Policies Towards Foreign Direct Investment

The GoA understands that private sector development and increased levels of foreign investment are critical to support sustainable economic development. Albania maintains a liberal foreign investment regime designed to attract FDI. The Law on Foreign Investment outlines specific protections for foreign investors and allows 100 percent foreign ownership of companies, except in the areas of domestic and international air passenger transport and television broadcasting. Albanian legislation does not distinguish between domestic and foreign investments.

The 2010 amendments to the Law on Foreign Investment introduced criteria specifying when the state would grant special protection to foreign investors involved in property disputes, providing additional guarantees to investors for investments of more than 10 million euros. Amendments in 2017 and 2018 extended state protection to December 31, 2019. The Law on Strategic Investments approved in 2015 offers incentives and fast-track administrative procedures, depending on the size of the investment and number of jobs created, to both foreign and domestic investors who apply before December 31, 2020.

The Albanian Investment Development Agency (AIDA) is the entity responsible for promoting foreign investments in Albania. Potential U.S. investors in Albania should contact AIDA to learn more about services AIDA offers to foreign investors (http://aida.gov.al/ ). The Law on Strategic Investments stipulates that AIDA, as the Secretariat of the Strategic Investment Council, serve as a one-stop-shop for foreign investors, from filing of the application form to granting the status of strategic investment/investor. Despite hospitable legislation, only a few foreign investors have benefited from the “Strategic Investor” status.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic investors have equal rights of ownership of local companies, based on the principle of “national treatment.” According to the World Bank’s “Investing Across Borders” indicator, just three of 33 sectors have restrictions against full foreign ownership, or in the case of the agriculture sector, against foreign land ownership.

• Domestic and international air passenger transport: foreign interest in airline companies is limited to 49 percent ownership by investors outside the Common European Aviation Zone, for both domestic and international air transportation.
• Television broadcasting: no entity, foreign or domestic, may own more than 40 percent of a television company.
• Agriculture: No foreign individual or foreign incorporated company may purchase agricultural land, though land may be leased for up to 99 years.

Albania currently lacks an investment-review mechanism for inbound FDI. However, in 2017, the government introduced a new provision in the Petroleum Law, which allows the government to reject a petroleum-sharing agreement or the sale of shares in a petroleum-sharing agreement to any prospective investor due to national security concerns. Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not require additional permission or authorization beyond that required of domestic investors. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Foreigners can acquire concession rights on natural resources and resources of the common interest, as defined by the Law on Concessions and Public Private Partnerships.

Foreign and domestic investors have numerous options available for organizing business operations in Albania. The 2008 Law on Entrepreneurs and Commercial Companies and Law Establishing the National Registration Center (NRC) allow for the following legal types of business entities to be established through the NRC: sole proprietorship; unlimited partnership; limited partnership; limited liability company; joint stock company; branches and representative offices; and joint ventures.

Other Investment Policy Reviews

The World Trade Organization (WTO) completed a Trade Policy Review of Albania in May 2016 (https://www.wto.org/english/tratop_e/tpr_e/tp437_e.htm ). In November 2017, the United Nations Conference on Trade and Development (UNCTAD) completed the first Investment Policy Review of South-East European (SEE) countries, including Albania (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1884).

Business Facilitation

The National Business Center (NBC) serves as a one-stop shop for business registration. All required procedures and documents are published online (http://www.qkb.gov.al/information-on-procedure/business-registration/). Registration may be done in person or online via the e-Albania portal. Many companies choose to complete the registration process in person, as the online portal requires an authentication process and electronic signature and is only available in the Albanian language. When a business registers in the NBC it is also automatically registered with the Tax Office, Labor Inspectorate, Customs, and the respective municipality. According to the 2020 World Bank Doing Business Report, it takes 4.5 days and five procedures to register a business in Albania.

Outward Investment

Albania neither promotes nor incentivizes outward investment, nor does it restrict domestic investors from investing abroad.

Transparency of the Regulatory System

Albania’s legal, regulatory, and accounting systems have improved in recent years, but there are still many serious challenges. Endemic corruption, uneven enforcement of legislation, cumbersome bureaucracy, and a lack of transparency all hinder the business community.

Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of firms’ capitalization structures, mergers and divisions, takeover bids, shareholders’ rights, and corporate governance principles. The Competition Authority (http://caa.gov.al ) is an independent agency tasked with ensuring fair and efficient competition in the market.

The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards (IFRS) for large companies, and national financial reporting standards for small and medium enterprises. Albania meets minimum standards on fiscal transparency, and debt obligations are published by the Ministry of Finance and Economy. Albania’s budgets are publicly available, substantially complete, and reliable.

The rulemaking process in Albania meets the minimum requirements of transparency. Ministries and regulatory agencies develop forward regulatory plans that include changes or proposals intended to be adopted within a set timeframe. The law on notification and public consultation requires the GoA to publish draft laws and regulations for public consultation or notification and set clear timeframes for these processes. Such draft laws and regulations are published at the following page: http://www.konsultimipublik.gov.al/  . The business community frequently complains that final versions of laws and regulations fail to address their comments and concerns and that comment periods are not always respected.

Business groups have raised concerns about unfair competition and monopolies, rating the issue as one of the most concerning items damaging the business climate.

All laws, by-laws, regulations, decisions by the Council of Ministers (the government), decrees, and any other regulatory acts are published at the National Publication Center at the following site: https://qbz.gov.al/. 

Independent agencies and bodies, including but not limited to, the Energy Regulatory Entity (ERE), Agency for Electronic and Postal Communication (AKEP), Financial Supervising Authority (FSA), Competition Authority (CA), National Agency of Natural Resources (NARN), and Extractive Industries Transparency Initiative (EITI), oversee transparency and competition in specific sectors.

International Regulatory Considerations

Albania acceded to the WTO in 2000 and the country notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.

Albania signed a Stabilization and Association Agreement (SAA) with the EU in 2006; the EU agreed to open accession talks on March 25, 2020. Albania was granted EU candidate status in 2014; it has long been involved in the gradual process of legislation approximation with the EU acquis. This process is expected to accelerate with the opening of accession negotiations.

Legal System and Judicial Independence

The Albanian legal system is a civil law system. The Albanian constitution provides for the separation of legislative, executive, and judicial branches, thereby supporting the independence of the judiciary. The Civil Procedure Code, enacted in 1996, governs civil procedures in Albania. The civil court system consists of district courts, appellate courts, and the High Court (the supreme court), which currently lacks quorum. The district courts are organized in specialized sections according to the subject of the claim, including civil, family, and commercial disputes.

The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court adjudicate administrative disputes. The Constitutional Court, which currently lacks quorum, reviews whether laws or subsidiary legislation comply with the Constitution and, in limited cases, protects and enforces the constitutional rights of citizens and legal entities.

Parties may appeal the judgment of the first-instance courts within 15 days of a decision, while appellate court judgments must be appealed to the High Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes, enabling faster adjudication of administrative disputes.

Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Many foreign investors complain that endemic judicial corruption and inefficient court procedures undermine judicial protection in Albania and seek international arbitration to resolve disputes. It is beneficial to U.S. investors to include binding international arbitration clauses in any agreements with Albanian counterparts. Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania. However, the government initially refused to recognize an injunction from a foreign arbitration court in one high-profile case in 2016. The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial arbitration.

Albania does not have a specific commercial code but has a series of relevant commercial laws, including the Entrepreneurs and Commercial Companies Law, Bankruptcy Law, Public Private Partnership and Concession Law, Competition Law, Foreign Investment Law, Environmental Law, Law on Corporate and Municipal Bonds, Transport Law, Maritime Code, Secured Transactions Law, Employment Law, Taxation Procedures Law, Banking Law, Insurance and Reinsurance Law, Concessions Law, Mining Law, Energy Law, Water Resources Law, Waste Management Law, Excise Law, Oil and Gas Law, Gambling Law, Telecommunications Law, and Value-Added Law.

Laws and Regulations on Foreign Direct Investment

The Law on Foreign Investments seeks to create a hospitable legal climate for foreign investors and stipulates the following:

• No prior government authorization is needed for an initial investment;
• Foreign investments may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law;
• Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments; and
• Foreign investors receive most favored nation treatment according to international agreements and Albanian law.

There are limited exceptions to this liberal investment regime, most of which apply to the purchase of real estate. Agricultural land cannot be purchased by foreigners and foreign entities but may be leased for up to 99 years. Investors can buy agricultural land if registered as a commercial entity in Albania. Commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.

To boost investments in strategic sectors, the government approved a new law on strategic investments in May 2015. Under the new law, a “strategic investment” may benefit from either “assisted procedure” or “special procedure” assistance from the government to help navigate the permitting and regulatory process. To date, no major foreign investors have taken advantage of the law. Several projects proposed by domestic companies or consortiums of local and foreign partners have been designated as strategic investments, mostly in the tourism sector.

Major laws pertaining to foreign investments include:

• Law on Strategic Investments: Defines procedures and rules to be observed by government authorities when reviewing, approving, and supporting strategic domestic and foreign investments in Albania;
• Law on Concessions and Public Private Partnerships, amended in 2019;
• Law on Foreigners, amended in February 2020;
• Law on the Foreign Investments, amended by the Law;
• Law on Entrepreneurs and Commercial Companies: Outlines general rules and regulations on the merger of commercial companies;
• Law on Cross-Border Mergers: Determines rules on mergers when one of the companies involved in the process is a foreign company
• Law on Protection of Competition: Stipulates provisions for the protection of competition, and the concentration of commercial companies; and
• Law on Collective Investment Undertakings: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies.

Authorities responsible for mergers, change of control, and transfer of shares include the Albanian Competition Authority (ACA: http://www.caa.gov.al/laws/list/category/1/page/1 ), which monitors the implementation of the competition law and approves mergers and acquisitions when required by the law; and the Albanian Financial Supervisory Authority (FSA: http://www.amf.gov.al/ligje.asp ), which regulates and supervises the securities market and approves the transfer of shares and change of control of companies operating in this sector.

Albania’s tax system does not distinguish between foreign and domestic investors. Informality in the economy, which may be as large as 40 percent of the total economy, presents challenges for tax administration.

Visa requirements to obtain residence or work permits are straightforward and do not pose an undue burden on potential investors. The government amended the Law on Foreigners in February 2020. The amendments remove restrictions on foreign employees and streamline the visa and work permit processes for foreigners and foreign workers by introducing online visa application process, simplifying and accelerating the working permit process, and providing the same access to the labor market for citizens of Western Balkan countries as the United States, EU, and Schengen-country citizens have.

The Law on Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they may operate. The government adopted the law in 2008 to conform Albanian legislation to the EU’s Acquis Communitaire. The most common type of organization for foreign investors is a limited liability company.

