Panama effectively enforces its labor and environmental laws relative to the region and conducts inspections in a methodical and equitable manner. Panama encourages adherence to the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and supports the Kimberley Process. Panama is not a government sponsor of either the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights.

The National Council of Organized Workers (CONATO) and the National Confederation of Trade Union Unity (CONUSI) are the most active labor organizations advocating for worker rights in the private sector. They enjoy access to and dialogue with key decisionmakers. CONATO is currently participating in a nationwide dialogue to defend the sustainability of the workers retirement fund. CONUSI is focused on labor rights in the construction sector.

Panama is a signatory of the Montreux Document on Private Military and Security Companies. Panama follows the standards set by the International Standards Organization (ISO) and certifies security companies in quality management and security principles consistent with ISO standards.

9. Corruption

10. Political and Security Environment

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

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

Homicides in Panama increased by 11 percent in 2021, to 554, 57 more than were recorded in 2020. Strife among rival gangs and turf battles in the narcotrafficking trade contributed significantly to the increase in the homicide rate in 2021. Panamanian authorities assess that 70 percent of homicides in the country are linked to organized crime, especially transnational drug trafficking and gangs. The 2021 homicide rate of 12.95 per 100,000 people is still among the lowest in Central America, but is consistent with an upward trend since 2019, year-on-year.

11. Labor Policies and Practices

According to official surveys carried out in October 2021, the unemployment rate in Panama improved significantly, but the level of informality and the size of the economically active population (EAP) worsened. That is, fewer people were looking for work. As of October 2021, the unemployment rate stood at 11.3 percent and the informality rate at 47.6 percent, while the economically active population had decreased by 66.5 percent, according to the labor market survey (EML) carried out by the National Institute of Statistics and Census (INEC).

There is a shortage of skilled workers in accounting, information technology, and specialized construction, and a minimal number of English-speaking workers. Panama spends approximately 13 percent of its budget, or 3 percent of GDP, on education. While Panama has one of the highest minimum wages in the hemisphere, the 2018-2019 World Economic Forum Global Competitiveness Report ranked Panama 89 out of 141 countries for the skillsets of university graduates.

The government’s labor code remains highly restrictive. The Panamanian Labor Code, Chapter 1, Article 17, establishes that foreign workers can constitute only 10 percent of a company’s workforce, or up to 15 percent if those employees have a specialized skill. By law, businesses can only exceed these caps for a defined period and with prior approval from the Ministry of Labor.

Several sectors, including the Panama Canal Authority, the Colon Free Zone, and export processing zones/call centers, are covered by their own labor regimes. Employers outside these zones, such as those in the tourism sector, have called for greater flexibility, easier termination of workers, and the elimination of many constraints on productivity-based pay. The Panamanian government has issued waivers to regulations on an ad hoc basis to address employers’ demands, but there is no consistent standard for obtaining such waivers.

The law allows private sector workers to form and join independent unions, bargain collectively, and conduct strikes. Public sector employees may organize to create a professional association to bargain collectively on behalf of its members, even though public institutions are not legally obligated to bargain with the association. Members of the national police are the only workers prohibited from creating professional associations. The law prohibits anti-union discrimination and requires reinstatement of workers terminated for union activity, but does not provide adequate mechanisms to enforce this right.

The Ministry of Labor’s Board of Appeals and Conciliation has authority to resolve certain labor disagreements, such as internal union disputes, enforcement of the minimum wage, and some dismissal issues. The law allows arbitration by mutual consent, at the request of the employee or the ministry, and in the case of a collective dispute in a privately held public utility. It allows either party to appeal if arbitration is mandated during a collective dispute in a public-service company. The Board of Appeals and Conciliation has exclusive competency for disputes related to domestic employees, some dismissal issues, and claims of less than $1,500.

The Ministry of the Presidency’s Conciliation Board hears and resolves complaints by public-sector workers. The Board refers complaints that it fails to resolve to an arbitration panel, which consists of representatives from the employer, the professional association, and a third member chosen by the first two. If the dispute cannot be resolved, it is referred to a tribunal under the Board. Observers, however, have noted that the Ministry of the Presidency has not yet designated the tribunal judges. The alternative to the Board is the civil court system.

Panama does not have a system of unemployment insurance. Instead, workers receive large severance payments from their employer upon termination. During the COVID-19 pandemic, employers were permitted to furlough workers for longer than normally permitted, without paying severance. Law 201 of February 25, 2021 allowed employers to establish temporary measures to preserve employment and normalize labor relations by extending furloughs to the end of 2021, This law ended on December 31, 2021. Yet even after its expiration, some companies have kept workers furloughed because of a lack of resources to rehire them or pay their severances. Press reports suggest these companies have yet to recover from the pandemic-related economic crisis.

14. Contact for More Information

Colombia Primola
Economic Specialist – Economic Section
E-mail: PrimolaCE@state.gov
Office: +507-317-5491
Cell: +(507) 6613-4687

Poland

Executive Summary

Poland’s strong fundamentals and timely macroeconomic policies have enabled the country’s economy to withstand several recent turbulent periods. In 2021, the Polish economy was recovering rapidly from the pandemic-induced recession, which had interrupted almost 30 years of continuous economic expansion. Policy actions including broad fiscal measures and unprecedented monetary support cushioned the socio-economic impact of the pandemic. Already in the second quarter of 2021, output returned to pre-crisis levels and annual growth in 2021 averaged 5.7 percent. The post-pandemic recovery has been sustained by robust private consumption. Despite pandemic-related challenges and the deterioration of some aspects of the investment climate, Poland remained an attractive destination for foreign investment. Solid economic fundamentals and promising post-COVID recovery forecasts continued to draw foreign, including U.S., capital. The Family 500+ program and additional pension payments continued in 2021 as key elements of the Law and Justice (PiS) party’s social welfare and inequality reduction agenda. The government increased the minimum wage and the labor market remained relatively strong, supported by a package of measures introduced in 2020 and continued in 2021 known as the “Anti-Crisis Shield.” The support measures amounted to approximately $55 billion. Prospects for future growth of the Polish economy are uncertain due to the outbreak of the war in Ukraine. High inflation, the highest in 20 years, is likely to continue and interest rates, which will rise along with it, will negatively impact the economy. The approval of Poland’s National Recovery Plan (KPO), however, and the transfer of EU funds envisaged therein, should make a positive impact.

In 2021, the government introduced an “Anti-Inflation Shield’ including a temporary reduction in value added tax (VAT) on electricity, gas, and heating as well as foodstuffs to prevent significant deterioration in consumption. A fiscal stimulus program (the “Polish Deal”) was also introduced and took effect in 2022. After only a few months of its implementation, the government has radically amended it. New solutions aimed at insulating the economy from the effects of the war in Ukraine will be introduced under the banner of an “Anti-Putin Shield.” These measures will include compensation to Polish businesses that operated in Russia, Ukraine, or Belarus; subsidies to the state-owned gas pipeline operator; regulated gas tariffs for households and “sensitive recipients” such as hospitals; subsidies for farmers to combat rising fertilizer prices; and a reduction of the income tax threshold. The proposal is still subject to consultations but is expected to be enacted into law in 2022. The current anti-inflationary measures are likely to be extended until the end of 2022. All of these policies will drastically increase fiscal spending and curtail tax revenue.

The Polish government has made gradual progress in simplifying administrative processes for firms, supported by the introduction of digital public services, but weaknesses persist in the legal and regulatory framework. Implemented and proposed legislation dampened optimism in some sectors (e.g., retail, media, energy, digital services, and beverages). Investors point to lower predictability and the outsized role of state-owned and state-controlled companies in the Polish economy as an impediment to long-term balanced growth. The government continues to push for the creation of state-controlled “national champions” that are large enough to compete internationally and lead economic development. Despite a polarized political environment, and a few less business-friendly sector-specific policies, the broad structures of the Polish economy are solid. Foreign investors are not abandoning projects planned before the outbreak of the war in Ukraine and some are even transferring activities from Ukraine and Belarus to Poland. Prospects for future growth will depend on the course of the war in Ukraine, but in the near-term, external and domestic demand and inflows of EU funds, as well as various government aid programs, are likely to continue to attract investors seeking access to Poland’s market of over 38 million people, and to the broader EU market of over 500 million.

In mid-2021, the Ministry of Economic Development and Technology finished public consultations on its Industry Development White Paper, which identifies the government’s views on the most significant barriers to industrial activity and serves as the foundation for Poland’s Industrial Policy (PIP) – a strategic document focused on digitization, security, industrial production location, the Green Deal, and modern society which sets the direction for long-term industrial development. In early 2022, the Ministry announced there was need for further analysis and introduction of new economic solutions due to the considerable changes in the EU energy policy, supply chain disruptions, and the geopolitical situation.

Poland’s well-diversified economy reduces its vulnerability to external shocks, although it depends heavily on the EU as an export market. Foreign investors also cite Poland’s well-educated work force as a major reason to invest, as well as its proximity to major markets such as Germany. U.S. firms represent one of the largest groups of foreign investors in Poland. The volume of U.S. investment in Poland was estimated at over $4.2 billion by the National Bank of Poland in 2020 and at around $25 billion by the Warsaw-based American Chamber of Commerce (AmCham). With the inclusion of indirect investment flows through subsidiaries, it may reach over $62 billion, according to KPMG and AmCham. Historically, foreign direct investment (FDI) was largest in the automotive and food processing industries, followed by machinery and other metal products and petrochemicals. “Shared office” services such as accounting, legal, and information technology services, including research and development (R&D), is Poland’s fastest-growing sector for foreign investment. The government seeks to promote domestic production and technology transfer opportunities in awarding defense-related tenders. There are also investment and export opportunities in the energy sector—both immediate (natural gas), and longer term (nuclear, hydrogen, energy grid upgrades, photovoltaics, and offshore wind)—as Poland seeks to diversify its energy mix and reduce air pollution. Biotechnology, pharmaceutical, and health care industries opened wider to investments and exports as a result of the COVID-19 experience. 2021 turned out to be a record year for venture capital investment in Poland. Compared to 2020, the value of investments in this area increased by 66 percent, exceeding $800 million. Around 15 percent of these transactions were investments in the sector of medical technologies.

Defense remains a promising sector for U.S. exports. The Polish government is actively modernizing its military inventory, presenting good opportunities for the U.S. defense industry. A law increasing the defense budget was adopted in March 2022. The law also amends the mechanism of military financing, expansion, and procurement. The defense budget is to increase to 3 percent of GDP from 2023, exceeding the NATO target of 2 percent. Under the new law, the Council of Ministers will be tasked with determining, every four years, the direction of the modernization and development of the armed forces for a 15-year planning period. Information technology and cybersecurity along with infrastructure also are sectors that show promise for U.S. exports, as Poland’s municipalities focus on smart city networks. A $10 billion central airport project may present opportunities for U.S. companies in project management, consulting, communications, and construction. The government seeks to expand the economy by supporting high-tech investments, increasing productivity and foreign trade, and supporting entrepreneurship, scientific research, and innovation through the use of domestic and EU funding. The Polish government is interested in the development of green energy, hoping to utilize the large amounts of EU funding earmarked for this purpose in the coming years and decades.

The Polish government plans to allocate money from the EU Recovery Fund (once Poland’s plan is approved) to pro-development investments in such areas as economic resilience and competitiveness, green energy and the reduction of energy intensity, digital transformation, the availability and quality of the health care system, and green and intelligent mobility. A major EU project is to synchronize the Baltic States’ electricity grid with that of Poland and the wider European network by 2025. Another government strategy aims for a commercial fifth generation (5G) cellular network to become operational in all cities by 2025, although planned spectrum auctions have been repeatedly delayed.

Some organizations, notably private business associations and labor unions, have raised concerns that policy changes have been introduced quickly and without broad consultation, increasing uncertainty about the stability and predictability of Poland’s business environment. For example, the government had announced an “advertising tax” on media companies with only a few months warning after firms had already prepared budgets for the current year. Broadcasters were concerned the tax, if introduced, could irreparably harm media companies weakened by the pandemic and limit independent journalism. Other proposals to introduce legislation on media de-concentration and limitations on foreign ownership have raised concern among foreign investors in the sector; however, those proposals seem to have stalled for the time being. The Polish tax system has undergone a major transformation with the introduction of many changes over recent years, including more effective tax auditing and collection, with the aim of increasing budget revenues. Through updated regulations in November 2020, Poland has adopted a range of major changes concerning the taxation of doing business in the country. The changes include the double taxation of some partnerships; deferral of corporate income tax (CIT) for small companies owned by individuals; an obligation to publish tax strategies by large companies; and a new model of taxation for real estate companies. In the financial sector, legal risks stemming from foreign exchange mortgages constitute a source of uncertainty for some banks. The Polish government has supported taxing the income of Internet companies, proposed by the European Commission, considering it a possible new source of financing for the post-COVID-19 economic recovery. A tax on video-on-demand services and the proposed advertising tax are two examples of this trend.

On April 8, 2021, Poland’s president signed legislation amending provisions of Poland’s customs and tax laws in an effort to simplify certain customs and tax procedures.