The Law on Public Private Partnerships and Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects. According to the law, concession projects may be identified by central or local governments or through third party unsolicited proposals. To limit opportunities for corruption, the 2019 amendments prohibited unsolicited bids, beginning in July 2019, on all sectors except for works or services in ports, airports, generation and distribution of electricity, energy for heating, and production and distribution of natural gas. In addition, the 2019 amendments removed the zero to 10 percent bonus points for unsolicited proposals, which gave companies submitting unsolicited bids a competitive advantage over other contenders. Instead, if the party submitting the unsolicited proposal does not win the bid, it will be compensated by the winning company for the cost of the feasibility study, which in no case shall exceed 1 percent of the total cost of the project.

There is no one-stop-shop that lists all legislation, rules, procedures, and reporting requirements for investors. However, foreign investors should visit the Albania Investment Development Agency webpage (www.aida.gov.al ), which offers information for foreign investors.

Competition and Anti-Trust Laws

The Albanian Competition Authority (http://www.caa.gov.al/?lng=en ) is the agency that reviews transactions for competition-related concerns. The Law on Protection of Competition governs incoming foreign investment whether through mergers, acquisitions, takeovers, or green-field investments, irrespective of industry or sector. In the case of share transfers in insurance and banking industries, the Financial Supervisory Authority (http://amf.gov.al/ ) and the Bank of Albania (https://www.bankofalbania.org/ ) may require additional regulatory approvals. Transactions between parties outside Albania, including foreign-to-foreign transactions, are covered by the competition law, which states that its provisions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market.

Expropriation and Compensation

The constitution guarantees the right of private property. According to Article 41, expropriation or limitation on the exercise of a property right can occur only if it serves the public interest and with fair compensation. During the post-communist period, expropriation has been limited to land for public interest, mainly infrastructure projects such as roads, energy infrastructure, water works, airports, and other facilities. Compensation has generally been reported as being below market value and owners have complained that the compensation process is corrupt, slow, and unfair. Civil courts are responsible for resolving such complaints.

Changes in government can also affect foreign investments. Following the 2013 elections and peaceful transition of power, the new government revoked or renegotiated numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors. This practice has occurred in other years as well.

There are many ongoing disputes regarding property confiscated during the communist regime. Identifying ownership is a longstanding problem in Albania that makes restitution for expropriated properties difficult. The restitution and compensation process started in 1993 but has been slow and marred by corruption. Many U.S. citizens of Albanian origin have been in engaged inlong-running restitution disputes. Court cases go on for years without a final decision, causing many to refer their case to the European Court of Human Rights (ECHR) in Strasbourg, France. A significant number of applications are pending for consideration before the ECHR. Even after settlement in Strasbourg, enforcement remains slow.

To address the situation, the GoA approved new property compensation legislation in 2015 that aims to resolve pending claims for restitution and compensation. The 2018 law reduces the burden on the state budget by changing the cash compensation formula. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; or financial compensation. It also set a ten-year timeframe for completion of the process. In February 2020, the Albanian parliament approved a law “On the Finalization of the Transitory Process of Property Deeds in the Republic of Albania,” which aims to finalize land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.

The GoA has generally not engaged in expropriation actions against U.S. investments, companies, or representatives. There have been limited cases in which the government has revoked licenses, specifically in the mining and energy sectors, based on contract violation claims.

The Law on Strategic Investments, approved in 2015, empowers the government to expropriate private property for the development of private projects deemed special strategic projects. Despite the provision that the government would act when parties fail to reach an agreement, the clause is a source of controversy because it entitles the government to expropriate private property in the interest of another private party. The expropriation procedures are consistent with the law on the expropriation, and the cost for expropriation would be incurred by the strategic investor. The provision has yet to be exercised.

Dispute Settlement

ICSID Convention and New York Convention

For an international arbitration award to be recognized locally, the claimant must bring the award before the Court of Appeals. The Appeals Court will not adjudicate the merits of the case and can strike down the award only for the reasons listed in Article V of the New York Convention.

Investor-State Dispute Settlement

Albania signed a Bilateral Investment Treaty with United States in 1995, and it entered into force in 1998. It has also ratified the New York Convention, ICSID Convention, and Geneva Convention. According to the Albanian Constitution, these conventions take precedence over domestic legislation. Foreign investors opt to include international arbitration clauses in their contracts with Albanian parties because the court system is not responsive, and the judiciary marked by endemic corruption.

For an international arbitration award to be recognized locally, the claimant must enforce the award before the Court of Appeals. The possibility of bringing an action before the local court to avoid arbitration proceedings is remote. According to provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would, upon motion of the other party, dismiss the case without entertaining its merits. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal.

The Albanian Code of Civil Procedure requires the courts to reach a judgment in a reasonable amount of time but does not provide a specific timeline for adjudicating commercial disputes. Reaching a final judgment in commercial litigation can take several years.

Over the past ten years, there have been three investment disputes between the GoA and U.S. companies, two of which resulted in international arbitration. Despite the GoA’s stated desire to attract and support foreign investors, U.S. investors in disputes with the GoA reported a lack of productive dialogue with government officials, who frequently displayed a reluctance to settle the disputes before they were escalated to the level of international arbitration, or before the international community exerted pressure on the government to resolve the issue. U.S. investors in Albania should strongly consider including binding arbitration clauses in any agreements with Albanian counterparts.

International Commercial Arbitration and Foreign Courts

An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by agreement at any time when a dispute arises.

Albania does not have a separate law on domestic arbitration. In 2017, Albania repealed all domestic arbitration provisions of the Civil Procedure Code, leaving the country without provisions to govern domestic arbitration. However, parties may engage in domestic arbitration because the Code of Civil Procedure guarantees the enforcement of domestic arbitral awards. Mediation is also available for resolving all civil, commercial, and family disputes and is regulated by the law On Dispute Resolution through Mediation. Arbitral awards are final and enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation is final and enforceable in the same way.

The provisions for international arbitration procedures and the recognition and enforcement of foreign awards are stipulated in the Albanian Code of Civil Procedure. Albania does not have a separate law on international arbitration. Although the arbitration chapter of the Code of Civil Procedure stipulates only the rules for domestic arbitration, the country is signatory to the 1958 New York Convention and therefore recognizes the validity of written arbitration agreements and arbitral awards in a contracting state.

Bankruptcy Regulations

Albania maintains adequate bankruptcy legislation, though corrupt and inefficient bankruptcy court proceedings make it difficult for companies to reorganize or discharge debts through bankruptcy.

A law on bankruptcy that entered into force in May 2017 aimed to close loopholes in the insolvency regime, decrease unnecessary market exit procedures, reduce fraud, and ease collateral recovery procedures. The Bankruptcy Law governs the reorganization or liquidation of insolvent businesses. It sets out non-discriminatory and mandatory rules for the repayment of the obligations by a debtor in a bankruptcy procedure. The law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.

Debtors and creditors can initiate a bankruptcy procedure and can file for either liquidation or reorganization. Bankruptcy proceedings may be invoked when the debtor is unable to pay the obligations at the maturity date or the value of its liabilities exceeds the value of the assets.

According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings suspends the enforcement of claims by all creditors against the debtor subject to bankruptcy. Creditors of all categories must submit their claims to the bankruptcy administrator. The Bankruptcy Law provides specific treatment for different categories, including secured creditors, preferred creditors, unsecured creditors, and final creditors whose claims would be paid after all other creditors were satisfied. The claims of the secured creditors are to be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors are to be paid out of the bankruptcy estate, excluding the assets used for payment of the secured creditors, following the priority ranking as outlined in the Albanian Civil Code.

Pursuant to the provisions of the Bankruptcy Law, creditors have the right to establish a creditors committee. The creditors committee is appointed by the Commercial Section Courts before the first meeting of the creditor assembly. The creditors committee represents the secured creditors, preferred creditors, and the unsecured creditors. The committee has the right (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; c) to inspect the books and records; and d) to order an examination of the revenues and cash balances.

If the creditors and administrator agree that reorganization is the company’s best option, the bankruptcy administrator prepares a reorganization plan and submits it to the court for authorizing implementation.

According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right to vote, and the dissenting creditors in reorganization receive at least as much as what they would have obtained in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately. Creditors of the same class are treated equally.

The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor, the rejection by the debtor of overly burdensome contracts, the avoidance of preferential or undervalued transactions, and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement over secured creditors. Post-commencement credit is assigned over ordinary unsecured creditors.

The creditor has the right to object to decisions accepting or rejecting creditors’ claims and to request information from the insolvency representative. The selection and appointment of insolvency representative does not require the approval of the creditor. In addition, the sale of substantial assets of the debtor does not required the approval of the creditor.

According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange rate applicable to the place of payment at the time of the opening of the proceeding.

The Albanian Criminal Code contains several criminal offenses in bankruptcy, including (i) whether the bankruptcy was provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and (iv) failure to comply with the obligations arising under bankruptcy proceeding.

According to the World Bank’s 2020 Doing Business Report, Albania ranked 39th out of 190 countries in the insolvency index. A referenced analysis of resolving insolvency can be found at the following link: http://documents.worldbank.org/curated/en/255991574747242507/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies-Economy-Profile-of-Albania 

Investment Incentives

The Albanian Investment Development Agency (AIDA; www.aida.gov.al) is the best source to find incentives offered across a variety of sectors. Aside from the incentives listed below, individual parties may negotiate additional incentives directly with AIDA, the Ministry of Finance and Economy, or other ministries, depending on the sector.

To boost investments in strategic sectors, the GoA approved a new Law on Strategic Investments in May 2015 that outlines the criteria, rules, and procedures that state authorities employ when approving a strategic investment. The GoA has extended the deadline to apply to qualify as a strategic investment to December 2020. A strategic investment is defined as an investment of public interest based on several criteria, including the size of the investment, implementation time, productivity and value added, creation of jobs, sectoral economic priorities, and regional and local economic development. The law does not discriminate between foreign and domestic investors.

The following sectors are defined as strategic sectors: mining and energy, transport, electronic communication infrastructure, urban waste industry, tourism, agriculture (large farms) and fishing, economic zones, and development priority areas. Investments in strategic sectors may obtain assisted procedure and special procedure, based on the level of investment, which varies from EUR one million to EUR 100 million, depending on the sector and other criteria stipulated in the law.

In the assisted procedure, public administration agencies coordinate, assist, and supervise the entire administrative process for investment approval and makes state-owned property needed for the investment available to the investor. Under the special procedure, the investor also enjoys state support for the expropriation of private property and the ratification of the contract by parliament.

The law and bylaws that entered into force on January 1, 2016, established the Strategic Investments Committee (SIC), a commission in charge of approving strategic investments. The Committee is headed by the prime minister and members include ministers covering the respective strategic sectors, the state advocate, and relevant ministers whose portfolios are affected by the strategic investment. AIDA serves as the Secretariat of SIC and oversees providing administrative support to investors. The SIC grants the status of assisted procedure and special procedure for strategic investments and investors based on the size of investments and other criteria defined in the law.

Major Incentives Albania Offers:

Energy and Mining, Transport, Electronic Communication Infrastructure, and Urban Waste Industry: Investments greater than EUR 30 million enjoy the status of assisted procedure, while investments of EUR 50 million or more enjoy special procedure status.

The government offers power purchasing agreements (PPA) for 15 years for electricity produced from hydroelectric plants with an installed capacity of less than 15 megawatts. The government also offers feed-in-premium tariff for solar installations with installed capacity of less than two megawatts and for wind installation of less than three megawatts. Exemption from custom duties and VAT is available for the manufacturing or the mounting of solar panel systems for hot water production.

Certain machinery and equipment imported for the construction of hydropower plants are VAT exempt. The government supports the construction of small wind and photovoltaic parks with an installed capacity of less than three megawatts and two megawatts, respectively, by offering feed-in-premium tariffs for 15 years. The Energy Regulatory Authority (ERE; http://www.ere.gov.al/) conducts an annual review of the feed-in-premium tariffs for wind and photovoltaic parks. The ERE also conducts an annual review of the feed-in-tariffs for small hydroelectric plants with an installed capacity of less than 15 megawatts. Imports of machinery and equipment for investments of greater than EUR 400,000 for small wind and solar parks with an installed capacity of less than three megawatts and two megawatts, respectively, enjoy a VAT exemption. Imports of hot water solar panels for household and industrial use are also VAT exempt.

Tourism and Agritourism: Investments of EUR five million or more enjoy the status of assisted procedure, while investments greater than EUR 50 million enjoy the status of special procedure. In 2018, the GoA introduced new incentives to promote the tourism sector. International hotel brands that invest at least USD eight million for a four-star hotel and USD 15 million for a five-star hotel are exempt from property taxes for 10 years, pay no profit taxes, and pay a VAT of 6 percent for any service on their hotels or resorts. For all other hotels and resorts, the GoA reduced the VAT on accommodation from 20 percent to 6 percent. Profit taxes for agritourism ventures were reduced to 5 percent from 15 percent previously, while VAT for accommodation is now 6 percent, down from 20 percent. Agritourism facilities are exempt from the infrastructure impact tax.

Agriculture (Large Agricultural Farms) and Fishing: Investments greater than EUR three million that create at least 50 new jobs enjoy the status of assisted procedure, while investments greater than EUR 50 million enjoy the status of special procedure.

In addition, the GoA offers a wide range of incentives and subsidies for investments in the agriculture sector. The funds are a direct contribution from the state budget and the EU Instrument of Pre-Accession for Rural Development Fund (IPARD.) IPARD funds allocated for the period 2018-2020 total EUR 71 million. The program is managed by the Agricultural and Rural Development Agency (http://azhbr.gov.al/). Agricultural inputs, agricultural machinery, and veterinary services are exempt from VAT. The government offers other subsidies to agricultural farms and wholesale trade companies that export agricultural products.

Development Priority Areas: Investments greater than EUR one million that create at least 150 new jobs enjoy the status of assisted procedure. Investments greater than EUR 10 million that create at least 600 new jobs enjoy the status of special procedure.

Foreign Tax Credit: Albania applies foreign tax credit rights even in cases where no double taxation treaty exists with the country in which the tax is paid. If a double taxation treaty is in force, double taxation is avoided either through an exemption or by granting tax credits up to the amount of the applicable Albanian corporate income tax rate (currently 15 percent).

In 2019, the GoA reduced the dividend tax from 15 percent to 8 percent.

Corporate Income Tax Exemption: Film studios and cinematographic productions, licensed and funded by the National Cinematographic Center, are exempt from corporate income tax.

Loss Carry Forward for Corporate Income Tax Purposes: Fiscal losses can be carried forward for three consecutive years (the first losses are used first). However, the losses may not be carried forward if more than 50 percent of direct or indirect ownership of the share capital or voting rights of the taxpayer is transferred (changed) during the tax year.

Lease of Public Property: The GoA can lease public property of more than 500 square meters or grant a concession for the symbolic price of one euro if the properties will be used for manufacturing activities with an investment exceeding EUR 10 million, or for inward processing activities. The GoA can also lease public property or grant a concession for the symbolic price of one euro for investments of more than EUR two million for activities that address certain social and economic issues, as well as activities related to sports, culture, tourism, and cultural heritage. Criteria and terms are decided on an individual basis by the Council of Ministers.

Incentives for the Manufacturing Sector: The GoA reduced the profit tax from 15 percent to 5 percent for software development companies and the automotive industry.

Manufacturing activities are exempt from 20 percent VAT on imports of machinery and equipment. The government offers a one-euro symbolic rent for government-owned property (land and buildings) for investments exceeding USD 2.7 million that create a minimum of 50 jobs. No VAT is charged for products processed for re-exports. Employers are exempt from paying social security tax for one year for all new employees.

The GOA pays the first four months of salaries for new employees and offers various financing incentives for job training.

The manufacturing sector obtains VAT refunds immediately in the case of zero risk exporters, within 30 days if the taxpayer is an exporter, and within 60 days in the case of other taxpayers.

Apparel and footwear producers are exempt from 20 percent VAT on raw materials if the finished product is exported. In 2011, the GoA also removed customs tariffs for imported apparel and raw materials in the textile and shoe industries (e.g., leather used for clothes, cotton, viscose, velvet, sewing accessories, and similar items).

Technological and Development Areas (TEDA): The Law on Economic Development Areas provides fiscal and administrative incentives for companies that invest in this sector and for firms that establish a presence in these areas. Major incentives include: Developers and users benefit from a 50 percent deduction of profit tax for five years, exemption from the infrastructure impact tax, and exemption from real estate tax for five years. A full list of incentives can be found at: http://aida.gov.al/en/teda/ .

Foreign Trade Zones/Free Ports/Trade Facilitation

Albania has no functional duty-free import zones, although legislation exists for their creation. The May 2015 amendments to the Law on the Establishment and Operation of TEDAs created the legal framework to establish TEDAs, defining the incentives for developers investing in the development of these zones and companies operating within the zones.

The Ministry of Finance and Economy has announced two investment opportunities that seek private sector developers to obtain, develop, and operate fully serviced areas located in Koplik (61 hectares) and Spitalle (200 hectares). Interested investors and developers can find more information for the development of TEDAs at the following link: http://aida.gov.al/en/teda/ .

Performance and Data Localization Requirements

There are no performance requirements for foreign investors or minimum requirements for domestic content in goods or technology. Investment incentives are equally available to foreign and domestic investors. Investments in certain sectors require a license or authorization and procedures are similar for foreign and domestic investors.

Visa, residence, and work permit requirements are straightforward and do not pose an undue burden on potential investors. The February 2020 amendments to the Law on Foreigners abolished the requirement for foreign investors to prove that foreign employees constituted less than 10 percent of the investor’s total workforce before a work permit was granted. U.S. citizens do not need a visa to enter and can stay in the country for up to one year without a residency permit. For longer stays they must apply for a residency permit, which can be valid for up to five years. To work in Albania, foreigners must apply for a work permit or work registration certificate, except for U.S. citizens and citizens from EU member countries, the Schengen area, and the Western Balkans, who are exempted from such requirement and enjoy the same employment rights and benefits as Albanian citizens. The February 2020 amendments exempt from work permit requirements foreign workers needed in jobs necessary to address the damages caused by natural disasters, partly to facilitate recovery from the November 2019 earthquake. The Council of Ministers approves the annual quota of foreign workers following a needs assessment by sector and profession. However, work permits for staff that occupy key positions, among other categories, can be issued outside the annual quota.

Albanian legislation regulating the functioning of the National Agency of Information (AKSHI) requires that every company contracted by the government to develop a computer system provide the source code and all related technical documents of the system. In addition, every government system and its data must be hosted at the government datacenter maintained by AKSHI.

There are no legal restrictions to transferring business-related data abroad, except for a few cases that need prior consent. There are more stringent requirements for personal data. Albania has comprehensive legislation for the protection of personal data: the Law On the Protection of Personal Data, including by-laws, as well as the 1981 Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, and the Additional Protocol to the Convention regarding Supervisory Authorities and Trans-border Flows of Personal Data, ratified by Albania in 2004. The authority in charge of the protection of personal data is the Information and Data Protection Commissioner (https://www.idp.al/?lang=en .)

Based on Albanian legislation, international transfers of personal data in countries deemed to have an adequate level of protection are not restricted. However, companies must notify the Commissioner in advance of any processing of personal data and any intention to transfer data to third countries. This applies to companies in foreign jurisdictions that operate in Albania using any means located within the country. To transfer data to third countries that do not have an adequate protection level, companies need prior authorization from the Commissioner. There are exemptions to this policy for certain data categories defined by the Commissioner as well as when certain conditions are met. Countries with an adequate protection level include EU member states, European Economic Area countries, members of the 1981 Convention and related protocol, and all countries approved by the European Commission.

Many foreign companies operating in Albania that process sensitive data opt to keep their data in Albania.

Real Property

Individuals and investors face significant challenges with protection and enforcement of property rights. Despite recent improvements, procedures are cumbersome, and registrants have complained of corruption during the process.  Over the last three decades, the GoA has drafted and passed much, though not all, of its property legislation in a piecemeal and uncoordinated way. According to the EU’s 2019 Progress Report, significant progress has yet to be made toward improving the legal framework for registration, expropriation, and compensation of property. Reform of the sector has yet to incorporate consolidation of property rights or the elimination of legal uncertainties. However, on February 12, 2020, the Albanian parliament approved the Law on the Finalization of the Transitory Process of Property Deeds in the Republic of Albania, which aims to finalize land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.

The property registration system has improved thanks to international donor assistance, but the process has stalled as Albania still needs to complete the initial registration of property titles in the country. Approximately 10 percent of the properties are registered in digital form, almost entirely in Tirana, in urban and peripheral areas that experience a high turnover a lot of transactions. Another 80 percent of properties have been registered as part of the initial registration process but the plot records for these properties are still only in paper form and often in poor and outdated condition. The remaining 10 percent have still to be registered for the first time, which includes the southern coastal area. The poor state of the data is a risk for title security and a constraint to investment and an effective land market.

Albania has an estimated 440,000 illegal structures, built without permits, and illicit construction continues to be a major impediment to securing property titles. A process that aims to legalize or eliminate such structures started in 2008 but is still not complete.  The situation has led to clashes between squatters and owners of allegedly illegal buildings and the Albanian State Police during the demolition of these structures to make way for public infrastructure projects.

To streamline the property management process, the GoA established in April 2019 the State Cadaster Agency (ASHK), which united several major agencies responsible for property registration, compensation, and legalization, including the Immovable Property Registration Office (IPRO), the Agency of Inventory and Transfer of Public Properties (AITPP), and the Agency for the Legalization and Urbanization of Informal Areas (ALUIZNI).

According to the 2020 World Bank’s “Doing Business Report,” Albania performed poorly in the property registration category, ranking 98th out of 190 countries.  It took an average of 19 days and five procedures to register property, and the associated costs could reach 8.9 percent of the total property value. The civil court system manages property rights disputes, but verdicts can take years, authorities often fail to enforce court decisions, and corruption concerns persist within the judiciary.