The “Next Generation EU” recovery package will benefit the Polish economic recovery with sizeable support. Under the 2021-2027 European Union budget, Poland will receive $78.4 billion in cohesion funds as well as approximately $27 billion in grants and $40 billion in loan access from the EU Recovery and Resilience Facility. The Polish government projects this injection of funds, amounting to around 4.5 percent of Poland’s 2021 GDP, should contribute significantly to the country’s growth over the period 2021-2027. As the largest recipient of EU funds (which have contributed an estimated 1 percentage point to Poland’s GDP growth per year), any significant decrease in EU cohesion spending would have a large negative impact on Poland’s economy. The risk of a suspension of EU funds is low, but the government has refused to comply with several rulings of the European Court of Justice.

Observers are closely watching the European Commission’s three open infringement proceedings against Poland regarding rule of law and judicial reforms initiated in April 2019, April 2020, and December 2021.  The Commission’s concerns include the introduction of an extraordinary appeal mechanism in the enacted Supreme Court Law, which could potentially affect economic interests in that final judgments issued since 1997 can now be challenged and overturned in whole or in part, including some long-standing judgments on which economic actors have relied.  Other issues regard the legitimacy of judicial appointments after a reform of the National Judicial Council that raise concerns about long-term legal certainty and the possible politicization of judicial decisions and undermining of EU law.

Russia’s invasion of Ukraine has led to an increase in economic, financial, and political risks.

Managing the fallout from the war in Ukraine will be the government’s priority. Poland faces a large-scale refugee influx and, as of April 2022, has already received close to three million refugees. The Polish government reacted rapidly, granting refugees the right of temporary residence and access to key public services (health, education), social assistance, and housing. According to the European Bank for Reconstruction and Development (EBRD), the war in Ukraine, if it ends within a few months, will cause a small and short slowdown in the growth of the Polish economy. The relatively limited consequences of the invasion for Poland’s economy are primarily due to the large influx of refugees to Poland. The EBRD expects this to be a strong consumption stimulus that will cushion the impact of weakening exports due to the war.

The Polish and global economies are currently operating in conditions of high uncertainty. Any forecasts, therefore, are subject to a large margin of error. The state of the Polish economy and the validity of forecasts will depend on the further course of the war in Ukraine, the decision of Ukrainian refugees on whether to stay in Poland, and the EU’s approval of Poland’s KPO.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 42 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 40 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 11,127 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 15,240 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

State-owned enterprises (SOEs) exist mainly in the defense, energy, transport, banking, and insurance sectors. The main Warsaw stock index (WIG) is dominated by state-controlled companies. The government intends to keep majority share ownership and/or state-control of economically and strategically important firms and is expanding the role of the state in the economy, particularly in the banking, energy, foodstuffs, and media sectors. Some U.S. investors have expressed concern that the government favors SOEs by offering loans from the national budget as a capital injection and unfairly favoring SOEs in investment disputes. Since Poland’s EU accession, government activity favoring state-owned firms has received careful scrutiny from Brussels. Since the Law and Justice (PiS) government came to power in 2015, there has been a considerable increase in turnover in managerial positions of state-owned companies (although this has also occurred in previous changes of government, but to a lesser degree) and increased focus on building national champions in strategic industries to be able to compete internationally. There have also been cases of takeovers of foreign private companies by state-controlled companies the viability of which has raised doubts. SOEs are governed by a board of directors and most pay an annual dividend to the government, as well as prepare and disclose annual reports.

A list of companies classified as “important for the economy” is at this link: https://www.gov.pl/web/premier/wykaz-spolek 

Among them are companies of “strategic importance” whose shares cannot be sold, including: Grupa Azoty S.A., Grupa LOTOS S.A., KGHM Polska Miedz S.A., Energa S.A., and the Central Communication Port.

The government sees SOEs as drivers and leaders of its innovation policy agenda. For example, several energy SOEs established a company to develop electro mobility. The performance of SOEs has remained strong overall and broadly similar to that of private companies. International evidence suggests, however, that a dominant role of SOEs can pose fiscal, financial, and macro-stability risks.

As of June, 2021 there were 349 companies in partnership with state authorities. Among them there are companies under bankruptcy proceedings and in liquidation and in which the State Treasury held residual shares. According to the Minister of State Assets, companies controlled by the state create 15 percent of GDP. Here is a link to the list of companies, including under the control of which ministry they fall: http://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa .

The Ministry of State Assets, established after the October 2019 post-election cabinet reshuffle, has control over almost 180 enterprises. Their aggregate value reaches several dozens of billions of Polish zlotys. Among these companies are the largest chemical, energy, and mining groups; firms in the banking and insurance sectors; and transport companies. This list does not include state-controlled public media, which are under the supervision of the Ministry of Culture, or the State Securities Printing Company (PWPW) supervised by the Interior Ministry. Supervision over defense industry companies has been shifted from the Ministry of Defense to the Ministry of State Assets.

The same standards are generally applied to private and public companies with respect to access to markets, credit, and other business operations such as licenses and supplies. Government officials occasionally exercise discretionary authority to assist SOEs. In general, SOEs are expected to pay their own way, finance their operations, and fund further expansion through profits generated from their own operations.

On February 21, 2019, an amendment to the Act on the Principles of Management of State-Owned Property was adopted, which provides for the establishment of a new public special-purpose fund – the Capital Investment Fund. The fund is a source of financing for the purchase and subscription of shares in companies. The fund is managed by the Prime Minister’s office and financed by dividends from state-controlled companies.

Starting October 12, 2022, the Act amending the Commercial Companies Code and certain other acts will enter into force. It introduces the so-called “holding law” developed by the Commission for Owner Oversight Reform with the Ministry of State Assets. It lays down the principles of how a parent company may instruct its subsidiaries and stipulates the parent company’s liability and the principles of creditor, officer, and minority shareholder protections.

This amendment constitutes an important change for many companies operating in Poland including foreign parent companies. The new regulations, which have encountered some controversy, will apply only to capital companies. The legislation distinguishes between the separate activities of holding companies and of groups of companies. Protections have been extended to minority shareholders and creditors of subsidiaries, identifying threats that may result from binding instructions of the parent company for these groups.

The PiS-led government has increased control over Poland’s banking and energy sectors.

Proposed legislation to “deconcentrate” and “repolonize” Poland’s media landscape, including through the possible forced sale of existing investments, has met with domestic and international protest. Critical observers allege that PiS and its allies are running a pressure campaign against foreign and independent media outlets aimed at destabilizing and undermining their businesses. These efforts include blocking mergers through antimonopoly decisions, changes to licensing requirements, and the proposed new advertising tax. Increasing government control over state regulatory bodies, advertising agencies and infrastructure such as printing presses and newsstands, are other possible avenues. Since 2015, state institutions and state-owned and controlled companies have ceased to subscribe to or place advertising in independent media, cutting off an important source of funding for those media companies. At the same time, public media has received generous support from the state budget.

In December 2020, state-controlled energy firm PKN Orlen, headed by PiS appointees, acquired control of Polska Press in a deal that gives the governing party indirect control over 20 of Poland’s 24 regional newspapers. Because this acquisition was achieved without legislative changes, it has not provoked diplomatic repercussions with other EU member states or a head-on collision with Brussels over the rule of law. Having successfully taken over a foreign-owned media company with this model, there are concerns PKN Orlen will continue to be used for capturing independent media not supportive of the government.

8. Responsible Business Conduct

In Poland, the principle of sustainable development has been given the rank of a fundamental right resulting from the provisions of the Constitution of the Republic of Poland. Article 5 of the Constitution says: “The Republic of Poland guards the independence and inviolability of its territory, ensures the freedoms and rights of people and citizens as well as the security of citizens, protects the national heritage and protects the environment, guided by the principle of sustainable development.”

Polish law provides for many restrictions imposed on investors in order to ensure that all undertaken investments do not affect the environment with respect to provided indicators. Public authorities have a significant role in granting appropriate permits, and public consultations are carried out beforehand.

The Ordinance of the Minister of Investment and Development (the name has since changed to the Economic Development and Technology Ministry) of May 10, 2018, established working groups responsible for sustainable development and corporate social responsibility. The chief function of the working groups is to create space for dialogue and exchange of experiences between the public administration, social partners, NGOs, and the academic environment in corporate social responsibility (CSR) and responsible business conduct (RBC). Experts cooperate within five working groups: 1) Innovation for CSR and sustainable development; 2) Business and human rights; 3) Development of non-financial reporting; 4) Socially responsible administration; and 5) Socially responsible universities.

Zespół ds. Zrównoważonego Rozwoju i Społecznej Odpowiedzialności Przedsiębiorstw – Ministerstwo Funduszy i Polityki Regionalnej – Portal Gov.pl (www.gov.pl) 

The greater team issues recommendations concerning implementation of the CSR/RBC policy, in particular, the objectives of the Strategy for Responsible Development. More information on recent developments in the CSR area and future events is available under this link: https://www.gov.pl/web/fundusze-regiony/spoleczna-odpowiedzialnosc-przedsiebiorstw-csr2 

On October 8, 2021, the Council of Ministers adopted the National Action Plan for the implementation of the UN Guiding Principles on Business and Human Rights for 2021-2024 (NAP). The implementation of the first edition of the National Action Plan for 2017-2020 was completed and the Final Report was prepared. The report concerns tasks aimed at improving the observance of human rights, the implementation of which was carried out on the basis of schedules developed by individual ministries and other institutions involved in the NAP. Biznes i prawa człowieka – Ministerstwo Funduszy i Polityki Regionalnej – Portal Gov.pl (www.gov.pl) 

The mission is not aware of reports of human or labor rights concerns relating to RBC in Poland.An increasing number of Polish enterprises are implementing the principles of CSR/RBC in their activities. One of these principles is to openly inform the public, employees, and local communities about the company’s activities by publishing non-financial reports. An increasing number of corporate sector entities understand that sharing experience in the field of integration of social and environmental factors in everyday business activities helps build credibility and transparency of the Polish market. Many companies voluntarily compile ESG/CSR activity reports based on international reporting standards. Most reports are published by companies from the fuel, energy, banking, food industries, logistics, and transport sectors. There is also growing interest in voluntary reporting in the healthcare, retail, and construction sectors. Surveys indicate, however, that companies still have a long way to go in ESG reporting.The attitude of Poles to environmental issues is changing, and so are their expectations regarding business. According to a study by ARC Rynek i Opinia for the Warsaw School of Economics, 59 percent of Poles consciously choose domestic products more often and 57 percent avoid products that harm the environment. In Poland, provisions relating to responsible business conduct are contained within the Public Procurement law and are the result of transposition of very similar provisions contained in the EU directives. For example, there is a provision for reserved contracts, where the contracting authority may limit competition for sheltered workshops and other economic operators whose activities include social and professional integration of people belonging to socially marginalized groups.

Independent organizations including NGOs and business and employee associations promote CSR in Poland. The Responsible Business Forum (RBF), founded in 2000, is the oldest and largest NGO in Poland focusing on corporate social responsibility: http://odpowiedzialnybiznes.pl/english/ 

CSR Watch Coalition Poland, part of the OECD Watch international network aims to advance respect for human rights in the context of business activity in Poland in line with the spirit of the UNBHR-GPs and the OECD Guidelines for Multinational Enterprises (MNEs): https://www.oecdwatch.org/organisations/csr-watch-coalition-poland/ 

Poland’s largest CSR and sustainable development review, published by the Responsible Business Forum, confirms the enormous mobilization and commitment in the fight against the pandemic. Many businesses have launched new CSR activities to deliver assistance and support. The 19th edition of the “Responsible Business in Poland. Good Practices” report has seen a more than 40 percent increase in activities reported. The total number of reported practices hit an all-time high of almost 2,000. Experts from the RBF note a lower number of long-standing practices which shows that the pandemic has led to suspension or discontinuation of certain CSR activities. The pandemic has also fueled the development of CSR partnerships, which is reflected in the activities reported. Businesses collaborated, for instance, in the production of sanitizer gel, provision and delivery of medicines and PPE to hospitals, and social welfare centers.

Research shows that sustainability and CSR are increasingly translating into consumer choices in Poland. According to SW Research for Stena Recycling, nearly 70 percent of Poles would like their favorite products to come from sustainable production and are willing to switch to more sustainably produced products. More than half believe that the circular economy can have a direct, positive impact on the environment.

In December 2016, Poland was the first country in the world to issue a green bond. The bond served to highlight the government’s support for projects with clear environmental benefits, as well as finance Poland’s key environmental goals, i.e., Poland’s National Renewable Energy Plan and the National Program for the Augmentation of Forest Cover. Green bonds are becoming increasingly popular in Poland.

In December 2020, the Warsaw Stock Exchange (WSE) partnered with the European Bank for Reconstruction and Development (EBRD) to bring clarity to ESG reporting from listed companies in Poland and the region of Central and Southeast Europe. In 2021, the WSE published its first ESG reporting guidelines for listed companies – a handbook developed in collaboration with industry experts. The WSE joined a group of approximately 60 stock exchanges around the world that have written guidance on ESG reporting. Poland’s consumer and business environment is  increasingly concerned  with ESG factors, although a lack of standardized reporting mechanisms is leaving investors confused about the true extent of their portfolio’s ESG performance.  The guidelines provide small and mid-sized companies with a roadmap for measuring their impact on the environment while defining a code of good practice for market leaders.