Intellectual Property Rights

Albania is not included on the U. S. Trade Representative’s (USTR) Special 301 Report or Notorious Markets List.  That said, intellectual property rights (IPR) infringement and theft are common due to weak legal structures and poor enforcement.  Counterfeit goods, while decreasing, are present in some local markets, including software, garments, machines, and cigarettes. Albanian law protects copyrights, patents, trademarks, industrial designs, and geographical indications, but enforcement of these laws is wanting.  Regulators are ineffective at collecting fines and prosecutors rarely press charges for IPR theft. U.S. companies should consult an experienced IPR attorney and avoid potential risks by establishing solid commercial relationships and drafting strong contracts. According to the International Property Right Index  (IPRI) published by Property Right Alliance, Albania ranks 106th out of 129 countries evaluated. It ranked 79th in the subcategory of copyright piracy.

A revised 2016 IPR law aimed to strengthen enforcement and address shortcomings so as to harmonize domestic legislation with that of the EU.   In 2019, the Criminal Code was amended to include harsher punishments of up to three years in prison for IPR infringement.

The main institutions responsible for IPR enforcement include the State Inspectorate for Market Surveillance (SIMS), the Albanian Copyright Office (ACO), the Audiovisual Media Authority (AMA), the General Directorate of Patents and Trademarks (GDPT), the General Directorate for Customs, the Tax Inspectorate, the Prosecutor’s Office, the State Police, and the courts.  In 2018, the National Council of Copyrights was established as a specialized body responsible for monitoring the implementation of the law and certifying the methodology for establishing the tariffs. Two other important bodies in the protection and administration of IPR are the agencies for the Collective Administration (AAK) and the Copyrights Department within the Ministry of Culture. Four different AAKs have merged in 2017 to provide service into a sole window for the administration of IPR.

The SIMS, established in 2016, is responsible for inspecting, controlling, and enforcing copyright and other related rights.   Despite some improvements, actual law enforcement on copyrights continues to be problematic and copyright violations are persistent.  The number of copyright violation cases brought to court remains low.

While official figures are not available, Customs does report the quantity of counterfeit goods destroyed annually.  In cases of seizures, the rights holder has the burden of proof and so must first inspect the goods to determine if they are infringing.  The rights holder is also responsible for the storage and destruction of the counterfeit goods. Cigarettes were the most common product seized by Customsin 2019.

The GDPT is responsible for registering and administering patents, commercial trademarks and service marks, industrial designs, and geographical indications.  The 2008 law on industrial property was amended in 2014 to more closely align with that of the EU . In 2019, the GDPT received 1,157 applications for national trademarks, 2,664 applications for the international extension of trademark registration according to the Madrid system, and 913 applications for patents.

Albania is party to the World Intellectual Property Organization (WIPO) Patent Law Treaty, the Patent Cooperation Treaty, the Berne Convention, the Paris Convention, and is a member of the European Patent Organization.  The government became party to the London Agreement on the implementation of Article 65 of the European Convention for Patents in 2013. In 2018, Parliament approved the Law 34/2018 on Albania’s adherence to the Vienna Agreement for the International Classification of the Figurative Elements of Marks. In June 2019, Albania joined the Geneva Act of WIPO’s Lisbon Agreement on Appellations of Origin and Geographical Indications.

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

Resources for Rights Holders

Contact at Embassy Tirana on IP issues:
Alex MacFarlane
Economic Officer
Phone: + 355 (0) 4229 3115
E-mail: USALBusiness@state.gov

Country resources:

American Chamber of Commerce
Address: Rr. Deshmoret e shkurtit, Sky Tower, kati 11 Ap 3 Tirana, Albania
Email: info@amcham.com.al
Phone: +355 (0) 4225 9779
Fax: +355 (0) 4223 5350
http://www.amcham.com.al/ 

List of local lawyers: http://tirana.usembassy.gov/list_of_attorneys.html

Capital Markets and Portfolio Investment

The government has adopted policies to promote the free flow of financial resources and foreign investment in Albania. The Law on “Foreign Investments” is based on the principles of equal treatment, non-discrimination, and protection of foreign investments. Foreign investors have the right to expatriate all funds and contributions of their investment.  In accordance with IMF Article VIII, the government and Central Bank do not impose any restrictions on payments and transfers for international transactions. Despite Albania’s shallow foreign exchange market, banks enjoy enough liquidity to support sizeable positions.  Portfolio investments continue to be a challenge because they remain limited mostly to company shares, government bonds, and real estate.

In the recent years, the high percentage of non-performing loans and the economic slowdown forced commercial banks to tighten lending standards.  However, following a decrease in non-performing loans (NPL) in 2018 the, lending increased by 7 percent year-over-year in 2019.  The credit market is competitive, but interest rates in domestic currency can be high, ranging from 6 percent to 7 percent. Most mortgage and commercial loans are denominated in euros because rate differentials between local and foreign currency average 2.5 percent.  Commercial banks operating in Albania have improved the quality and quantity of services they provide, including a large variety of credit instruments, traditional lines of credit, and bank drafts etc.

Money and Banking System

In the absence of an effective stock market, the country’s banking sector is the main channel for business financing.  The sector is sound, profitable, and well capitalized. The high rate of non-performing loans (NPL)s had been a concern for several years but has declined recently.  The Bank of Albania’s legal measures to address the problem have generated positive results. The banking sector is 100 percent fully privatized.  It has undergone consolidation over the last couple of years, as the number of banks decreased from 16 in 2018 to 12 in 2020. As of December 2019, the Turkish -owned National Commercial Bank remained the largest bank in the market, with 27 percent of the market share, followed by Austrian Raiffeisen Bank, with 15 percent, and Albanian Credins Bank, with 14.8 percent.  The American Investment Bank is the only bank with U.S. shareholders, and it ranks seventh with 5.2 %percent of the banking sector’s total assets, which in 2019 reached $13.5 billion.

Albania’s banking sector weathered the financial crisis better than many of its neighbors, due largely to a limited exposure to international capital markets and lack of a domestic housing bubble.  In December 2019, Albania had 446 bank outlets, down from 474 a year ago and the peak of 552 in 2016. Capital adequacy, at 18.3 percent, remains above Basel requirements and indicates sufficient assets.  At the end of 2019, the return on assets was 1.5 percent. The number of NPLs continued to fall, reaching 8.4 percent at the end of the 2019, down from 11.1 percent in 2018, and significantly below the 2014 level when NPLs peaked at 25 percent. As part of its strategy to stimulate business activity, the Bank of Albania has adopted a plan to ease monetary policy by continuing to persistently keep low interest rates. The most recent reduction was in March 2020, when the interest rate was reduced to the historic low of 0.5 percent, down from a rate of 1 percent in place since June 2018.

Most of the banks operating in Albania are subsidiaries of foreign banks. Only three banks have an ownership structure whose majority shareholders are Albanian.  However, the share of total assets of the banks with majority Albanian shareholders has increased because of the sector’s ongoing consolidation. There are no restrictions for foreigners who wish to establish a bank account. They are not required to prove residency status.  However, U.S. citizens must complete a form allowing for the disclosure of their banking data to the IRS as required under the U.S. Foreign Account Tax Compliance Act.

Foreign Exchange and Remittances

Foreign Exchange

The Central Bank of Albania (BoA) formulates, adopts, and implements foreign exchange policies and maintains a supervisory role in foreign exchange activities in accordance with the Law on the Bank of Albania No. 8269 and the Banking Law No. 9662.  Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX Regulation).

BoA maintains a free -float exchange rate regime for the domestic currency, the Lek. Albanian authorities do not engage in currency arbitrage, nor do they view it as an efficient instrument to achieve competitive advantage.  BoA does not intervene to manipulate the exchange rate unless required to control domestic inflation, in accordance with the Bank’s official mandate of inflation targeting.

Foreign exchange is readily available at banks and exchange bureaus. Preliminary notification is necessary if the currency exchange is several million dollars or more – the law does not specify an amount but provides factors for determining the threshold for large exchanges – as the exchange market in Albania is shallow.  A 2018 campaign launched by the BoA to reduce the domestic use of the euro to improve the effectiveness of domestic economic policies has produced tangible results. The share of foreign currency loans in total loans fell from 60 percent in 2015 to 50 percent in 2019. Foreign currency deposits, which to some extent reflect relatively high remittances, rose to 54.6 percent of total deposits.

Remittance Policies

The Banking Law does not impose restrictions on the purchase, sale, holding, or transfer of monetary foreign exchange.  However, local law authorizes the BoA to temporarily restrict the purchase, sale, holding, or transfer of foreign exchange to preserve the foreign exchange rate or official reserves.  In practice, BoA rarely employs such measures. The last episode was in 2009, when the Bank temporarily tightened supervision rules over liquidity transfers by domestic correspondent banks to foreign banks due to insufficient liquidity in international financial markets.  It also asked banks to halt distribution of dividends and use dividends to increase shareholders’ capital, instead. BoA lifted these restrictions in 2010.

The Law on Foreign Investment guarantees the right to transfer and repatriate funds associated with an investment in Albania into a freely usable currency at a market-clearing rate.  Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of 1,000,000 lek (USD 9,000) in hard currency and/or precious items.  Failure to declare such assets is considered a criminal act, punishable by confiscation of the assets and possible imprisonment.

Although the Foreign Exchange (FX) Regulation provides that residents and non-residents may transfer capital within and into Albania without restriction, capital transfers out of Albania are subject to certain documentation requirements.  Persons must submit a request indicating the reasons for the capital transfer, a certificate of registration from the National Registration Center, and the address to which the capital will be transferred. Such persons must also submit a declaration on the source of the funds to be transferred.  In January 2015, The FX Regulation was amended and the requirement to present the documentation showing the preliminary payment of taxes related to the transaction was removed.

Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force-style regional body.  In February 2020, Albania was included in the category of jurisdictions under increased monitoring, also referred to as the Grey List. Albania had previously been on this list and was taken off in 2015. The 2020 International Narcotics Control Strategy Report (INCSR) placed Albania in the “Major Money Laundering Jurisdictions” category following its inclusion for the first time in 2017. The category implies that financial institutions of the country engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.

Sovereign Wealth Funds

Parliament approved a law in October 2019 to establish the Albanian Investment Corporation (AIC). The law entered in force in January 2020. The AIC would develop, manage, and administer state-owned property and assets, invest across all sectors by mobilizing state owned and private domestic and foreign capital, and promote economic and social development by investing in line with government-approved development policies.

The GoA plans to transfer state-owned assets, including state-owned land, to the AIC and provide initial capital to launch the corporation. The IMF Staff Concluding Statement  of November 26, 2019, warned that the law would allow the government to direct individual investment decisions, which could make the AIC an off-budget spending tool that risks eroding fiscal discipline and circumventing public investment management processes.

State-owned enterprises (SOEs) are defined as legal entities that are entirely state-owned or state-controlled and operate as commercial companies in compliance with the Law on Entrepreneurs and Commercial Companies. SOEs operate mostly in the generation, distribution, and transmission of electricity, oil and gas, railways, postal services, ports, and water supply. There is no published list of SOEs.

The law does not discriminate between public and private companies operating in the same sector. The government requires SOEs to submit annual reports and undergo independent audits. SOEs are subject to the same tax levels and procedures and the same domestic accounting and international financial reporting standards as other commercial companies. The High State Audit audits SOE activities. SOEs are also subject to public procurement law.

Albania is yet to become party to the Government Procurement Agreement (GPA) of the WTO but has obtained observer status and is negotiating full accession (see https://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm).  Private companies can compete openly and under the same terms and conditions with respect to market share, products and services, and incentives.

SOE operation in Albania is regulated by the Law on Entrepreneurs and Commercial Companies, the Law on State Owned Enterprises, and the Law on the Transformation of State-Owned Enterprises into Commercial Companies. The Ministry of Economy and Finance and other relevant ministries, depending on the sector, represent the state as the owner of the SOEs. SOEs are not obligated by law to adhere to Organization for Economic Cooperation and Development (OECD) guidelines explicitly. However, basic principles of corporate governance are stipulated in the relevant laws and generally accord with OECD guidelines. The corporate governance structure of SOEs includes the supervisory board and the general director (administrator) in the case of joint stock companies. The supervisory board comprises three to nine members, who are not employed by the SOE. Two-thirds of board members are appointed by the representative of the Ministry of Economy and Finance, and one-third by the line ministry, local government unit, or institution to which the company reports. The Supervisory Board is the highest decision-making authority and appoints and dismisses the administrator of the SOE through a two-thirds vote.

Privatization Program

The privatization process in Albania is nearing conclusion, with just a few major privatizations remaining. Entities to be privatized include OSHEE, the state-run electricity distributor; 16 percent of ALBtelecom, the fixed- line telephone company; and state-owned oil company Albpetrol. Other sectors might provide opportunities for privatization in the future.

The bidding process for privatizations is public, and relevant information is published by the Public Procurement Agency at www.app.gov.al . Foreign investors may participate in the privatization program. The Agency has not published timelines for future privatizations.

Public awareness of corporate social responsibility (CSR) in Albania is low, and CSR remains a new concept for much of the business community. The small level of CSR engagement in Albania comes primarily from the energy, telecommunications, heavy industry, and banking sectors, and tends to focus on philanthropy and environmental issues. International organizations have recently improved efforts to promote CSR. Thanks to efforts by the international community and large international companies, the first Albanian CSR network was founded in March 2013 as a business-led, non-profit organization. The American Chamber of Commerce in Albania also formed a subcommittee in 2015 to promote CSR among its members.

Legislation governing CSR, labor, and employment rights, consumer protection, and environmental protection is robust, but enforcement and implementation are inconsistent. The Law on Commercial Companies and Entrepreneurs outlines generic corporate governance and accounting standards. According to that law and the Law on the National Business Registration Center, companies must disclose publicly when they change administrators and shareholders and to disclose financial statements. The Corporate Governance Code for unlisted joint stock companies incorporates the OECD definitions and principles on corporate governance but is not legally binding. The code provides guidance for Albanian companies and aims to provide best-practices while assisting Albanian companies to develop a governance framework.

Albania has been a member of the Extractive Industries Transparency Initiative (EITI) since 2013.

Endemic corruption continues to undermine the rule of law and jeopardize economic development. Foreign investors cite corruption, particularly in the judiciary, a lack of transparency in public procurement, and poor enforcement of contracts as some of the biggest problems in Albania.

Corruption perceptions continue to deteriorate, with Albania falling an additional seven positions in Transparency International’s 2019 Corruption Perceptions Index (CPI), now ranking 106th out of 180 countries, tied with North Macedonia as the lowest in the Balkans. Despite some improvement in in Albania’s score from 2013 to 2016, progress in tackling corruption has been slow and unsteady. Albania is still one of the most corrupt countries in Europe, according to the CPI and other observers.

The country has a sound legal framework to prevent conflict of interest and to fight corruption of public officials and politicians, including their family members. However, law enforcement is jeopardized by a heavily corrupt judicial system.

The passage of constitutional amendments in July 2016 to reform the judicial system was a major step forward, and reform, once fully implemented, is expected to position the country as a more attractive destination for international investors. Judicial reform has been described as the most significant development in Albania since the end of communism, and nearly one-third of the constitution was rewritten as part of the effort. The reform also entails the passage of laws to ensure implementation of the constitutional amendments. Judicial reform’s vetting process will ensure that prosecutors and judges with unexplained wealth or insufficient training, or those who have issued questionable verdicts, are removed from the system. As of publication, more than half of the judges and prosecutors who have faced vetting have either failed or resigned. The establishment of the Special Prosecution Office Against Corruption and Organized Crime and of the National Investigation Bureau, two new judicial bodies, will step up the fight against corruption and organized crime. Once fully implemented, judicial reform will discourage corruption, promote foreign and domestic investment, and allow Albania to compete more successfully in the global economy.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The government has ratified several corruption-related international treaties and conventions and is a member of major international organizations and programs dealing with corruption and organized crime. Albania has ratified the Civil Law Convention on Corruption (Council of Europe), the Criminal Law Convention on Corruption (Council of Europe), the Additional Protocol to Criminal Law Convention on Corruption (Council of Europe), and the United Nations Convention against Corruption (UNCAC). Albania has also ratified several key conventions in the broader field of economic crime, including the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (2001) and the Convention on Cybercrime (2002). Albania has been a member of the Group of States against Corruption (GRECO) since the ratification of the Criminal Law Convention on Corruption in 2001 and is a member of the Stability Pact Anti-Corruption Initiative (SPAI). Albania is not a member of the OECD Convention on Combating Bribery of Foreign Public Officials in international Business Transactions. Albania has also adopted legislation for the protection of whistleblowers.

Resources to Report Corruption

To curb corruption, the government announced a new platform in 2017, “Shqiperia qe Duam”(“The Albania We Want”), which invites citizens to submit complaints and allegations of corruption and misuse of office by government officials. The platform has a dedicated link for businesses. The Integrated Services Delivery Agency (ADISA), a government entity, provides a second online portal to report corruption.

While political violence is rare, political protests in 2019 included instances of civil disobedience, low-level violence and damage to property, and the use of tear gas by police. Albania’s June 2017 elections and transition to a new government were peaceful, as were its June 2019 local elections. On January 21, 2011, security forces shot and killed four protesters during a violent political demonstration. In its external relations, Albania has usually encouraged stability in the region and maintains generally friendly relations with neighboring countries.

Albania’s labor force numbers around 1.22 million people, according to official data.  After peaking at 18.2 percent in the first quarter of 2014, the official estimated unemployment rate has decreased in recent years, falling to 11.2 percent at the end of 2019 compared to 12.3 percent in December 2018.  However, unemployment among people aged 15-29 remains high, at 21.4 percent. The effect of the 6.4-magnitude earthquake in November 2019 and the COVID-19 pandemic on Albanian unemployment will take time to unfold. Around 40 percent of the population is self-employed in the agriculture sector. Informality continues to be widespread in the Albanian labor market.  According to the International Labor Organization (ILO), almost 30 percent of all employment in the non-agriculture sector is informal.

The institutions that oversee the labor market include the Ministry of Finance, Economy and Labor, the Ministry of Health and Social Protection; the National Employment Service; the State Labor Inspectorate; and private entities such as employment agencies and vocational training centers.  Albania has adopted a wide variety of regulations to monitor labor abuses, but enforcement is weak due to persistent informality in the work force.

Outward labor migration remains an ongoing problem affecting the Albanian labor market. There is a growing concern about labor shortage for both the skilled and unskilled workforces.  Over the last several years, media outlets have reported that a significant number of doctors and nurses have emigrated to Europe, mostly to Germany. There are also claims that the textile industry, which hires unskilled labor, is facing difficulties replacing workers s resulting from growing due to emigration of Albanian citizens.  In December 2019, the average public administration salary was approximately 63,826 lek (approximately USD 575) per month.  The GoA increased the national minimum wage in January 2019 to 26,000 lek per month (approximately USD 225), but it is still the lowest in the region.

While some in the labor force are highly skilled, many work in low-skill industries or have outdated skills.  The government provides financial incentives for labor force training for the inward processing industry (in which goods are brough into the country for additional manufacturing, repairing, or restoring), which in Albania includes the footwear and textile sectors.  In March 2019, parliament approved a new law on employment promotion, which defined public policies on employment and support programs. Albania has a tradition of a strong secondary educational system, while vocational schools are viewed as less prestigious and attract fewer students.  However, the government has more recently focused attention on vocational education. In the 2018-2019 academic year, about 21,300, or 18 percent, of high school pupils were enrolled in vocational schools, compared with 17.1 percent in the previous year.

The Law on Foreigners and various decisions of the Council of Ministers regulate the employment regime in Albania.  Employment can also be regulated through special laws in the case of specific projects, or to attract foreign investment.  The Law on TEDA-s also provides financial incentives for labor taxes on investments in the zone. In February 2020, parliament approved some amendments to the Law on Foreigners, extending the same employment and self-employment rights Albanian citizens have to the citizens of five Western Balkan countries. The new law extends to these citizens the same benefits that the original law provided to the citizens of EU and the Schengen countries. The recent amendments also allow hiring of foreign citizens in different sectors in the framework of to work in the reconstruction process efforts due to the November 2019 earthquake.

The Labor Code includes rules regarding contract termination procedures that distinguish layoffs from terminations.  Employment contracts can be limited or unlimited in duration, but typically cover an unlimited period if not specified in the contract.  Employees can collect up to 12 months of salary in the event of an unexpected interruption of the contract. Unemployment compensation makes up around 50 percent of the minimum wage.

Pursuant to the Labor Code and the recently amended “Law on the Status of the Civil Employee,” both individual and collective employment contracts regulate labor relations between employees and management.  While there are no official data recording the number of collective bargaining agreements used throughout the economy, they are widely used in the public sector, including by SOEs. Albania has a labor dispute resolution mechanism as specified in the Labor Code, article 170, but the mechanism is considered inefficient. Strikes are rare in Albania, mostly due to the limited power of the trade unions and they have not posed any risk to investments.

Albania has been a member of the International Labor Organization since 1991 and has ratified 54 out of 189 ILO conventions, including the 8eight Fundamental Conventions, the four Governance Conventions and 42 Technical Conventions. The implementation of labor relations and standards continues to be a challenge, according to the ILO. Furthermore, labor dialogue has suffered from the 2017 division of the Ministry of Labor and Social Protection into two different institutions.

See the U.S. Department of State Human Rights Report:
https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/;
and the U.S. Department of Labor Child Labor Report:
http://www.dol.gov/ilab/reports/child-labor .

The DFC is the successor of the Overseas Private Investment Corporation (OPIC). OPIC signed an agreement with Albania in 1991, which is still in force.

DFC is America’s development bank and partners with the private sector to finance solutions to the most critical challenges facing the developing world. DFC provides equity financing, debt financing, political risk insurance, and technical development assistance. It focuses its work on less developed countries, classified by the World Bank as low-income, lower-middle-income, and upper-middle-income countries. DFC prioritizes its work in low-income and lower-middle-income countries and operates with restrictions in upper middle-income countries. Albania classifies as an upper middle-income country.