Poland launched the Chapter Zero Poland Program, which is part of the international Climate Governance Initiative established by the World Economic Forum. The program brings together members of the supervisory boards and presidents of major companies to raise awareness of the consequences of climate change for business and the impact of business on climate.

Poland maintains a National Contact Point (NCP) for OECD Guidelines for Multinational Enterprises: https://www.gov.pl/web/fundusze-regiony/krajowy-punkt-kontaktowy-oecd  Starting in March 2021, the EU regulation SFDR 2019/2088 on disclosure of information related to sustainable development (environmental, labor, human rights, and anti-corruption) in the financial services sector applies in Poland and other EU countries.The NCP promotes the OECD MNE Guidelines through seminars and workshops. Investors can obtain information about the Guidelines and their implementation through Regional Investor Assistance Centers. Information on the OECD NCP activities is under this link: https://www.gov.pl/web/fundusze-regiony/oecd-national-contact-point 

Poland is not a member of the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights. The primary extractive industries in Poland are coal and copper mining.  Onshore, there is also hydrocarbon extraction, primarily conventional natural gas, with limited exploration for shale gas.  The Polish government exercises legal authority and receives revenues from the extraction of natural resources and from infrastructure related to extractive industries such as oil and gas pipelines through a concessions-granting system, and in most cases through shareholder rights in state-owned enterprises.  The Polish government has two revenue streams from natural resources: 1) from concession licenses; and 2) from corporate taxes on the concession holders.  License and tax requirements apply equally to both state-owned and private companies.  Natural resources are brought to market through market-based mechanisms by both state-owned enterprises and private companies. Poland was among the original ratifiers of the Montreux Document on Private Military and Security Companies in 2008. One company from Poland is a member of the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).

9. Corruption

Poland has laws, regulations, and penalties aimed at combating corruption of public officials and counteracting conflicts of interest.  Anti-corruption laws extend to family members of officials and to members of political parties who are members of Parliament.  There are also anti-corruption laws regulating the finances of political parties.  According to a local NGO, an increasing number of companies are implementing voluntary internal codes of ethics.  In 2021, the Transparency International (TI) index of perceived public corruption ranked Poland as 42nd least corrupt among 180 countries/territories (three places higher than on the 2020 TI index).

10. Political and Security Environment

Poland is a politically stable country.  Constitutional transfers of power are orderly.  The last presidential elections took place in June 2020 and parliamentary elections took place in October 2019; observers considered both elections free and fair.  The Organization for Security and Cooperation in Europe, which conducted the election observation during the June 2020 presidential elections, found the presidential elections were administered professionally, despite legal uncertainty during the electoral process due to the outbreak of the COVID-19 epidemic.  Prime Minister Morawiecki’s government was re-appointed in November 2019.  Local elections took place in October 2018.  Elections to the European Parliament took place in May 2019.  The next parliamentary elections are scheduled for the fall of 2023.  There have been no confirmed incidents of politically motivated violence toward foreign investment projects in recent years.

The February 24, 2022, Russian invasion of Ukraine is likely to have major consequences for Poland. Poland, a leading NATO member, has become a special hub for transporting military equipment to the Ukrainian armed forces. Poland is dealing with a massive inflow of refugees, which could impact domestic political stability.

11. Labor Policies and Practices

Poland has a well-educated, skilled labor force.  Productivity, however, remains below OECD averages but is rising rapidly and unit costs are competitive.  In the last quarter of 2021, according to the Polish Central Statistical Office (GUS), the average gross wage in Poland was PLN 5,995 per month ($1,500) compared to 5,458 ($1,444) in the last quarter of 2020.  Poland’s economy employed roughly 16.780 million people in the fourth quarter of 2021.  Eurostat measured total Polish unemployment at 2.9 percent, with youth unemployment at 11 percent in December 2021.  The unemployment rate was the same among male and female workers. GUS reports unemployment rates differently and tends to be higher than Eurostat figures.  Unemployment varied substantially among regions: the highest rate was 8.6 percent (according to GUS) in the north-eastern part of Poland (Warmia and Mazury), and the lowest was 3.1 percent (GUS) in the western province of Wielkopolska, at the end of the fourth quarter of 2021.  Unemployment was lowest in major urban areas.  Polish workers are usually eager to work for foreign companies, in Poland and abroad.  Since Poland joined the EU, up to two million Poles have sought work in other EU member states.

According to the Ministry of Family and Social Policy, more than 2 million “simplified procedure” work declarations were registered in 2021, of which 1.7 million were for Ukrainian workers (compared to 1.3 million a year earlier).  Under the revised procedure, local authorities may verify if potential employers have actual job positions for potential foreign workers.  The law also authorizes local authorities to refuse declarations from employers with a history of abuse, as well as to ban employers previously convicted of human trafficking from hiring foreign workers.  The 2018 revision also introduced a new type of work permit for foreign workers, the so-called seasonal work permit, which allow for legal work up to nine months in agriculture, horticulture, tourism, and similar industries.  Ministry of Family and Social Policy statistics show that during 2021, more than 400,000 seasonal work permits of this type were issued, of which more than 387,000 went to Ukrainians.  Ministry of Family and Social Policy statistics also show that in 2021, more than 504,000 foreigners received work permits, including more than 325,000 Ukrainians, compared with 295,272 in 2020.  On March 12, 2022, the new law on assistance to Ukrainian citizens in connection with the armed conflict on the territory of the country entered into force. Under the new law, Ukrainian citizens who fled their country as a result of the war can legally stay and work in Poland for up to 18 months.

Polish companies suffer from a shortage of qualified workers.  According to a 2022 report, “Barometer of Professions,” commissioned by the Ministry of Family and Social Policy, several industries suffer shortages, including the construction, manufacturing, healthcare, transportation, education, food processing, and financial industries.

The most sought-after workers in the construction industry include concrete workers, steel fixers, carpenters, and bricklayers.  Manufacturing companies seek electricians, electromechanical engineers, tailors, welders, woodworkers, machinery operators, and locksmiths.  Employment has expanded in service industries such as information technology, manufacturing, and administrative and support service activities.  The business process outsourcing industry in Poland has experienced dynamic growth.  The state-owned sector employs about a quarter of the work force, although employment in coal mining and steel are declining.

Since 2017, the minimum retirement age for men has been 65 and 60 for women.  Labor laws differentiate between layoffs and dismissal for cause (firing).  In the case of layoffs (when workers are dismissed for economic reasons in companies which employ more than 20 employees), employers are required to offer severance pay.  In the case of dismissal for cause, the labor law does not require severance pay.

Most workers hired under labor contracts have the legal right to establish and join independent trade unions and to bargain collectively. Individuals who are self-employed or in an employment relationship based on a civil law contract are also permitted to form a union. The law provides for the rights of workers to form and join independent trade unions, bargain collectively, and conduct legal strikes. The law prohibits antiunion discrimination and provides legal measures under which workers fired for union activity may demand reinstatement. Trade union influence is declining, though unions remain powerful among miners, shipyard workers, government employees, and teachers.  The Polish labor code outlines employee and employer rights in all sectors, both public and private, and has been gradually revised to adapt to EU standards. However, employers tend to use temporary and contract workers for jobs that are not temporary in nature.  Employers have used short-term contracts because they allow firing with two weeks’ notice and without consulting trade unions.  Employers also tend to use civil instead of labor contracts because of ease of hiring and firing, even in situations where work performed meets all the requirements of a regular labor contract.

Polish law requires equal pay for equal work and equal treatment with respect to signing labor contracts, employment conditions, promotion, and access to training.  The law defines equal treatment as nondiscrimination in any way, directly or indirectly on the grounds of gender, age, disability, race, religion, nationality, political opinion, ethnic origin, denomination, sexual orientation, and whether or not the person is employed temporarily or permanently, full time or part time.

The 1991 Law on Conflict Resolution defines the mechanism for labor dispute resolution.  It consists of four stages: first, the employer is obliged to conduct negotiations with employees; the second stage is a mediation process, including an independent mediator; if an agreement is not reached through mediation, the third stage is arbitration, which takes place at the regional court; the fourth stage of conflict resolution is a strike.

The Polish government adheres to the International Labor Organization’s (ILO) core conventions and generally complies with international labor standards.  However, there are several gaps in enforcing these standards, including legal restrictions on the rights of workers to form and join independent unions.  Cumbersome procedures make it difficult for workers to meet all of the technical requirements for a legal strike.  The law prohibits collective bargaining for key civil servants, appointed or elected employees of state and municipal bodies, court judges, and prosecutors.  There were some limitations with respect to identification of victims of forced labor.  Despite prohibitions against discrimination with respect to employment or occupation, such discrimination occurs.  Authorities do not consistently enforce minimum wage, hours of work, and occupational health and safety, either in the formal or informal sectors.

The National Labor Inspectorate (NLI) is responsible for identifying possible labor violations; it may issue fines and notify the prosecutor’s office in cases of severe violations.  According to labor unions, however, the NLI does not have adequate tools to hold violators accountable and the small fines imposed as punishment are an ineffective deterrent to most employers.  The United States has no FTA or preference program (such as GSP) with Poland that includes labor standards.

The grey economy’s share in Poland’s GDP is expected to increase to 18.9 percent in 2022, from 18.3 percent in 2021, according to Poland’s Institute of Forecasts and Economic Analyses (IPAG). IPAG estimates that the total value of the shadow economy in Poland will reach EUR 126.4 billion (PLN 590 billion) in 2022. According to IPAG, Russia’s ongoing war in Ukraine remains a significant factor of uncertainty and may additionally boost the grey economy to 19.4 percent. According to worldeconomics.com, the size of Poland’s informal economy is estimated to be 22.4 percent which represents approximately $354 billion at GDP PPP levels.

In 2021, Poland ranked 18 in the Mastercard Index of Women Entrepreneurs (MIWE) ranking offering women good conditions for running a business, down 12 places from 2020. According to the Mastercard report, 29 percent of companies in Poland are run by women. At the end of 2021, the share of women on the boards of the companies listed on the Warsaw Stock Exchange was only 17 percent, a decrease by one percent compared to 2020.

According to the analysis of data from the National Court Register carried out by the Dun & Bradstreet business intelligence agency, the number of companies owned by women in Poland at the end of 2021 decreased by three percent compared to 2020 and accounted for 32.5 percent of all companies. The number of women in the position of CEO decreased from 23.5 percent to 19.5 percent and as members of management boards from 30 percent to 25 percent. According to the Central Statistical Office (GUS) data, the share of women in the Polish labor market amounts to over 40 percent.

The pandemic undoubtedly contributed to the decline in women’s business activity. According to the report of the Foundation Success Written with Lipstick, one-third of surveyed business owners and co-owners admitted that they had problems with running a business in 2021, over a quarter recorded a drop in revenues, and eight percent had to suspend activities. Every fifth entrepreneur had to change the business profile of her company due to the pandemic.

The COVID-19 pandemic continued to dominate 2021, affecting the business world and forcing employers and employees to adapt to new working conditions. Due to the growing popularity of remote work, the Ministry of Labor has continued works aimed at introducing remote work to the provisions of the Labor Code for good. New regulations will be introduced in the first half of 2022.

14. Contact for More Information  

Anna Jaros
Economic Specialist
U.S. Embassy Warsaw
+48 22 504 2000
econwrw@state.gov

 

Qatar

Executive Summary

The State of Qatar is one of the world’s largest exporters of liquefied natural gas (LNG) and has one of the highest per capita incomes in the world. Despite a decrease in the gross domestic product (GDP) in 2020, which stemmed from depressed hydrocarbon sales and the COVID-19-induced economic slowdown, Qatar’s real GDP recovered by the second quarter of 2021 and is expected to grow by four percent in 2022, according to the International Monetary Fund’s (IMF) projections. This positive outlook is driven mainly by Qatar Energy’s ambitious plans to expand LNG production by more than 60 percent over the next five years. To maintain high-level government spending on projects in preparation for the 2022 FIFA World Cup, Qatar projects a modest $2.2 billion budget deficit in 2022, based on an oil price assumption of $55 per barrel.

The government remains the dominant actor in the economy, though it encourages private investment in many sectors and continues to take steps to encourage more foreign direct investment (FDI). The dominant driver of Qatar’s economy is the energy sector, which has attracted tens of billions of dollars in FDI. In line with the country’s National Vision 2030’sgoal of establishing a knowledge-based and diversified economy, the government of Qatar has recently introduced reforms to its foreign investment and foreign property ownership laws. These recent legislations allow up to 100 percent foreign ownership of businesses in most sectors and real estate in newly designated areas. In 2020, the government also enacted legislation to regulate and promote public-private partnerships.

There are significant opportunities for foreign investment in infrastructure, healthcare, education, tourism, energy, information and communications technology, and services. The government allocated $20 billion for major projects in these sectors in 2022. Measured by the amount of inward FDI stock, manufacturing, mining and quarrying, finance, and insurance are the primary sectors that attract foreign investors. The government provides various incentives to attract local and foreign investments, including exemptions from customs duties and certain land-use benefits. The corporate tax rate is 10 percent for most sectors, and there is no personal income tax. One notable exception is the corporate tax of 35 percent on foreign firms in the extractive industries, including but not limited to those in natural gas extraction.