Albania has also ratified the World Bank’s Multilateral Investment Guarantees Agency (MIGA) Convention. MIGA provides investment guarantees against certain non-commercial risks (i.e., political-risk insurance) to eligible foreign investors for qualified investments in developing member countries. MIGA’s coverage covers the following risks: currency transfer restriction, expropriation, breach of contract, war, terrorism, civil disturbance, and failure to honor sovereign financial obligations.

For more information on MIGA, please see: http://www.miga.org/ .

*Source for Host Country Data: Bank of Albania (http://www.bankofalbania.org/), Albanian Institute of Statistics (http://www.instat.gov.al/), Albanian Ministry of Finances (http://www.financa.gov.al/)

Alex MacFarlane
Economic and Commercial Officer
U.S. Embassy Tirana, Albania
Rruga Elbasanit, Nr. 103
Tirana, Albania +355 4 224 7285
USALBusiness@state.gov

Policies Towards Foreign Direct Investment

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

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

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

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

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

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

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

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

Outward Investment

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

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

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

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

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

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

Transparency of the Regulatory System

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

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

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

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

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

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

International Regulatory Considerations

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

Legal System and Judicial Independence

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

Laws and Regulations on Foreign Direct Investment

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

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

Alternative dispute resolution mechanisms are not widely used.

Bankruptcy Regulations

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

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

Investment Incentives

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

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

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

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

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

Real Property

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

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

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

Intellectual Property Rights

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

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

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

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

Capital Markets and Portfolio Investment

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

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

Money and Banking System

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

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

Remittance Policies

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

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

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

Sovereign Wealth Funds

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

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

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

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

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

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

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

Privatization Program

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

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

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

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

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

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

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

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

Resources to Report Corruption

Official government agencies:

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

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

Watchdog organization:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The latest data available for Algeria is from 2018.

Table 4: Sources of Portfolio Investment
Data not available.

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

Policies Towards Foreign Direct Investment

Andorra has established an open framework for foreign investments, allowing non-residents to create companies in the country, open businesses, and invest in all kinds of assets.

The Foreign Investment Law came into force in July 2012, completely opening the economy to foreign investors. Since then, foreigners, whether resident or not, may own up to 100 percent of any Andorra-based company. The law also liberalizes restrictions on foreign professionals seeking to work in Andorra. Previously, a foreigner could only begin to practice in Andorra after twenty years of residency. Under the new regulations, any Andorran legal resident from a country that has a reciprocal standard can work in Andorra.

The Government of Andorra created the ACTUA program (www.actua.ad ) as Andorra’s economic development and promotion office in order to provide counseling services, to both Andorran companies looking to grow and foreign investors wanting to start new businesses in Andorra. Actua’s mission is to increase competitiveness, innovation and the sustainability of the economy.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Andorran legal framework has also adapted to international standards. The most relevant laws passed by Parliament to accompany the economic openness include the law of Companies (October 2007), the Law of Business Accounting (December 2007), and the Law of Foreign Investment (April 2008 and June 2012).

The OECD removed Andorra from its “tax haven list” in 2009 after the country signed the Paris Declaration, formally committing to sharing fiscal information outlined by the agreement. With the approval of the Law 19/2016, of November the 30th, on automatic exchange of information on tax matters, Andorra will exchange financial information with signatories of the “Common Reporting Standard” (CRS), developed by the G20 and approved by the OECD Council on July 2014.

From 2011 to 2019, the Parliament also approved direct corporate, non-resident, capital gains, savings, and personal income taxes. These regulations aim at establishing a transparent, modern, and internationally comparable regulatory framework. At 10 percent, well below the European average, Andorra’s corporate tax is more competitive than rates in neighboring Spain or France.

Other Investment Policy Reviews

In the past three years neither the Government nor any international organization has conducted an investment policy review, be it the Organization for Economic Cooperation and Development (OECD); World Trade Organization (WTO); or, the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

Andorra established the ACTUA program as a public/private agency, made up of several ministries, government agencies, associations, and organizations from the private sector. It aims to increase competitiveness, innovation, and sustainability. It provides counseling services, to Andorran companies and potential foreign investors to facilitate investment and economic diversification.

Andorran regulations allow for two types of companies: Private Limited Liability Company (Societat de Responsabilitat Limitada – SL), which have a minimum capital requirement of 3,000 euros; and, Public Liability Company (Societat Anonima – SA) which is normally required for multiple shareholders and has a minimum capital requirement of 60,000 euros.

The business establishment procedures and for share acquisitions or transfers are quite similar to those of other countries, requiring the filling of a simple application form, with the additional unique condition of the presentation of any prior investment authorization received in the country. This same procedure is applicable for incorporation, establishment, extension, branching, or other form of business expansion. Once the company name is registered, the foreign investment is established, and the investor is required to deposit the share capital with an Andorran banking entity and proceed to public deed of incorporation before a Notary. The company registration before the Company Registry is automatic.

Outward Investment

The Government’s ACTUA program provides grants for small and medium size companies to foster competitiveness and facilitate internationalization. The Andorran Chamber of Commerce (www.ccis.ad ) helps companies search for business opportunities abroad.

Andorra has bilateral agreements with France (2003), Spain (2003), and Portugal (2007). No bilateral investment treaty exists between Andorra and the United States.

Andorra has signed bilateral agreements for the exchange of fiscal information with 24 countries. All those agreements have been ratified and are in force.

In 2014, Andorra became the 48th signatory to the OECD Declaration on Automatic Exchange of Information in Tax Matters , which commits countries to end bank secrecy for tax evasion purposes. Andorra signed a Non-Double Taxation agreement with France, Spain, Portugal, Luxembourg, Liechtenstein, Malta, Cyprus, and United Arab Emirates, and is currently negotiating other such agreements.

Transparency of the Regulatory System

The Government set out transparent policies and laws, which have significantly liberalized all economic sectors in Andorra. New, foreign-owned businesses have to be approved by the government, and the process can take up to a month. The Government is committed to a transparent process. Andorra has begun to relax labor and immigration standards; previously, foreign professionals had to establish 20 years of residency before being eligible to own 100 percent of their business in Andorra. This restriction has been lifted for nationals coming from countries that have reciprocal standards for Andorran citizens.

Following approval of the new Accounting Law in 2007, individuals carrying out business or professional activities, trading companies, and legal persons or entities with a profit purpose must file financial statements with the administration.

International Regulatory Considerations

Although not a member of the European Union (EU), Andorra, as a member of the European Customs Union, is subject to all EU free trade regulations and arrangements with regard to industrial products. Concerning agriculture, the EU allows duty free importation of products originating in Andorra.

Andorra is negotiating a new association agreement with the European Union that will allow Andorrans to establish themselves in Europe and Andorran companies will be able to trade in the EU market.

Although the Government took some steps in the past to become a member of the World Trade Organization (WTO); Andorra currently holds observer status in the WTO. Andorra has applied for membership in the International Monetary Fund (IMF). Its process of adhesion is ongoing.

Legal System and Judicial Independence

Andorra has a mixed legal system of civil and customary law with the influence of canon law. The judiciary is independent from the executive branch. The Supreme Court consists of a court president and eight judges, organized into civil, criminal, and administrative chambers; four magistrates make up the Constitutional Court. The Tribunal of Judges and the Tribunal of the Courts are lower courts. Regulations and enforcement actions can be appealed in the national court system.

Laws and Regulations on Foreign Direct Investment

The Law on Foreign Investment (10/2012) entered into force in 2012, opening the country’s economy by removing the sectorial restrictions stipulated in the prior legislation. In this way, Andorra has positioned itself on equal terms with neighboring economies, enabling it to become more competitive for new sectors and enterprises.

ACTUA is responsible for economic promotion and provides relevant laws, rules, procedures, and reporting requirements to investors.

Competition and Anti-Trust Laws

The Law on Effective Competence and Consumer Protection (13/2013) protects investors against unfair practices. The Ministry of Economy is responsible for administering anti-trust laws and reviews transactions for competition-related concerns (whether domestic or international in nature).

Expropriation and Compensation

The Law of Expropriation (1993) allows the Government to expropriate private property for public purposes in accordance with international norms, including appropriate compensation. We know of no incidents of expropriation involving the U.S. entities in Andorra.

Dispute Settlement

Andorran legislation establishes mechanisms to resolve disputes if they arise and its judicial system is transparent. The Constitution guarantees an independent judiciary branch, overseen by a High Council of Justice. The prosecution system allows for successive appeals to higher courts. The European Court of Justice is the ultimate arbiter of unsettled appeals.

Andorra became a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards in September 2015, requiring Andorran courts to enforce financial awards. Andorra is not a member of the International Center for the Settlement of Investment Disputes (ICSID).

Parties to a dispute can also resolve disputes contractually through international arbitration. Contractual disputes between U.S. individuals or companies and Andorran entities are rare, but when they arise are handled appropriately. There have been no reported cases of U.S. investment disputes.

Bankruptcy Regulations

Andorra’s Bankruptcy decree dates to 1969. Other laws from 2008 and 2014 complement the initial text and further protect workers’ rights to fair salaries as well set up mechanisms to monitor the implementation of judicial resolutions. Additionally, Law 8/2015 outlines urgent measures allowing Government intervention of the banking sector in a crisis.

Investment Incentives

Andorra is known for its favorable tax regime, which investors exploit to promote tobacco, alcohol, jewelry, cosmetic, dairy products, among others. In recent years, Andorra reached agreements with neighboring countries to limit and regulate duty-free sales with a view towards promoting economic integration, though smuggling continues to be an issue. Andorra is a member of the European Customs Union and therefore has no tariffs on EU-manufactured goods.

ACTUA provides investment incentives based on their three key priorities:

• Economic diversification through the development of clusters oriented towards the fields of innovation; health and wellness; education and sport.
• Attracting direct foreign investors and supporting national companies throughout their internationalization process.
• Supporting entrepreneurs: promoting collaboration between the public and private sectors and giving support to the development of new business initiatives.

ACTUA provides grants for small and medium size companies to foster competitiveness and facilitate their internationalization. The ACTUA Tech Foundation was created in 2015, in collaboration with the Media Lab of the Massachusetts Institute of Technology, with the aim of employing Andorra’s unique economy as a “living lab” to promote innovation. Andorra, thanks to its size, recent liberalizing legislation, relative affluence, and its 8 million visitors per year offers ideal conditions to test this technology.

The Andorran Chamber of Commerce, Industry, and Services of Andorra (www.ccis.ad) is a public body that aims to promote and strengthen Andorra’s financial and business activity as well as supply services to foreign companies. The Chamber’s activities include the creation of a census of commercial, industrial and service activities; the protection of the general interests of commerce, industry, and services; promoting fair competition; and, issuing certificates of origin and other commercial documents.

The Andorran Business Confederation (CEA) provides support to national companies to navigate within the new legal, labor and fiscal national framework as well as it facilitates companies’ international projects. CEA also works to foster international investment into the country. With its Iwand project, it provides information about Andorra’s economic and fiscal environment, which makes the country attractive to business opportunities of all kinds (www.cea.ad ).