Although the government of Qatar took recent measures to prosecute human rights violations, including improving its human trafficking legislation, addressing forced labor, and setting minimum wages, the country continues to face significant challenges that may affect foreign businesses. These include but are not limited to restrictions on free expression and peaceful assembly, restrictions on labor unions, discrimination against women in law and practice, and reports of forced labor.

To curb corruption and anti-competitive practices, the government created a regulatory regime consisting of various enabled government agencies, including the Transparency Authority, the National Competition Protection Authority, and the Anti-Monopoly Committee. To improve transparency, the government streamlined its procurement processes in 2016, creating an online portal for all government tenders. Nonetheless, personal connections reportedly play a significant role in business deals.

In recent years, Qatar has significantly bolstered its U.S. investments through its sovereign wealth fund, the Qatar Investment Authority (QIA), and its subsidiaries, notably Qatari Diar. In 2019, QIA pledged to allocate $45 billion to U.S. investments, after it opened an office in New York City in 2015 to facilitate its U.S. investments. The November 2021 fourth annual U.S.-Qatar Strategic Dialogue further strengthened strategic and economic partnerships and addressed obstacles to investment and trade. The fifth round of strategic talks is expected to take place in Doha in 2022.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 31 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 68 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 15.5 billion https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 55,990 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The State Audit Bureau oversees state-owned enterprises (SOEs), several operating as monopolies or holding exclusive rights in most economic sectors. Despite the dominant role of SOEs in Qatar’s economy, the government has affirmed support for the local private sector. It encourages small and medium-sized enterprise development as part of its National Vision 2030. The Qatari private sector is favored in bids for local contracts and generally receives favorable terms for financing at local banks. The following are Qatar’s major SOEs:

Energy and Power:

Qatar Energy, its subsidiaries, and its partners operate all oil and gas activities in the country. The government wholly owns QE. Non-Qataris can invest in its stock exchange listed subsidiaries, but shareholder ownership is limited to two percent and total non-Qatari ownership to 49 percent.

Qatar General Electricity and Water Corporation (Kahramaa) is the sole utility provider in the country and is majority-owned by Qatari government entities. To privatize the sector, the Qatar Electricity and Water Company (QEWC) was established in 2001 as a separate and private provider that sells its desalinated water and electricity to Kahramaa. Other privatization efforts included the Ras Laffan Power Company, based in 2001, and 55 percent owned by a U.S. company.

Aerospace:

Qatar Airways is the country’s national carrier and is wholly owned by the state.

Services:

Qatar General Postal Corporation is a state-owned postal company. Several other delivery companies compete in the courier market, including Aramex, DHL Express, and FedEx Express.

Information and Communication:

Ooredoo Group is a telecommunications company founded in 2013. Ooredoo (previously known as Q-Tel) dominates both the cell and landline telecommunications markets in Qatar and partners with telecommunications companies in 13 Middle East, North Africa, and Asia markets. It is the dominant player in the Qatari telecommunications market and is 70 percent owned by Qatari government entities. Ooredoo Group is listed on the Qatari Stock Exchange.

Vodafone Qatar is Qatar’s only other telecommunications operator, with the quasi-governmental entity Qatar Foundation owning 62 percent of its shares. Other Qatari government entities and Qatar-based investors own the remaining 38 percent. Vodafone Qatar is listed on the Qatari Stock Exchange.

Qatari SOEs may adhere to their own corporate governance codes and are not required to follow the OECD Guidelines on Corporate Governance. Some SOEs publish online corporate governance reports to encourage transparency, but there is no general framework for corporate governance across all Qatari SOEs. SOEs listed on the stock exchange must publish financial statements at least 15 days before annual general meetings in two local newspapers (in Arabic and English) and on their websites. When an SOE is involved in an investment dispute, the case is reviewed by the appropriate sector regulator (for example, the Communications Regulatory Authority for the information and communication sector).

8. Responsible Business Conduct

There is a general awareness in Qatar of responsible business conduct. Many companies publicize their Corporate social responsibility (CSR) initiatives, the majority of which cover environmental issues as well. Qatar participates in the Extractive Industries Transparency Initiative (EITI) as an economy dependent on extractive industries. Nonetheless, the Qatari government has not improved transparency regarding its petroleum industry management, as no regulatory body oversees resources extraction or revenue management. Moreover, Qatar has no freedom of information law.

The Government of Qatar maintains a reporting regime for suspicious transactions and requirements for consumer due diligence and record-keeping. The Ministry of Commerce and Industry has a dedicated Consumer Protection and Combating Commercial Fraud Department, which has intensified its efforts by monitoring records and inspection of stores and factories that sell or manufacture counterfeit goods. The ministry prosecutes business misconduct and announces these violations publicly.

Qatari law prohibits all forms of forced or compulsory labor and reserves two percent of jobs in government agencies and public institutions for persons with disabilities. The law also prohibits the employment of children under 16 years of age. The Ministry of Labor (MOL), the Ministry of Interior (MOI), and the National Human Rights Committee (NHRC) conduct training sessions for migrant laborers to inform them of their rights while in Qatar. In 2018, the United States and Qatar signed a government-to-government memorandum of understanding on exchanging expertise and fostering capacity building on combating human trafficking. In 2019, the U.S. Department of Labor and MOL signed a Memorandum of Understanding on labor, focusing on labor inspections and protecting domestic workers’ rights in Qatar.

Some Qatari non-governmental organizations (NGOs) focus on labor rights and often work with the government. Researchers from international NGOs such as Amnesty International and Human Rights Watch continue to visit and report on labor developments in the country with limited interference from authorities. International labor NGOs have been able to send researchers to Qatar under the sponsorship of academic institutions and quasi-governmental organizations such as the NHRC. Global media and human rights organizations continue to allege numerous abuses against foreign workers, including forced or compulsory labor, withheld wages, unsafe working conditions, and poor living accommodations.

Private security companies cannot operate in Qatar without an appropriate license granted by the MOI, per Law 19/2009 on Regulating the Provision of Private Security Services. As of 2009, Qatar has been a signatory to the Montreux Document on Private Military and Security Companies.

9. Corruption

Corruption in Qatar does not generally affect the conduct of business, although the power of personal connections plays a significant role in business culture. Qatar ranked as the second least corrupt country in the Middle East and North Africa, according to Transparency International’s 2021 Corruption Perceptions Index, and ranked 31st out of 180 nations globally with a score of 63 out of 100, with 100 indicating full transparency.

Qatari law imposes criminal penalties to combat corruption by public officials, and the government actively implements these laws. Corruption and misuse of public money are a focus of the executive office. Law 22/2015 imposes hefty penalties for corrupt officials. Decree 6/2015 restructured the Administrative Control and Transparency Authority, granting it juridical responsibility, a budget, and direct affiliation with the Amir’s office. The authority’s objectives are to prevent corruption and ensure that ministries and public employees operate with transparency. Transparency is also mandated when investigating alleged crimes against public property or finances perpetrated by public officials.

Law 11/2016 grants the State Audit Bureau more financial authority and independence, allowing it to publish parts of its findings (provided that confidential information is removed), a power it did not previously have. Individuals convicted of embezzlement are subject to prison terms of no less than five and up to ten years. The penalty can be extended to a minimum term of seven and a maximum term of fifteen years if the perpetrator happens to be a public official in charge of collecting taxes or exercising fiduciary responsibilities over public funds. Qatar State Security Bureau and the Office of the Public Prosecutor handle investigations of alleged corruption charges. The Criminal Court makes final judgments.

Bribery is a crime in Qatar, and the law imposes penalties on public officials convicted of acting in return for monetary or personal gain and on other parties who take actions to influence or attempt to influence a public official through monetary or other means. The current Penal Code (Law 11/2004) governs corruption regulations and stipulates that individuals convicted of bribery may be sentenced up to ten years in prison and fines amounts equal to the amount of the bribe but no less than $1,374.

To promote a fairer, more transparent, and more expeditious public-sector tendering process, the government issued Procurement Law 24/2015, which abolished the Central Tendering Committee and established in its stead a Procurement Department within the Ministry of Finance that has oversight over most government tenders. The new department has an online portal that consolidates all government tenders and provides relevant information to interested bidders, facilitating the process for foreign investors ( https://monaqasat.mof.gov.qa ).

Qatar is not a party to the Organization for Economic Cooperation and Development’s (OECD) Convention on Combating Bribery of Foreign Public Officials. However, Qatar ratified the UN Convention for Combating Corruption (by Amiri Decree 17/2007) and established a National Committee for Integrity and Transparency (by Amiri Decree 84/2007). The permanent committee is headed by the Chairman of the State Audit Bureau. In 2013, Qatar opened the Anti-Corruption and Rule of Law Center in Doha in partnership with the United Nations. The center’s purpose is to support, promote, and disseminate legal principles to fight corruption (https://rolacc.qa/).

Despite these efforts, some American businesses cite a lack of transparency in government procurement and customs as recurring issues when operating in the Qatari market. U.S. investors and Qatari nationals who happen to be agents of U.S. firms are subject to the provisions of the U.S. Foreign Corrupt Practices Act.

10. Political and Security Environment

Qatar is a politically stable country with low rates of crime. There are no political parties, labor unions, or organized domestic political opposition. The U.S government rates Qatar as a medium risk country for terrorism, including threats from transnational actors.

The State Department encourages U.S. citizens in Qatar to stay in close contact with the U.S. Embassy in Doha for up-to-date threat information. The Department invites U.S. visitors to Qatar to enroll in its Smart Traveler Enrollment Program to receive further information on safety conditions in Qatar: https://step.state.gov/step/.

11. Labor Policies and Practices

Qatar has one of the world’s highest migrant workers to indigenous population ratios, with foreigners making up nearly 90 percent of the country’s population. Qatar’s resident population is estimated at 2.78 million as of January 2022, doubling in the last decade. Qatari citizens are estimated to number approximately 300,000 – around 11 percent of the total population. Qatar’s labor force consists primarily of expatriate workers. The largest group of foreign workers comes from the Indian sub-continent.

Males make up around 72 percent of the population. As of the second quarter of 2021, about 60 percent of the female population aged 15 years and above were economically active, compared to 95 percent of males. However, local statistics may not fully account for all employed females as calculations as primarily based on residency statuses, which are family, not employment-based for most migrant females.

Qatar’s unemployment rates are among the lowest globally, with a 0.1 percent unemployment rate for men and a 0.5 percent unemployment rate for women, as of 2021. The government mandates that Qataris make up at least 60 percent of the employees of state-owned enterprises or companies where the government is a majority investor and 80 percent of those entities’ human resources workforce. Children of Qatari women are considered Qataris for purposes of calculating this localization ratio. Over three-quarters of employed Qatari citizens work for the government.

The Ministry of Labor (MOL) regulates the recruitment of expatriate labor. Labor Law 14/2004 largely governs employment in Qatar and allows the terminating party to terminate employment without providing reasons. The law requires employers to pay employees owed wages and other benefits in full, provided they have performed expected work duties during the notice period, which varies based on years of employment. The English common law governs companies registered with QFC, and labor issues are administered by QFC’s Regulation 10/2006.

There are no labor unions in Qatar. Non-citizens are not eligible to form worker committees or go on strike. However, according to an agreement between MOL and the International Labor Organization (ILO), joint worker committees including 50-50 representation of workers and employers exist in a small number of cases for all medium to large-sized companies. Law 12/2004 on Private Associations and Foundations and subsequent regulations grant Qatari citizens the right to form workers’ committees in private enterprises with more than 100 Qatari citizen workers. Qatari citizens employed in the private sector also have the right to participate in approved strikes. Still, the restrictive conditions imposed by the law make the likelihood of an approved strike remote. Regardless of nationality, individuals working in the public sector are prohibited from joining unions. Workers at labor camps occasionally go on strike over non-payment or delayed wages; however, this practice is technically illegal.

Local courts handle disputes between workers and employers, but the process is widely regarded as inefficient. To speed up the process of resolving labor disputes, the government established Labor Disputes Settlement Committees headed by a judge and representatives from MOL. As of 2018, there are three such committees, all of which operate outside of the traditional Supreme Judicial Committee structure and are required to address any complaints within three weeks.

Law 17/2020 sets the minimum basic wage for workers and domestic workers at $275 per month and $220 for lodging and meals if not provided by the employer. To combat the problem of late and unpaid wages, the government issued Law 1/2015, amending specific provisions of Labor Law 14/2004 on wage protection and mandating electronic payment to all employees subject to the local labor law. The government requires all employers to open bank accounts for their employees and pay wages electronically through a system subject to audits by an inspection division at the MOL; this requirement, however, does not apply to domestic workers. Employers who fail to pay their workers face penalties between $550 and $1,650 per case and possible prison sentences. Those penalties, however, are rarely implemented. The system currently applies to over 1.4 million workers.

The Labor Law prohibits the employers’ withholding of workers’ passports and stiffens penalties for transgressors. To eliminate forced labor, the government issued Law 19/2020, enabling employees to switch employers without requiring the employer’s permission. This new legislation complimented Law 13/2018, allowing workers covered by the Labor Law to leave the country without requiring exit permits.