Foreign Trade Zones/Free Ports/Trade Facilitation

Although not a full member of the European Union (EU), Andorra, as a member of the European Customs Union, is subject to all EU free trade regulations and arrangements regarding industrial products. Moreover, the EU allows duty free importations of products acquired by visitors in Andorra in the framework of the franchises covered in the Customs Union Agreement (1990). Concerning agriculture, the EU allows duty free importation of products originating in Andorra. No free trade zones exist in the country.

Performance and Data Localization Requirements

All employees wishing to work in Andorra must have work permits, issued by annual quotas established by the Government.

Both domestic and foreign private entities have the right to establish and own business enterprises. While foreigners may now own 100 percent of a trading enterprise or a holding company, the Government must approve the establishment of any private enterprise. For a foreign resident, the process for obtaining permissions takes up to one month and is automatically approved if there are no objections. An application can be rejected if the proposal is found to threaten the environment, the public order, or the general interests of the principality. As soon as the foreign investor receives authorization to invest in the country, national laws are applicable just like any other national investor.

The Government does not follow a “forced localization” policy.

The Constitution guarantees the right to private ownership for citizens and residents. Both domestic and foreign private entities now have the right to establish and own business enterprises.

Real Property

Andorran law protects property rights with enforcement carried out at the administrative and judicial levels. Foreign investments for the purchase of property are possible in Andorra, subject to prior authorization. There is a four percent asset-transfer tax. Secured property loans are available through the Andorran banking sector. The Andorran Financial Authority (AFA) oversees mortgages.

Intellectual Property Rights

Andorra joined the World Intellectual Property Organization (WIPO) in 1994 and has been party to the Paris Convention, the Berne Convention, and the Rome Convention since 2004. Andorra continues to hold observer status at the World Trade Organization (WTO) since it has not yet updated its intellectual property rights (IPR) regime to be in compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Protection of IP rights in Andorra is weak. The legal framework includes: the Trademark Act of May 1, 1995, the Law 26/2014 on Patents, the Law on Authors’ Rights of June 1999, and Law 23/2011on the Creation of the Society of Collective Management of Copyright and Neighboring Rights.

In 2012, the Society for the Administration of Authors’ Rights (SDADV) was created to manage the economic rights, neighboring rights, and the interests of copyright holders. Right holders can choose whether to participate in this voluntary collective arrangement.

Businesses seeking to register a trademark should contact the Andorran Trademarks Office:

Trademarks Office of the Principality of Andorra
Ministry of Economy
Edifici Administratiu del Prat del Rull
Cami de la Grau s/n
AD 500 Andorra La Vella
Tel. (376) 875 600
Email: ompa@andorra.ad
http://www.ompa.ad/ 

Andorra is not listed in the U.S. Trade Representative (USTR) Special 301 Report, nor is it included in the Notorious Markets List.

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

Capital Markets and Portfolio Investment

The Andorran financial sector is efficient and is currently the main pillar of the Andorran economy, representing 21 percent of the country’s GDP and over 5 percent of the workforce. Created in 1989, and redefined with more responsibilities in 2003, the Andorran Financial Authority (AFA; www.afa.ad ) regulates all aspects of the integrated financial system and safeguards its stability. The AFA is a public entity with its own legal status, functionally independent from the Government. AFA has the power to carry out all necessary actions to ensure the correct development of its supervision and control functions, disciplinary and punitive powers, treasury and public debt management services, financial agency, international relations, advice, and studies.

The Andorran Financial Intelligence Unit (UIFAND) was created in 2000 as an independent organ to deal with the tasks of promoting and coordinating the prevention of money laundering and the financing of terrorism (www.uifand.ad ).

The State Agency for the Resolution of Banking Institutions (AREB); is a public-legal institution created by Law 8/2015 to take urgent measures to introduce mechanisms for the recovery and resolution of banking institutions (www.areb.ad ).

Money and Banking System

Andorra adopted the use of the Euro in 2002 and in 2011 signed a new Monetary Agreement with the European Union (EU) making the Euro the official currency. Since July 1, 2013, Andorra has had the right to coin Euros. No exchange or capital controls exist.

The Andorra banking system is sound and considered the most important part of the financial sector. The Andorran banks offer a variety of services at market rates. The country also has a sizeable and growing market for portfolio investments.

The U.S. Internal Revenue Service certified all the Andorran banks as qualified intermediaries.

Founded in 1960, the Association of Andorran Banks (ABA; www.aba.ad ) represents all Andorran banks. Among its tasks are representing and defending interests of its members, watching over the development and competitiveness of Andorran banking at national and international levels, improving sector technical standards, co-operation with public administrations, and promoting professional training, particularly dealing with money laundering prevention. At present, all five Andorran banking groups are ABA members, totaling an estimated 46 billion Euros in combined assets for 2017.

Foreign Exchange and Remittances

Andorra adopted the Euro in 2002 and in 2011 signed a new Monetary Agreement with the EU making the Euro the official currency. Since 2013, Andorra has the right to coin Euros. There are no limits or restrictions on remittances provided that they correspond to a company’s official earning records.

Sovereign Wealth Funds

Andorra has no Sovereign Wealth Fund (SWF).

Andorra has thirty-five state-owned enterprises (SOEs) associated with health, social services, and energy and telecommunication, which are generally allowed to compete with private, enterprises without restriction. The only exception is the government-owned Andorra Telecom, which has enjoyed a monopoly on the telecommunications industry since 2015.

The Andorran public sector is made up of the central Administration and seven local administrations, one for each of the country’s seven parishes. The public sector employs 11.6 percent of Andorra’s workforce, or approximately 4,377 employees.

Privatization Program

Andorra has no current plans to privatize any of its SOEs.

Local enterprises follow generally accepted accounting principles and the Government has taken some measures to promote responsible business conduct, including Law 35/2008, which establishes a protocol for acknowledging companies that excel in their human resource policies, especially regarding non-discrimination and equal opportunities for men and women.

Over the years, the Andorran banking sector has been consolidating its voluntary responsible business conduct practices, mainly through their foundations. Rather than focus on a due diligence approach to lower risks, as promoted by international guidelines such as the OECD Guidelines for Multinational Enterprises or UN Guidance on Business and Human Rights, the banking sector initiatives reaffirm their commitment to the country through ad hoc projects in a variety of areas like culture, sports, solidarity, education, and the environment.

Andorra’s laws penalize corruption, money laundering, drug trafficking, hostage taking, sale of illegal arms, prostitution, terrorism, as well as the financing of terrorism. Additional amendments were added in 2008, 2014, 2015, and 2016 to the Criminal Code and the Criminal Procedure Code that modify and introduce money laundering and terrorism financing provisions.

In 1994, Andorra joined the Council of Europe, an institution that oversees the defense of democracy, the rule of law, and human rights. That same year, the Justice Ministers of the Member States decided to fight corruption at the European level after considering that the phenomenon posed a serious threat to the stability of democratic institutions.

In early 2005, Andorra joined the Council of Europe’s Group of States against Corruption (GRECO) and, consequently, the fight against corruption. The Government has gradually built its internal regulations and relevant legal instruments and has undertaken numerous initiatives to improve the State’s response to reprehensible acts and conduct committed internally and internationally.

The Government created the Unit for the Prevention and the Fight against Corruption (UPLC) in 2008 to centralize and coordinate actions that might concern local administrations, national bodies, and entities with an international scope. UPLC is in charge of implementing the recommendations made by GRECO in the framework of periodic evaluation reports.

Andorra has not signed the UN Anticorruption Convention or the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

There are explicitly defined rules for the ethical behavior of all participating bodies within the Andorran financial system. The Andorran Financial Authority (AFAINAF) has also established rules regarding ethical behavior in the financial system.

The Andorran government modified and implemented new laws in order to comply with international corruption standards. The Andorran Financial Intelligence Unit (UIFAND) was created in 2000 as an independent body charged with mitigating money laundering and terrorist funding (www.uifand.ad ).

Resources to Report Corruption:

Unitat de Prevencio i Lluita contra la Corrupcio
Ministeri d’Afers Socials, Justicia i Interior
Govern d’Andorra
Ctra.de l’Obac s/n
AD700 Escaldes-Engordany
Phone: +376 875 700
Email: uplc_govern@govern.ad

Andorra has not experienced any politically motivated damage to projects or installations, or destruction of private property. There are no nascent insurrections, belligerent neighbors, or other politically motivated activities. The likelihood of widespread civil disturbances is very low. Civil unrest is generally not a problem in Andorra. No anti-American sentiment is evident in the country.

All employees wishing to work in Andorra must have work permits, issued by annual quotas established by the Government. The tourism sector is the largest labor sector.

The Constitution recognizes workers’ rights to form trade unions to defend their economic and social interests. However, the law does not provide for collective bargaining or the right to strike. Alternative dispute mechanisms such as mediation and arbitration do exist. Despite these rights, union membership is relatively low.

Andorra is not a member of the International Labor Organization (ILO).

There were a total of 42,550 employed workers in Andorra in March 2020 As a result of COVID-19 pandemic, the unemployment rates have exponentially increased with an increase of 45 percent in March. As of June 2020, the national minimum wage was 6,25euros (roughly USD 7) per hour and 1,083euros (roughly USD 1,212) per month.

Andorra does not participate in government risk insurance programs such as those offered by the U.S. International Development Finance Corporation or the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

MGT/POL Officer, Steve Bremner: BremnerSA@state.gov

POL/ECON Specialist, Eulalia d’Ortado; OrtadoE@state.gov

United States Consulate General Barcelona tel. (34) 93 280 22 27

Policies Towards Foreign Direct Investment

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

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

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

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Other Investment Policy Reviews

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

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

Business Facilitation

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

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

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

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

Outward Investment

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

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

Transparency of the Regulatory System

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

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

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

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

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

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

• The National Gas and Biofuels Agency (ANPG): The government regulatory and oversight body responsible for regulating oil exploration and production activities. On February 6, 2019, the parastatal oil company Sonangol launched the National Gas and Biofuels Agency (ANPG) through the Presidential decree 49/19 of February 6. The ANPG is the new national concessionaire of hydrocarbons in Angola, authorized to conduct, execute and ensure oil, gas and biofuel operations run smoothly, a role previously held by Sonangol. The ANPG must also ensure adherence to international standards and establish relationships with other international agencies and sector relevant organizations.

• The Regulatory Institute of Electricity and Water Services (IRSEA): The regulatory authority for renewable energies and enforcing powers of the electricity regulatory authority.

• The Angolan Communications Institute (INACOM): The institute sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have improved legal protection for investors to attract more private investment in electrical infrastructure, such as dams and hydro distribution stations.

• As of October 1, 2019, a 14 percent VAT regime came into force, replacing the existing 10 percent Consumption Tax. The General Tax Administration (AGT) is the office that oversees tax operations and ensures taxpayer compliance. The new VAT tax regime aims to boost domestic production and consumption, and reduce the incidence of compound tax created for businesses unable to recover consumption tax incurred. VAT may be reclaimed on purchases and imports made by taxpayers, making it neutral for business.