To protect workers from fraudulent employment contracts, the Ministry of Interior (MOI) established the Qatar Visa Centers (QVCs) to simplify residency procedures for expatriate workers from India, Nepal, Sri Lanka, Pakistan, Bangladesh, and the Philippines. In partnership with MOI and MOL, contracted companies set up QVCs in these countries to facilitate biometric enrollment, medical records verification, and work contracts before contracted workers enter Qatar.

Qatar is a member of the ILO and maintains that its labor law meets ILO minimum requirements. In 2017, Qatar made commitments to address some ILO complaints by launching a comprehensive three-year ILO technical cooperation program. In 2018, the ILO opened a Doha office.

In 2018, the Qatari Minister of Foreign Affairs signed a labor-related MOU with the Department of State during the U.S.-Qatar Strategic Dialogue. The MOU laid out plans for cooperation in combating trafficking-in-persons, including strengthening the labor sector to reduce instances of forced labor. In 2019, MOL signed an MOU with the U.S. Department of Labor to enhance cooperation in labor inspection and protecting domestic workers’ rights.

14. Contact for More Information

Economic Specialist
U.S. Embassy, Doha
22nd February Street, Al Luqta District, P.O. Box 2399, Doha, Qatar
+974-4496-6000
EskandarGA@state.gov

Sao Tome and Principe

Executive Summary

São Tomé and Príncipe (STP) is a stable, multi-party democracy. It is a developing country with a Gross Domestic Product (GDP) of roughly USD $427.4 million and a population of 215,048 (World Bank, 2019 estimate). Due to STP’s very limited revenue sources, foreign donors finance roughly 90 percent or more of its public investment budget. For the 2021 budget, these donors were China, Japan, Portugal, the World Bank, European Union, the UN Food and Agriculture Organization (FAO), the African Development Bank, and the Arab Bank for Economic Development (BADEA.)

STP has taken positive steps over the last decade to improve its investment climate and to make the country a more attractive destination for foreign direct investment (FDI), including by working to combat corruption and create an open and transparent business environment. In 2021, VISA cards were introduced in the country. To improve the appeal of tourism during the pandemic, the Tourism Directorate launched its “Seal of Clean” Program in 2021. The Value Added Tax (VAT) Law (13/2019) enacted in 2019 to facilitate tax collection and enforcement of the tax code is scheduled for adoption. A modern Labor Code (6/2019) came into force in 2019 to make it easier for investors to understand and abide by the labor standards. In June 2019, STP also became the 25th African country to ratify the African Continental Free Trade Agreement (AfCFTA). In 2018, it passed its Public-Private Partnership (PPP) Law, Notary Code, and Commercial Register Code. The Regulation of Investment Code was adopted in 2017 and the Investment Code and Code of Fiscal Benefits and Incentives were previously adopted in 2016. The 2013 anti-money laundering and counter-terrorist financing law brought STP into compliance with international standards. A Millennium Challenge Corporation Country Threshold Program, completed in 2011, modernized STP’s customs administration, reformed its tax policies, and made it less burdensome to start a new business. Together, these efforts helped to develop a modern and transparent legal framework for foreign investment. Due to its reliance on outside investment, STP remains committed to improving its investment climate.

The government continues to work with the business community to develop the country economically and to improve basic social services for the country’s young and growing population. In 2018, it approved a four-year program to promote “robust economic growth” focused on the provision of services, including tourism, the financial sector, technology, logistics, and health services associated with the digital economy. Special attention is also being given to traditional sectors, mainly agriculture, livestock, and marine resources. STP’s extensive maritime domain (160,000 km2) may hold opportunities for hydrocarbon production as technology improves. In cooperation with China, STP is seeking to modernize its port infrastructure and capitalize on its fishing potential. In 2020, China also announced funding for airport rehabilitation and upgrades. STP is using Word Bank funding to rehabilitate the road linking the capital to the north of the island. However, foreign investors continue to face challenges identifying viable investment opportunities due to STP’s small and fragile domestic market, inadequate infrastructure, slow moving justice system, high cost of credit, and limited access and expensive electricity.

Prime Minister Jorge Bom Jesus is focused on fighting corruption, improving the business environment, attracting Foreign Direct Investment (FDI), and promoting economic growth. In his inaugural address in 2021, President Carlos Vila Nova expressed support for protecting the environment and investments. The President also welcomed U.S. cooperation.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 66 of 180 https://www.transparency.org/en/countries/sao-tome-and-principe
Global Innovation Index  2021 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2020 $21  https://apps.bea.gov/international/factsheet/factsheet.html#451
World Bank GNI per capita 2020 $2,060  https://data.worldbank.org/country/sao-tome-and-principe?view=chart

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

There are no rules or legislation pertaining to responsible business conduct (RBC) in STP. Companies generally act in accordance with laws pertaining to investment, labor, environment, flora and fauna protection, consumer protection, and taxation. There is limited awareness of expectations of or standards for responsible business conduct. STP participates in the Extractive Industries Transparency Initiative (EITI). Companies usually respect human and labor rights. On occasion, civil society and NGOs speak up against businesses’ inappropriate conduct, especially as regards environmental destruction. In 2018, a group of civil society organizations and a political party contested the government’s decision to lease a large piece of land in the north of São Tomé to a Chinese business group for the establishment of a quarry. The land was part of a natural park with many preserved species of plants, animals and birds.

https://www.telanon.info/politica/2018/01/30/26321/crime-governo-permite-instalacao-de-uma-pedreira-no-meio-do-parque-natural-obo/ 

9. Corruption

Although STP has taken steps to combat corruption through government reforms the country ranked 66 out 180 countries in Transparency International’s 2021 Corruption Perception Index, dropping one position compared to the previous year. The government passed an anti-corruption law in 2012 that required all payments to government entities over USD $5 be made directly at the BCSTP and all salary payments to civil servants be paid directly to the employee’s bank account. The government has also taken steps to review and update existing contracts with some foreign companies to support liberalization and free market competition. The government has denounced corruption and pledged to take necessary steps to prevent and combat it.

Although the government has been taken these steps, in March 2022, President Vila Nova cited a study showing seven out of 10 Santomeans still believed corruption was increasing.

Although corruption in customs was historically an issue for foreign investors, the MCC Threshold Program did help establish a modern customs code and related decrees by introducing modern customs tracking software and eliminating manual procedures, with customs agents handling payments for the importer. As a result, customs revenues have increased significantly. while incidents of corruption have reportedly declined.

In 2013, the parliament adopted an amended anti-money laundering/counter-terrorist financing (AML/CFT) law that complies with international standards. It designates the Financial Information Unit (Unidade de Informação Financeira) as the central agency in STP with responsibility for investigating suspect transactions. STP is a member of the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA), a FATF-style regional body.

According to the 2016 Investment Code, all investment proposals must be submitted to the APCI, which is responsible for carrying out all legal inter-institutional coordination with different sectors involved in the analysis and approval of the investment project. The law limits contacts between investment proponents and officials involved in the investment approval process.

STP signed and ratified the UN Anticorruption Convention. It is not party to the Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

STP does not have a designated agency responsible for combatting corruption but in March 2022, the President promised to create an “Anti-Corruption Committee” comprised of reputable citizens, and uncommitted to any political agenda.

10. Political and Security Environment

STP is relatively stable, has no ethnic tensions, and has a relaxed lifestyle, which locals refer to as leve-leve (“take it easy”). Since its democratic reforms in 1990, the archipelago has been a good example of democracy in the sub-region with a history of peaceful transfers of power and consensus in decision-making. In July 2021, following the results of the first round of the presidential elections, the third ranked candidate contested the election’s results, alleging massive fraud. After back-and-forth decisions from the Constitutional Court there was a delay in the holding of the second round of the presidential election. Ultimately, the second round took place and observers announced that they found it to be free, fair, and transparent. The President took office in 2021 without incident. There were some protests in 2018 over the creation of the Constitutional Court, and a lower court decision to recount the votes of the October 7 legislative, local, and regional elections. Despite the post-election protests, the legislative elections led to the peaceful formation of a new coalition Government. STP generally has a good human rights record and demonstrates a respect for citizens’ and workers’ rights. Strikes are not seen as the primary means to settle labor disputes and labor strikes have been sporadic in recent times.

Since independence in 1975, there have been no incidents of politically motivated attacks on projects or installations. There is no anti-American sentiment and instances of civil disorder are rare. Recently maritime piracy has affected STP’s territorial waters in the Gulf of Guinea, though the threat of terrorism remains limited. STP has sought to be an active partner in regional maritime security efforts, although its capacity and resources are minimal. Despite two violent murders in early 2020, violent crime rates are at a historical low.

11. Labor Policies and Practices

A significant portion of STP’s workforce is young, relatively well-educated, and multilingual (Portuguese and French). Further training of the workforce is needed, however, for the economy to continue developing. The percentage of foreign/migrant workers is low but covered by the new Labor Code (Law 6/2019). The government does not officially require but encourages companies to hire nationals. In March 2022, after negotiations with the labor unions, the government announced that the monthly minimum wage for civil servant will increase from USD $50 to USD $112 as of May, with an expected increase to USD $157 in 2023 and USD $202 in 2024. The unions also announced a leave allowance payment of 40 percent as of May and 100 percent by 2023, retroactive from January. For the first time in 2016, the government set the national minimum wage for private and public sectors. The basic salary varies by the size of the enterprise. For micro enterprises or family businesses, the minimum wage is around STN 800 ($38.80) per month, small business STN 1,000 ($48.50), medium enterprise STN 1,300 ($63.10) and large enterprise STN 1,600 ($77.70). The basic salary for the public sector is approximately STN 1,100 ($50). Women are entitled to state-funded maternity leave for a period of 14 weeks, including 8 weeks after childbirth. The law recognizes the right of workers to form and join independent unions, conduct legal strikes (though this is strictly regulated), and bargain collectively. The law does not prohibit anti-union discrimination or retaliation against strikers. Workers’ collective bargaining agreements remain relatively weak due to the government’s role as the principal employer and key interlocutor in labor matters, including wages. Special tax incentives are provided under the Fiscal Benefit Code to companies that provide training to its human resources. Labor disputes are usually solved through dialogue between parties, under mediation of the General Labor Inspection Department (IGT), or through litigation if a consensus cannot be reached. The Labor Law was drafted in collaboration with the ILO. The IGT is housed under the Labor Ministry.

STP’s private sector is underdeveloped, undiversified and dominated by a large number of informal operators who work mainly in civil construction, agriculture, commerce and fisheries, with a low level of education, lack of organizational and managerial skills, absence of structured accounting systems, as well as minimal business planning procedures in the medium/long term. However, the informal sector makes a substantial contribution to the economy through its dynamism, entrepreneurial culture, innovation and flexibility to adjust to changes in the environment. Thus, it still has the potential to eventually develop into a part of the more mainstream private sector in the coming years.

The World Bank 2020 Doing Business Report ranked STP 185 among 190 economies in terms of contract enforcement. Although some reforms are ongoing, the county’s justice system is still seen as slow moving, costly, and biased at times. Therefore, it is still very important to know the given local partner or individual who you are doing business with. Further, it is always advisable to confirm the true ownership of any asset before its acquisition, especially when involving land.

According to a government official, there are a total of 11,000 civil servants, more than half the country’s labor force. The World Bank estimated STP’s 2020 total labor force to be about 68,000; among the total number, roughly 35,000 are female between the ages of 15-64 years old.

https://data.worldbank.org/indicator/SL.TLF.TOTL.IN?locations=ST 

14. Contact for More Information

Frank W. Stanley
Economic Chief
U.S. Embassy Libreville
Stanleyfw@state.gov
LibrevillePE@state.gov

Saudi Arabia

Executive Summary

In 2021, the Saudi Arabian government (SAG) continued its ambitious socio-economic reforms, collectively known as Vision 2030. Spearheaded by Crown Prince Mohammed bin Salman, Vision 2030 provides a roadmap for the development of new economic sectors and a transition to a digital, knowledge-based economy. The reforms aim to diversify the Saudi economy away from oil and create more private sector jobs for a young and growing population.

To accomplish these ambitious Vision 2030 reforms, the SAG is seeking foreign investment in burgeoning sectors such as infrastructure, tourism, entertainment, and renewable energy. Saudi Arabia aims to become a major transport and logistics hub linking Asia, Europe, and Africa. Infrastructure projects related to this goal include various “economic cities” and special economic zones, which will serve as hubs for petrochemicals, mining, logistics, manufacturing, and digital industries. The SAG plans to double the size of Riyadh city and welcomes investment in its multi-billion-dollar giga-projects (including NEOM, Qiddiya, the Red Sea Project, and Amaala), which are the jumping-off points for its nascent tourism industry. The Kingdom is also developing tourism infrastructure at natural sites, such as AlUla, and the SAG continues to grow its successful Saudi Seasons initiative, which hosts tourism and cultural events throughout the country.

The Saudi entertainment and sports sector, aided by a relaxation of social restrictions, is also primed for foreign investment. The country hopes to build hundreds of movie theaters and the SAG aims to sign agreements for production studios in Saudi Arabia for end-to-end film production. The SAG seeks to host world class sporting events and has already hosted the European Golf Tour, Diriyah ePrix, Dakar Rally, and Saudi Formula One Grand Prix. In addition, recent film festivals and concerts have demonstrated strong demand for art and cultural events. Lastly, the SAG is eager for foreign investment in green projects related to renewable energy, hydrogen, waste management, and carbon capture to reach net-zero emissions by 2060. It is particularly interested in green capacity-building and technology-sharing initiatives.

Despite these investment opportunities, investor concerns persist regarding business predictability, transparency, and political risk. Although some activists have recently been released, the continued detention and prosecution of activists remains a significant concern, while there has been little progress on fundamental freedoms of speech and religion. The pressure to generate non-oil revenue and provide increased employment opportunities for Saudi citizens has prompted the SAG to implement measures that may weaken the country’s investment climate going forward. Increased fees for expatriate workers and their dependents, as well as “Saudization” policies requiring certain businesses to employ a quota of Saudi workers, have led to disruptions in some private sector activities. Additionally, while specific details have not yet been released, Saudi Arabia announced in 2021 that multinational companies wanting to contract with the SAG must establish their regional headquarters in Saudi Arabia by 2024.

The SAG has taken important steps since 2018 to improve intellectual property rights (IPR) protection, enforcement, and awareness. While some concerns remain regarding IPR protection in the pharmaceutical sector, no new incidents related to regulatory data protection for health and safety information have been reported since October 2020, and in March 2022 Saudi Arabia issued a public statement stipulating that data protection in the Kingdom is for five years. While the sharp downturn in oil prices in 2020 put pressure on Saudi Arabia’s fiscal situation, the subsequent spike in oil prices has increased government revenue and the SAG expects a budget surplus in 2022.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 52 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 66 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $11,386 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $21,930 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

SOEs play a leading role in the Saudi economy, particularly in water, power, oil, natural gas, petrochemicals, and transportation. Saudi Aramco, the world’s largest exporter of crude oil and a large-scale oil refiner and producer of natural gas, is 94.5 percent SAG-owned, and its revenues typically contribute the majority of the SAG’s budget. Four of the eleven representatives on Aramco’s board of directors are from the SAG, including the chairman, who serves concurrently as the Managing Director of the PIF. In December 2019, the Kingdom fulfilled its long-standing promise to publicly list shares of Saudi Aramco. The initial public offering (IPO) of 1.5 percent of Aramco’s shares on the Saudi Tadawul stock market on December 11, 2019, was the largest-ever IPO and valued Aramco at $1.7 trillion. The IPO generated $25.6 billion in proceeds, exceeding the $25 billion Alibaba raised in 2014 in the largest previous IPO in history. In February 2022, the SAG announced the transfer of four percent of Aramco’s shares to the PIF. Crown Prince Mohammed bin Salman announced that after the transfer, the state will remain Aramco’s largest shareholder, retaining more than 94 percent of the total shares.

In March 2019, Saudi Aramco signed a share purchase agreement to acquire 70 percent of SABIC, Saudi Arabia’s leading petrochemical company and the fourth largest in the world, from the PIF in a transaction worth $69.1 billion; the acquisition was completed in 2020. Five of the nine representatives on SABIC’s board of directors are from the SAG, including the chairman and vice chairman. The SAG is similarly well-represented in the leadership of other SOEs. The SAG either wholly owns or holds controlling shares in many other major Saudi companies, such as the Saudi Electricity Company, Saudia Airlines, the Saline Water Conversion Company, Ma’aden, the National Commercial Bank, and other leading financial institutions.

8. Responsible Business Conduct

There is a growing awareness of corporate social responsibility (CSR) in Saudi Arabia. The King Khalid Foundation issues annual “responsible competitiveness” awards to companies doing business in Saudi Arabia for outstanding CSR activities. In March 2021, the SAG approved the formation of a committee on corporate social responsibility in the Ministry of Human Resources and Social Development.

Saudi Arabia does not participate in the Extractive Industries Transparency Initiative.

9. Corruption

In December 2019, King Salman issued royal decrees creating the Oversight and Anti-Corruption Commission (“Nazaha”). Nazaha is responsible for promoting transparency and combating all forms of financial and administrative corruption. Nazaha reports directly to King Salman and has the power to dismiss a government employee even if found not guilty by the specialized anti-corruption court. Throughout 2021, Nazaha published monthly press releases detailing its arrests and investigations, often including high-ranking officials, such as generals and judges, from every ministry in the SAG. The releases are available on the Nazaha website at http://www.nazaha.gov.sa/en/Pages/Default.aspx .

Foreign firms have identified corruption as a barrier to investment in Saudi Arabia. Saudi Arabia has a relatively comprehensive legal framework that addresses corruption, but many firms perceive enforcement as selective. The Combating Bribery Law and the Civil Service Law, the two primary Saudi laws that address corruption, provide for criminal penalties in cases of official corruption. Government employees who are found guilty of accepting bribes face 10 years in prison or fines up to US$267,000. Ministers and other senior government officials appointed by royal decree are forbidden from engaging in business activities with their ministry or organization. Saudi corruption laws cover most methods of bribery and abuse of authority for personal interest, and in December 2021 Saudi Arabia amended the Combating Bribery Law to criminalize foreign bribery. Only senior Nazaha officials are subject to financial disclosure laws. The government is considering disclosure regulations for other officials but has yet to finalize them.

SAMA oversees a strict regime to combat money laundering. Saudi Arabia’s Anti-Money Laundering Law provides for sentences up to 10 years in prison and fines up to $1.3 million. The Basic Law of Governance contains provisions on proper management of state assets and authorizes audits and investigations of administrative and financial malfeasance.

The Government Tenders and Procurement Law regulates public procurements, which are often a source of corruption. The law provides for public announcement of tenders and guidelines for the award of public contracts. Saudi Arabia is an observer of the WTO Agreement on Government Procurement (GPA).

Saudi Arabia ratified the UN Convention against Corruption in April 2013 and signed the G20 Anti-Corruption Action Plan in November 2010. Saudi Arabia was admitted to the OECD Working Group on Bribery in February 2021, and the International Anti-Corruption Academy (IACA) elected Saudi Arabia to its Board of Governors in April 2022.

The Kingdom ranks 52 out of 180 countries in Transparency International’s Corruption Perceptions Index 2021.

10. Political and Security Environment

The Department of State regularly reviews and updates travel advisories to apprise U.S. citizens of the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions. Please visit www.travel.state.gov  for further information, including the latest travel advisory.

11. Labor Policies and Practices

The Ministry of Human Resources and Social Development (MHRSD) sets labor policy and, along with the Ministry of Interior, regulates recruitment and employment of expatriate labor, which makes up a majority of the private sector workforce. About 76 percent of jobs in the country are held by expatriates, who represent roughly 38 percent of the total population. The largest groups of foreign workers come from India, Pakistan, Bangladesh, Egypt, the Philippines, and Yemen. Saudis occupy about 93 percent of government jobs, but only about 24 percent of the total jobs in the Kingdom. Roughly 46 percent of employed Saudi nationals work in the public sector.

The removal of guardianship laws and travel restrictions for women, the introduction of workplace protections, and recent judicial reforms that provide additional protection have enabled more women to enter the labor force. From 2016 to 2020, the Saudi female labor participation rate increased from 19 percent to 33 percent. As of Q4 2021, Saudi Arabia’s General Authority for Statistics estimates unemployment at 6.9 percent for the total population and 11 percent for Saudi nationals, but these figures mask a high youth unemployment rate, a Saudi female unemployment rate of 22.5 percent, and low Saudi labor participation rates (51.5 percent overall; 35.6 percent for women). With approximately 60 percent of the Saudi population under the age of 35, job creation for new Saudi labor market entrants will remain a challenge.

The SAG encourages Saudi employment through “Saudization” policies that place quotas on employment of Saudi nationals in certain sectors, coupled with limits on the number of visas for foreign workers available to companies. In 2011, the Ministry of Labor and Social Development (the forerunner of MHRSD) laid out a sophisticated plan known as Nitaqat, under which companies are divided into categories, each with a different set of quotas for Saudi employment based on company size.

The SAG has taken additional measures to strengthen the Nitaqat program and expand the scope of Saudization. The MHRSD has mandated that certain job categories in specific economic sectors only employ Saudi nationals. The ministry has likewise mandated that only Saudi women can occupy retail jobs in certain businesses that cater to female customers. Many elements of Saudization and Nitaqat have garnered criticism from the private sector, but the SAG claims these policies have substantially increased the percentage of Saudi nationals working in the private sector over the last several years and has indicated that there is flexibility in implementation for special cases.

Saudi Arabia’s labor laws forbid union activity, strikes, and collective bargaining. However, the government allows companies that employ more than 100 Saudis to form “labor committees” to discuss work conditions and grievances with management. In 2015, the SAG published 38 amendments to the existing labor law with the aim of expanding Saudi employees’ rights and benefits. In March 2021, MHRSD implemented its Labor Reform Initiative (LRI), which allows foreign workers greater job mobility and freedom to exit Saudi Arabia without the need for the employer’s permission. Domestic workers are not covered under the provisions of either the 2015 regulations or the LRI; separate regulations covering domestic workers were issued in 2013, stipulating employers provide at least nine hours of rest per day, one day off a week, and one month of paid vacation every two years.

Saudi Arabia has taken significant steps to address labor abuses, but weak enforcement continues to result in credible reports of employer violations of foreign employee labor rights. Foreign workers (particularly domestic staff) have encountered employer practices, including passport withholding and non-payment of wages, that constitute trafficking in persons. The Department’s annual Trafficking in Persons Report details concerns about labor law enforcement within Saudi Arabia’s sponsorship system. It is available at https://www.state.gov/reports/2021-trafficking-in-persons-report/saudi-arabia/.

Overtime work is normally compensated at time-and-a-half rates. The minimum age for employment is 14. The SAG does not adhere to the International Labor Organization’s convention on protecting workers’ rights. Non-Saudis have the right to appeal to specialized committees in the MHRSD regarding wage non-payment and other issues. Penalties issued by the ministry include banning infringing employers from recruiting foreign and/or domestic workers for a minimum of five years.

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) 2020 $700,118  2020 $700,118 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2020 $11,386 BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2020 $6,262 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 2020 34.5% UNCTAD data available at

https://unctad.org/topic/investment/world-investment-report

* Source for Host Country Data: Saudi General Authority for Statistics   

According to the UNCTAD World Investment Report, in 2020 Saudi Arabia’s total FDI inward stock was $241.862 billion and total FDI outward stock was $128.759 billion.

Detailed data for inward direct investment (below) is as of 2010, which is the latest available breakdown of inward FDI by country.

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 $169,206 100% Total Outward N/A N/A
Kuwait $16,761 10% Country #1 N/A N/A
France $15,918 9% Country #2 N/A N/A
Japan $13,160 8% Country #3 N/A N/A
United Arab Emirates $12,601 7% Country #4 N/A N/A
China, P.R. $9,035 5% Country #5 N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

*Source: IMF Coordinated Direct Investment Survey (2010 – latest available complete data)

14. Contact for More Information

Economic Section and Foreign Commercial Service Offices
Embassy of the United States of America
P.O. Box 94309
Riyadh 11693, Saudi Arabia
Phone: +966 11 835-4000

Seychelles

Executive Summary

Seychelles is an archipelagic nation of 115 islands located off the eastern coast of Africa in the Indian Ocean. The majority of the country’s 99,202 inhabitants live on three most-populated islands of Mahé, Praslin, and La Digue. Seychelles gained its independence from the United Kingdom in 1976, at which time the population lived at near subsistence level. With a GDP of $1.1 billion as of 2021, Seychelles has the highest GDP per capita in Africa at $10,764. Although the World Bank has designated Seychelles as a high-income country since 2015, the country’s wealth is not evenly distributed. According to the United Nations Development Program’s Human Development Report for 2020, the richest 10 percent of Seychellois earn 40 percent of the total income. Seychelles’ main economic activities are tourism and fishing, and the country aspires to be a financial hub.

Seychelles experienced a coup d’etat in 1977, just a year after independence, which brought to power a one-party socialist government. Multiparty democracy was restored in 1993 after the adoption of a new constitution, but the United Seychelles Party (USP) continued to hold power until October 2020, when the opposition coalition Seychellois Democratic Union(Linyon Demokratik Seselwa, or LDS) won both the presidential and legislative elections. This opposition victory ushered in the first democratic transition of power in the country’s history. LDS holds 25 of the 35 assembly seats and includes four main parties: the Seychelles National Party (SNP); the Lalyans Seselwa (Seychellois Alliance); the Seychelles Party for Social Justice and Democracy (SPSD); and the Seychelles United Party (SUP). The former ruling United Seychelles Party (USP currently holds 10 seats in the National Assembly. The next presidential and legislative elections will be held in 2025.

Heavy reliance on the tourism industry makes the overall economy vulnerable to external shocks, such as the COVID-19 pandemic. In January 2021, the Central Bank of Seychelles (CBS) announced that January to November 2020 tourism revenues decreased by 78 percent. Tourism-related contributions to GDP fell from 22.3 percent in 2019 to 15.5 percent in 2020, per the National Bureau of Statistics. The CBS estimated that the economy contracted 11.3 percent in 2020 compared to 3 percent growth in 2019.

Following the reopening of borders in March 2021, tourism in Seychelles gradually picked up, with the country registering a total of 182,849 tourist arrivals for the January to December 2021 period, compared to 114,858 visitors for the same period in 2020 and 384,224 visitors in 2019. According to the IMF, real GDP grew by 6.9 percent in 2021, compared to a decline of 12.9 percent in 2020. The Seychelles National Bureau of Statistics reported a year-on-year percentage increase of 21.7 percent in real GDP for the third quarter of 2021 as compared to the same quarter in 2020. The main drivers of this increase were the accommodation industry, transport and storage, and the information and communication sector. The IMF forecasted that real GDP would increase by 7.7 percent in 2022.

In 2019, the government was on track to reduce the debt-to-GDP ratio to 50 percent by the end of 2021. According to the Ministry of Finance, however, by the end of 2020 the debt-to-GDP ratio had spiked to 99.4 percent. As was the case during the global economic crisis in 2008, the government turned to the IMF for support. In July 2021, Seychellois authorities and the IMF reached an agreement on economic and structural policies that would be supported by $107 million under the Extended Fund Facility (EFF) for the duration of 28 months. Seychellois authorities and the IMF agreed to reduce fiscal and debt vulnerabilities while promoting economic growth and protecting the environment and the most vulnerable segments of the population. Governance and transparency commitments included the completion of an audit of COVID-19 emergency spending and related procurement, and improvements in the AML/CFT regime. In November 2021, the IMF assessed that the Seychellois government was making impressive progress in implementing the IMF-supported program and restoring macroeconomic balances. Per the Ministry of Finance, by December 2021, the total government and government-guaranteed debt represented about 74 percent of GDP.

Despite the government’s attempts to diversify the economy, activity remained focused on fishing and tourism. However, Seychelles’ Exclusive Economic Zone (EEZ), which spans 1.3 million square kilometers, is a potential source of untapped oil reserves and represents potential business opportunities for U.S. companies. Seychelles also has a small but growing offshore financial sector.

There is also potential for U.S. investment in renewable energy, as Seychelles seeks to reduce its heavy dependence on imported fossil fuels while preserving its natural environment. The Seychellois government planned to reduce overall greenhouse gas emissions by 26.4 percent of the business-as-usual scenario 2030 value by undertaking reforms in its energy, refrigeration and air conditioning, transport, and waste sectors. Authorities planned to use solar and wind energy to increase the share of renewable energy production from 5 to 15 percent by 2030.

While Seychelles welcomes foreign investment though the Seychelles Investment Act, related regulations restrict foreign investment in a number of sectors where local businesses are active, including artisanal fishing, small boat charters, taxi driving, and scuba diving instruction. The country’s investment policies encourage the development of Seychelles’ natural resources, improvements in infrastructure, and increases to productivity levels, but stress that these changes must be implemented in an environmentally sound and sustainable manner. Seychelles puts a premium on maintaining its unique ecosystems and screens all potential investment projects to ensure that any economic, social, or industrial benefits will not compromise the country’s international reputation for environmental stewardship.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 23 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $575 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $12,200 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

Seychellois society has a high level of awareness of corporate social responsibility (CSR), especially in environmental protection and social programs, but CSR is generally regarded as a function of government. Since 2013, the Seychelles Revenue Commission has collected a CSR tax of 0.5 percent on monthly turnover for businesses with an annual turnover of SCR 1 million or more. In April 2021, the CSR Tax Repeal Bill was passed to abolish the CSR tax to provide businesses with additional liquidity during the pandemic and to deter businesses from operating in the informal sector to avoid this tax. Officially, there are no waivers available for foreign investors with regard to labor law, employment rights, consumer protection, or environmental standards.

The law prohibits all forms of forced or compulsory labor. While the government’s efforts to combat labor trafficking significantly increased in 2021, Seychelles still did not meet the minimum international standards. Migrant workers were the population most vulnerable to forced labor, including nonpayment of wages, physical abuse, fraudulent recruitment schemes, delayed payment of their salaries, and failure to provide them with adequate housing, resulting in substandard living conditions. In past years, there have been reports of passport seizures and confiscations to prevent workers from changing employers prior to the end of their two-year contracts. NGOs reported that traffickers have exploited migrant workers aboard foreign-flagged fishing vessels in Seychelles’ territorial waters and ports, including through nonpayment of wages and physical abuse. Labor recruitment agents based in Seychelles have exploited migrant workers, often with the assistance of a local Seychellois accomplice. Migrant workers often signed their employment contracts upon arrival in Seychelles and frequently could not read the language, which traffickers exploited in fraudulent recruitment tactics.

Seychelles currently has no production in the extractive sector, but international companies have undertaken petroleum exploration activities offshore. The Extractive Industries Transparency Initiative (EITI) accepted Seychelles as a candidate country in August 2014 and Seychelles’ validation against the standard began in January 2018. In September 2020, the EITI Board assessed Seychelles as having achieved “meaningful progress” in implementing the 2019 EITI Standard. The 2020 draft validation assessment can be accessed at: https://eiti.org/documents/seychelles-validation-2020.

Seychelles adopted a Beneficial Ownership Act in March 2020, which includes a definition of beneficial owners. The law entered into force in January 2021. Extractive companies are the only sector where beneficial ownership disclosures will be made publicly available. The next validation is scheduled to commence in January 2023.

Seychelles, a major player in the global tuna industry, joined the Fisheries Transparency Initiative (FiTI) in 2017. The FiTI International Board approved Seychelles’ candidate application in April 2020.  Seychelles has submitted two FiTI reports covering calendar years 2019 and 2020, and the next report is due by December 2022. The first validation against the FiTI standard is expected to be completed by October 2022.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

According to a UN International Strategy for Disaster Reduction (UNISDR) report, Seychelles is vulnerable to storms, floods, and landslides. The Seychellois Ministry of Agriculture, Climate Change and Environment (MACE) manages key climate policies.  Seychelles’ 2020 National Climate Change Policy created the National Climate Change Council chaired by the vice president to coordinate all climate change actions.  The council must report on the implementation status of all national and international climate change obligations to the cabinet of ministers and the National Assembly.

In November 2021, at the Conference of Parties 26 (COP 26), the Seychellois government pledged to reduce its greenhouse gas emissions to 26.4 percent of the business-as-usual scenario 2030 value.  To achieve this target, the government plans to reform in its energy, refrigeration and air conditioning, transport, and waste sectors.  Details of the reforms for each sector will be included in the 2022 Seychelles Updated National Climate Change Strategy and the Nationally Determined Contribution (NDC) implementation plan the government was preparing as of March 2022.  Seychelles has a long-term strategy to make its energy supply solely based on renewables as outlined in its 2010-2030 energy policy by focusing on the development of offshore wind and photovoltaic technologies.

The government expects private sector contributions to reform the energy and transport sectors and to develop the aquaculture sector.  While the contributions for the energy and transport sectors will be detailed in upcoming sectoral blueprints, the Ministry of Fisheries and Blue Economy has created an aquaculture department.

The government offers tax incentives in the form of value-added tax exemptions on imported goods that (a) conserve, generate or produce renewable or environment friendly energy sources; (b conserve of fresh or potable water resources or re-use or recycle wastewater; and (c) recycle, reduce or re-use solid waste.  There is a purchase rebate plan to incentivize businesses to resort to rooftop photovoltaic equipment for power generation.

Policies to preserve biodiversity include: (a) regulating coastal planning and infrastructure at the national and local level to prioritize the consideration of “blue” nature-based solutions for climate resilience; (b) protecting at least 50 percent of its seagrass and mangrove ecosystems by 2025, and 100 percent of seagrass and mangrove ecosystems by 2030; (c) establishing a long-term monitoring program for seagrass and mangrove ecosystems by 2025 and including the greenhouse gas sink of Seychelles’ blue carbon ecosystems within the national greenhouse gas inventory by 2025; and (d) committing to the implementation of its adopted marine spatial plan and the effective management of the 30-percent marine-protected areas within the country’s Exclusive Economic Zone.

Public procurement policies in Seychelles do not currently include environmental and green growth considerations such as resource efficiency, pollution abatement, and climate resilience.

9. Corruption

Ruling with transparency and accountability are stated priorities of the current government. In 2016, the government established the Anti-Corruption Commission of Seychelles (ACCS) under the Anti-Corruption Act, which gives it authority to investigate, detect, and prevent corrupt practices. The Seychelles Transparency Initiative (TI), a Transparency International chapter in formation, was set up in 2017. TI’s focus is currently on increasing transparency in tourism, fisheries, finance, and construction. There is currently no legislation protecting NGOs involved in investigating corruption.

The Anti-Corruption (Amendment) Bill (https://seylii.org/sc/legislation/bill/2020/4 ) became law in 2019 giving the ACCS investigative and arresting powers similar to that of the police. The ACCS has received significant criticism for having only achieved one conviction: that of an ACCS employee who was convicted of extortion, corruption, and unlawful disclosure of ACCS information in 2018, when he demanded money in exchange for providing the ACCS’ evidence to an individual under investigation by the ACCS. In September 2021, the ACCS board was dissolved and replaced by an advisory council. The president gave an ultimatum to the ACCS to take actions to prevent, detect, and investigate acts of corruption. In March 2021, the ACCS signed cooperation agreements with the Seychelles Revenue Authority, the Central Bank of Seychelles, and the Registrar General’s Office to better facilitate the exchange of information and assist the ACCS’ investigations.

In November 2021, a prominent businessman and his wife, a senior military official, and former government officials were arrested for the alleged theft of more than $50 million in foreign aid given to Seychelles by the United Arab Emirates in 2002 to help overcome foreign exchange shortages and import basic goods. The money was never recorded in government accounts. The suspects are facing charges of conspiracy to commit corruption, conspiracy to commit money laundering, concealment of property, and stealing by person in public service.

Chapter 10 of the Seychellois Penal Code provides criminal penalties for conviction of corruption by officials. In 2003, the government published the Public Service Code of Ethics and Conduct. The Public Officer’s Ethics Act of 2008 prohibits personal enrichment through public office; defines and outlaws bribery; provides guidelines for avoiding conflict of interest; and mandates declaration of financial assets for public officials, including members of the National Assembly. The 2017 Public Persons (Declaration of Assets, Liabilities and Business Interests) Act requires all National Assembly members, councilors, and the mayor to submit a declaration on their assets, debts, and business interests. Asset declarations are not published but may be made public upon request to the ethics commissioner. Laws to combat corruption do not extend to political parties. The 2008 Public Procurement Act, as amended, counters conflict-of-interest in awarding contracts or government procurement.

In March 2021, the cabinet approved amendments to the Public Officers’ Ethics (POE) Act to abolish the POE commission entirely and to shift its responsibility to the ACCS, which has become the umbrella authority overseeing all matters of corruption in the public service. In September 2021, the Public Persons (Declaration of Assets, Liabilities and Business Interests) Bill was approved by the National Assembly to remove the obligation of a public person to submit declarations of assets for spouses or close family members. The bill also provides for establishment of a secure electronic system for submission of declarations and related documents. The government does not require private companies to establish internal codes of conduct.

Seychelles ratified the UN Convention against Corruption in March 2006. Seychelles is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Anti-Corruption Commission
May De Silva
Chief Executive Officer
Victoria House,
State House Avenue
Victoria, Mahe
+248 4326061
complaints@accsey.com

Office of the Ombudsperson
Nicole Tirant-Gherardi
Ombudsperson
Room 306, Aarti Chambers, Mont Fleuri, Mahe
+248 225147
ombuds@seychelles.net

10. Political and Security Environment

The current constitution, promulgated in 1993, provides citizens the right to change their government peacefully, and citizens exercise this right in practice through periodic elections based on universal suffrage. Seychelles has not experienced large-scale political violence since the late 1970s. The United Seychelles party, formerly known as Parti Lepep (People’s Party), governed Seychelles following the 1977 coup d’etat and won every election from the introduction of multi-party democracy in 1993 until 2016, when a coalition of opposition parties won the majority of the National Assembly seats. The October 2020 election was the first time since 1976 that Seychellois voters elected an opposition party candidate as president and there was a peaceful and smooth transfer of power. East Africa Standby Force election observers declared the election to have been peaceful, transparent, and orderly. Seychelles remained politically stable at the time of this report.

11. Labor Policies and Practices

The national unemployment rate in the fourth quarter of 2020 was 3.3 percent, of which 51.6 percent was female. In the fourth quarter of 2020, the youth unemployment rate was 12 percent and disaggregation of the data showed that youth unemployment was higher among females. According to the Seychelles Bureau of Statistics, the unemployment rate would have been 4.3 percent if those affected by the COVID-19 pandemic had sought alternative employment, rather than waiting for the amelioration of the COVID-19 pandemic.

The private sector accounted for 63 percent of formal employment in the fourth quarter of 2021. Within the private sector, the largest category of employment were accommodation and food services activities (30 percent). There were more local female employees in government (62 percent) and more local male employees in parastatals (44 percent). There were more expatriate males working parastatals, and roughly the same percentage of expatriate males and females in government. Disaggregated data by gender is not available for the private sector. In December 2021, the Employment Department, in collaboration with the Department of Information and Communication Technology, launched the first phase of the Internal Labour Market Information System (LMIS). The LMIS will be used register vacancies, jobseekers, job placements, and applications of redundancy, and will enable the Ministry of Employment, Immigration and Civil Status to better collect and process labor market statistics.

In June 2020, the 1995 Employment Act was amended to attempt to limit the impact of the COVID-19 pandemic on the labor market. The amendment regulated the deferment of payment, and reduction of wages of a worker pending the termination of the government program for salary support to workers because of the COVID-19 pandemic. The amendment also restricted the temporary lay-off or redundancy of Seychellois workers if the employer is employing a non-Seychellois worker in a similar position as the Seychellois workers, or if the employer has not started the negotiation to temporarily lay-off the employee.

Major challenges that persist in the labor market include difficultly recruiting Seychellois for certain jobs and reported low productivity level. Seychelles has long been an importer of foreign labor due to its small population and low human resource base. The share of foreign labor to total employment in the private sector was approximately 40 percent pre-pandemic, with the majority working in the construction and tourism sectors. Since 2014, a quota system has applied to industries for which demand for foreign labor is high. In February 2021, the government restructured the Gainful Occupation Permit (GOP) framework to give local workers greater access to the labor market. The new framework eliminated COVID-19-related concessions that provided foreign nationals with certain rights while the country’s borders were closed. A three-month GOP extension that was granted to foreign workers due to COVID-19 restrictions is no longer applicable. Employers of GOP holders who left Seychelles are no longer permitted to hire GOP applicants. Under the new framework, labor market testing is strictly enforced to ensure that foreign workers are only hired when no qualified local workers are available. The new framework also prohibits non-local workers from changing employment in Seychelles when their contract ends. However, a change in employer is authorized in cases of labor exploitation and/or human trafficking.

According to statistics provided by the Ministry of Employment, Immigration and Civil Status, the informal employment rate was 16.9 percent in 2020. There were more males (80 percent) working in the informal sector than females. The three main sectors for informal employment include construction, wholesale and retail trade, agriculture, forestry, and fishing.

Seychelles has been a member of the International Labor Organization (ILO) since 1977 and has ratified all fundamental International Labor Organization (ILO) conventions. Under Seychellois law, all workers, with the exception of police, military, prison, and firefighting personnel, have the right to form and organize unions of their own choosing, to participate in collective bargaining, and to conduct legal strikes. However, in practice, these rights are limited or restricted by other provisions of law. Although collective bargaining is legal, it rarely happens because the law gives the right to the government to review and approve all collective bargaining agreements in both the private and public sector. Strikes are illegal in Seychelles unless all other arbitration procedures have been exhausted. About 15 percent of the workforce is unionized.

In January 2020, the minimum wage increased to SCR 5,804 ($426) per month. In 2017, the Unemployment Relief Scheme (URS) was re-introduced for Seychellois aged above 18 and who are dependent on welfare. The new government ended this scheme in February 2021 and the Ministry of Employment, Immigration and Civil Status has been mandated to conduct training and re-skilling programs to enable Seychellois to seek employment. In the event of layoffs where there is no employee misconduct, the employer must provide the worker with one month’s notice or the equivalent of one month’s salary. Additionally, for workers that have been employed for five years or more, the employer must pay one day’s pay for each month that the employee has worked for the employer. For severance calculation, there is no distinction between layoffs and firing with severance.

The Employment Tribunal handles employment disputes for private-sector employees. The Public Service Appeals Board handles employment disputes for public-sector employees, and the Financial Services Authority deals with employment disputes of workers in the Seychelles International Trade Zone. The law authorizes the Ministry of Employment, Immigration and Civil Status to establish and enforce employment terms, conditions, and benefits, and workers frequently obtain recourse against their employers through the Employment Tribunal.

The government introduced the Occupational Safety and Health Decree in 2012 and the Prohibition of Trafficking in Persons Act in 2014. However, there are very few health or labor inspectors in Seychelles, and they are limited by meager public resources and the vast ocean distances they are expected to cover.

In November 2011, Seychelles and the ILO signed the 2011-2015 Decent Work Country Program, which seeks to address such issues as employment creation, consolidation and protection of workers’ rights, enhancing social protection, and strengthening social dialogue. Compliance with international labor standards has in recent years been sufficient such that business in the country should not pose a reputational risk to investors.

In 2021, the U.S. State Department, in its annual Trafficking in Persons Report, upgraded Seychelles to a Tier 2 ranking, in recognition of its overall increasing efforts compared to the previous reporting period. The conclusion was that while the government of Seychelles does not fully meet the minimum standards for the elimination of trafficking, it is making significant efforts to do so.

14. Contact for More Information

Smita Bheenick
Economic and Commercial Specialist
U.S. Embassy to Mauritius and Seychelles, Port-Louis, Mauritius
+ 230 202 4400
BheenickS@state.gov

Singapore

Executive Summary

Singapore maintains an open, heavily trade-dependent economy that plays a critical role in the global supply chain. The government utilized unprecedented levels of public spending to support the economy during the COVID-19 pandemic. Singapore supports predominantly open investment policies and a robust free market economy while actively managing and sustaining Singapore’s economic development. U.S. companies regularly cite transparency, business-friendly laws, tax structure, customs facilitation, intellectual property protection, and well-developed infrastructure as attractive investment climate features. Singapore actively enforces its robust anti-corruption laws and typically ranks as the least corrupt country in Asia. In addition, Transparency International’s 2020 Corruption Perception Index placed Singapore as the fourth-least corrupt nation globally. The U.S.-Singapore Free Trade Agreement (USSFTA), which entered into force in 2004, expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and environmental protections.

Singapore has a diversified economy that attracts substantial foreign investment in manufacturing (petrochemical, electronics, pharmaceuticals, machinery, and equipment) and services (financial, trade, and business). The government actively promotes the country as a research and development (R&D) and innovation center for businesses by offering tax incentives, research grants, and partnership opportunities with domestic research agencies. U.S. direct investment (FDI) in Singapore in 2020 totaled $270 billion, primarily in non-bank holding companies, manufacturing, finance, and insurance. Singapore received more than double the U.S. FDI invested in any other Asian nation. The investment outlook was positive due to Singapore’s proximity to Southeast Asia’s developing economies. Singapore remains a regional hub for thousands of multinational companies and continues to maintain its reputation as a world leader in dispute resolution, financing, and project facilitation for regional infrastructure development.

Singapore is poised to attract future foreign investments in digital innovation, pharmaceutical manufacturing, sustainable development, and cybersecurity. The Government of Singapore (hereafter, “the government”) is investing heavily in automation, artificial intelligence, integrated systems, as well as sustainability, and seeks to establish itself as a regional hub for these technologies. Singapore is also a well-established hub for medical research and device manufacturing.

Singapore relies heavily on foreign workers who make up 34 percent of the workforce. The COVID-19 pandemic was initially concentrated in dormitories for low-wage foreign workers in the construction and marine industries, which resulted in strict quarantine measures that brought the construction sector to a near standstill. The government tightened foreign labor policies in 2020 to encourage firms to improve productivity and employ more Singaporean workers, and lowered most companies’ quotas for mid- and low-skilled foreign workers. During the COVID-19 pandemic, the government introduced more programs to partially subsidize wages and the cost to firms of recruiting, hiring, and training local workers

Singapore plans to reach net-zero by or around mid-century but faces alternative energy diversification challenges in setting 2050 net-zero carbon emission targets. Singapore launched its national climate strategy – the Singapore Green Plan 2030 – in February 2021, and focuses on increased sustainability, carbon emissions reductions, fostering job and investment opportunities, and increasing climate resilience and food security.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 4 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 8 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 270,807 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 54,920 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Singapore has an extensive network of full and partial state-owned enterprises (SOEs) held under the umbrella of Temasek Holdings, a holding company with the Ministry of Finance as its sole shareholder. Singapore SOEs play a substantial role in the domestic economy, especially in strategically important sectors including telecommunications, media, healthcare, public transportation, defense, port, gas, electricity grid, and airport operations. In addition, the SOEs are also present in many other sectors of the economy, including banking, subway, airline, consumer/lifestyle, commodities trading, oil and gas engineering, postal services, infrastructure, and real estate.

The government emphasizes that government-linked entities operate on an equal basis with both local and foreign businesses without exception. There is no published list of SOEs.

Temasek’s annual report notes that its portfolio companies are guided and managed by their respective boards and management, and Temasek does not direct their business decisions or operations. However, as a substantial shareholder, corporate governance within government linked companies typically are guided or influenced by policies developed by Temasek. There are differences in corporate governance disclosures and practices across the GLCs, and GLC boards are allowed to determine their own governance practices, with Temasek advisors occasionally meeting with the companies to make recommendations. GLC board seats are not specifically allocated to government officials, although it “leverages on its networks to suggest qualified individuals for consideration by the respective boards,” and leaders formerly from the armed forces or civil service are often represented on boards and fill senior management positions. Temasek exercises its shareholder rights to influence the strategic directions of its companies but does not get involved in the day-to-day business and commercial decisions of its firms and subsidiaries.

GLCs operate on a commercial basis and compete on an equal basis with private businesses, both local and foreign. Singapore officials highlight that the government does not interfere with the operations of GLCs or grant them special privileges, preferential treatment, or hidden subsidies, asserting that GLCs are subject to the same regulatory regime and discipline of the market as private sector companies. However, observers have been critical of cases where GLCs have entered into new lines of business or where government agencies have “corporatized” certain government functions, in both circumstances entering into competition with already existing private businesses. Some private sector companies have said they encountered unfair business practices and opaque bidding processes that appeared to favor incumbent, government-linked firms. In addition, they note that the GLC’s institutional relationships with the government give them natural advantages in terms of access to cheaper funding and opportunities to shape the economic policy agenda in ways that benefit their companies.

The USSFTA contains specific conduct guarantees to ensure that GLCs will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the USSFTA. In accordance with its USSFTA commitments, Singapore enacted the Competition Act in 2004 and established the Competition Commission of Singapore in January 2005. The Competition Act contains provisions on anti-competitive agreements, decisions, and practices, abuse of dominance, enforcement and appeals process, and mergers and acquisitions.

8. Responsible Business Conduct

The awareness and implementation of corporate social responsibility (CSR) in Singapore has been increasing since the formation of the Global Compact Network Singapore (GCNS) under the UN Global Compact network, with the goals of encouraging companies to adopt sustainability principles related to human and labor rights, environmental conservation, and anti-corruption. GCNS facilitates exchanges, conducts research, and provides training in Singapore to build capacity in areas including sustainability reporting, supply chain management, ISO 26000, and measuring and reporting carbon emissions.

A 2019 World Wildlife Fund (WWF) survey showed a lack of transparency by Singapore companies in disclosing palm oil sources. However, there is growing awareness and the Southeast Asia Alliance for Sustainable Palm Oil has received additional pledges in by companies to adhere to standards for palm oil sourcing set by the Roundtable for Sustainable Palm Oil (RSPO). A group of food and beverage, retail, and hospitality companies announced in January 2019 what the WWF calls “the most impactful business response to-date on plastics.” The pact, initiated by WWF and supported by the National Environment Agency, is a commitment to significantly reduce plastic production and usage by 2030.

In June 2016, the SGX introduced mandatory, comply-or-explain, sustainability reporting requirements for all listed companies, including material environmental, social and governance practices, from the financial year ending December 31, 2017 onwards. The Singapore Environmental Council operates a green labeling scheme, which endorses environmentally friendly products, numbering over 3,000 from 2729 countries. The Association of Banks in Singapore has issued voluntary guidelines to banks in Singapore last updated in July 2018 encouraging them to adopt sustainable lending practices, including the integration of environmental, social and governance (ESG) principles into their lending and business practices. Singapore-based banks are listed in a 2018 Market Forces report as major lenders in regional coal financing.

Singapore has not developed a National Action Plan on business and human rights, but promotes responsible business practices, and encourages foreign and local enterprises to follow generally accepted CSR principles. The government does not explicitly factor responsible business conduct (RBC) policies into its procurement decisions.

The host government effectively and fairly enforces domestic laws with regard to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impacts. The private sector’s impact on migrant workers and their rights, and domestic migrant workers in particular (due to the latter’s exemption from the Employment Act which stipulates the rights of workers), remains an area of advocacy by civil society groups. The government has taken incremental steps to improve the channels of redress and enforcement of migrant workers’ rights; however, key concerns about legislative protections remain unaddressed for domestic migrant workers. The government generally encourages businesses to comply with international standards. However, there are no specific mentions of the host government encouraging adherence to the OECD Due Diligence Guidance, or supply chain due diligence measures.

The Companies Act principally governs companies in Singapore. Key areas of corporate governance covered under the act include separation of ownership from management, fiduciary duties of directors, shareholder remedies, and capital maintenance rules. Limited liability partnerships are governed by the Limited Liability Partnerships Act. Certain provisions in other statutes such as the Securities and Futures Act are also