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

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

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

International Regulatory Considerations

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

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

Legal System and Judicial Independence

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

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

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

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

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

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

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

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust Laws

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

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

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

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

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

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

International Commercial Arbitration and Foreign Courts

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

Bankruptcy Regulations

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

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

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

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

Investment Incentives

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

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

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

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

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

Performance and Data Localization Requirements

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

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

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

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

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

Real Property

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

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

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

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

Intellectual Property Rights

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

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

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

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

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

Capital Markets and Portfolio Investment

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

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

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

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

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

Money and Banking System

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

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

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

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

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

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

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

• Transfer of personal funds from abroad;

• Application of cash and cash equivalents in national and foreign currency, in bank accounts opened in financial institutions domiciled in Angola, held by foreign exchange residents, susceptible to repatriation;

• Imports of machinery, equipment, accessories and other tangible fixed assets;

• Incorporation of technologies and knowledge, provided that they represent an added value to the investment and are susceptible to financial evaluation;

• Provision of supplementary capital payments or supplies to partners or shareholders;

• Application, in the national territory, of funds in the scope of reinvestment;

• Conversion of credits resulting from the execution of contracts for the supply of machinery, equipment and goods, as long as they are proven to be liable to payments abroad; and,

• Foreign investment in securities or divestment of such assets, covering: i) shares; ii) obligations; iii) units of participation in collective investment undertakings and other documents representing homogeneous legal situations.

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

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

• They must be holders of foreign exchange non-resident accounts, opened with a banking financial institution domiciled in Angola,

• For the purpose of receiving payments, including for the purchase of shares listed on the stock exchange, foreign currency must be sold to the investment banking intermediary financial institution, except in the case of purchase of securities denominated in foreign currency traded on a regulated market in Angola;

• Transfer income related to a foreign direct investment is only allowed after the project has been completed and after payment of the taxes due.

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

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

• Report to BNA the transfer of securities to and from abroad related to the import and export of capital and associated income, at the time of registration in the accounts of its clients who are not foreign exchange residents;

• Require full identification and knowledge of its customers, as well as confirmation of their status as non-resident foreign exchange;

• Transfer the financial resources designated for making investments to a specific sub-account created, that should be used only for that purpose;

• Ensure that movements in bank accounts held by foreign exchange non-residents, in national and foreign currency, are supported by documents that allow a clear identification of the origin or destination of the funds;

• For the purpose of assessing the legitimacy of transfers abroad of income from foreign direct investments not quoted on a stock exchange, make sure that the investment was made, through the copy of the Private Investment Registration Certificate (CRIP), among other requirements.

• For the purpose of validating the export proceeds from the sale of securities and related income, validate the source of the credit in the bank accounts of non-resident customers.

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

Remittance Policies

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

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

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

Sovereign Wealth Funds

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

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

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

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

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

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

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

Privatization Program

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

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

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

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

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

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

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

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

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

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

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

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

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

• The definition of “ultimate beneficial owner” was expanded to encompass, notably, all persons that hold, directly or indirectly, a controlling interest in a company, including the control of the share capital, voting rights or a significant influence in the company. There is no longer a minimum threshold to determine the existence of control;

• Identification and diligence duties are now applicable to occasional transactions executed via wire transfers in an amount of more than USD 1,000, in national or foreign currency;

• The scope of the duty to communicate suspicious transactions in cash or wire transfers has been amended and is now applicable to transactions between USD 5,000 and USD 15,000, depending on the underlying operation;

• Payment-service providers that control the ordering and reception of a wire transfer must consider the information received from the sender and the beneficiary to determine whether there is a communication duty;

• The Tax Authorities now have a duty to report suspicious cross-border payments.

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

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

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

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

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

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

Resources to Report Corruption

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table 4: Sources of Portfolio Investment
Data not available.

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

Policies Towards Foreign Direct Investment

The government of the RMI publicly expresses interest in finding ways to increase foreign investment, but there are many structural impediments to foreign investment and economic progress, such as land rights, which are unlikely to be changed in the foreseeable future.

Foreign investment is governed through the Foreign Investment Business License (Amendment Act (2000)), which established the Registrar of Foreign Investment and which details restrictions on foreign investments. The Ministry of Resources and Development, Trade and Investment Division administers the law in coordination with the Office of the Attorney General.

Land issues and disputes concerning leases are subject to customary law governing land tenure, and proceedings can take a protracted time to resolve.  Land cannot be purchased by investors; it can only be leased through customary practices.

Limits on Foreign Control and Right to Private Ownership and Establishment

Although the Marshall Islands generally encourages foreign investment, the Foreign Investment Business License (Amendment) Act established a National Reserved List, which restricts foreign investment in certain small-scale retail and service businesses. However, this law is not consistently enforced, and foreign investors may enter partnership agreements with local Marshallese businesses. Officially, foreign investment is prohibited in the following business ventures:

• Small scale agriculture and marine culture for local markets
• Bakeries and pastry shops
• Motor garages and fuel filling stations
• Land taxi operations, not including airport taxis used by hotels
• Rental of all types of motor vehicles
• Small retail shops with a quarterly turnover of less than USD 1,000 (including mobile retail shops and/or open-air vendors/take-outs)
• Laundromat and dry cleaning, other than service provided by hotels/motels
• Tailor/sewing shops
• Video rental
• Handicraft shops
• Delicatessens, Deli Shops, or Food take-out

Other Investment Policy Reviews

In the past three years the Government of the Marshall Islands has not conducted an investment policy review through any organization or institution.

Business Facilitation

The government of the Marshall Islands created the Office of Commerce and Investment and Tourism (OCIT) three years ago to assist foreign investors.  OCIT’s website at https://www.rmiocit.org/  has helpful information regarding investment and doing business in the Marshall Islands.  The OCIT is currently in the process of developing a one-stop-shop online business registration process which they hope to launch next year.    However, currently there is no online website for registering a business in the Marshall Islands.  This must be done in person.  After a foreign investor receives a FIBL, detailed in the Laws and Regulations on FDI, the business owner must complete the following steps:

• Check the uniqueness of the proposed company name with the Registrar of Corporations. This costs USD 100 and takes one day.
• Have the company charters notarized. Notarization can be done at the Office of the Attorney General.  It takes two days on average and costs USD 10.
• Register the company with the Registrar of Corporations. This takes five days and costs USD 250.  Limited Liability Companies need to file a Certificate of Formation and need to have LLC agreements detailing how the LLC will be operated, managed, and distributions divided.
• Obtain an Employer Identification Number from the Marshallese Social Security Administration. This number will also serve as the company’s tax identification number.  This process takes two days and costs USD 20.
• Apply for a business license. The business owner needs to submit a company charter along with the business license.  Business licenses are usually issued in seven days.  Licensing fees vary depending on the type of business.  Fees are as follows:
  • Retail Business: USD 150
  • Banks: USD 5,000
  • Professional: USD 3,000
  • Hotels: USD 500

The Ministry of Finance segments the business sector for tax purposes using annual gross revenue amounts, not number of employees.  There are no other segmentations recognized by the Marshall Islands.  There is a Small Business Development Center in Majuro.

Outward Investment

The RMI government does not actively promote, incentivize, or restrict outward investment.

The Marshall Islands does not have a bilateral investment treaty with any country.

Transparency of the Regulatory System

Regulatory and accounting systems are generally transparent and consistent with international norms. Bureaucratic procedures are generally transparent, although nepotism and customary hierarchal relationships can play a role in government actions. Proposed laws and regulations are available in draft form for public comment pursuant to the Administrative Procedures Act, Title 6 of the Marshall Islands Revised Code. Generally, tax, labor, environment, health and safety, and other laws and policies do not impede investment. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

International Regulatory Considerations

The Marshall Islands is a member of the Pacific Islands Forum (PIF) which has a model regulatory and policy framework focused on competition, access and pricing, fair trading, and consumer protections.  The RMI seeks to implement PIF-agreed standards domestically; however, the capacity for enforcement remains weak.

Legal System and Judicial Independence

The Republic of the Marshall Islands has a responsive judiciary that consistently upholds the sanctity of contracts. The legal system in the Marshall Islands is patterned on common law proceedings as they exist in the United States. The country has a judicial branch composed of a Supreme Court, a High Court, a Traditional Rights Court, District Courts, and Community Courts. The Supreme Court is made up of one Chief Justice and two Associate Justices.  The High Court consists of the Chief Justice and one Associate Justice. The Chief Justices are both U.S. Citizens serving 10-year terms.  There are also three Traditional Rights Court judges, two District Court judges, and several Community Court judges serving the Marshall Islands. On certain occasions, as necessary, the Marshall Islands Judicial Service Commission recruits qualified judges on contract from the United States to serve with the Chief Justice on the Supreme Court and to temporarily fill vacancies on the High Court as there are few qualified and independent Marshallese who can fill these positions.  The Traditional Rights Court deals with customary law and land disputes.

The Marshall Islands Courts are generally considered fair, without undue influence or interference.  Marshall Islands Court rulings, legal codes, and public law can be found on their website: http://www.rmicourts.org/ .

Laws and Regulations on Foreign Direct Investment

All non-citizens wishing to invest in the Marshall Islands must obtain a Foreign Investment Business License (FIBL). The FIBL is obtained from the Registrar of Foreign Investment in the office of the Attorney General. In coordination with the Investment Promotion Unit at the Ministry of Natural Resources and Commerce, the Ministry of Finance reviews the application and ensures that the business does not fall under the categories of the National Reserved List listed above. The application process usually takes 7-10 working days. The FIBL grants non-citizens the right to invest in the Marshall Islands, provided the investment remains within the scope of business activity for which the FIBL was granted.

The 2015 amendment to the Foreign Investment Business License Act requires all holders of FIBLs to maintain reliable and complete accounting records and records of ownership, and that all business records must be kept in such a way that they can be converted into written form at the request of an authorized inspector.  These records must be retained for a period of five years.

Competition and Anti-Trust Laws

The Marshall Islands does not currently have any anti-trust legislation or agency which reviews transactions for competition-related concerns.

Expropriation and Compensation

All land is privately owned by Marshallese citizens through complex family lineages. Although the Government of the Marshall Islands may legally expropriate property under the country’s constitution, the government has only exercised this right on one occasion and only for a temporary period of time. Given the importance of private land ownership in customary law and practice, it is very unlikely that the government will exercise this right in the foreseeable future.

If a business activity is subsequently added to the reserved List, the Registrar of Foreign Investment may not cancel or revoke an existing Foreign Investment Business License if the investment has already commenced.

Dispute Settlement

ICSID Convention and New York Convention

The Marshall Islands has been a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention) since 2006, but is not a member of the International Center for Settlement of Investment Disputes (ICSID), nor does it have plans to become a member at this time.

Investor-State Dispute Settlement

There are no ongoing investment disputes involving the Government of the Republic of the Marshall Islands and foreign investors.   There is a very limited record of foreign investment disputes in the Marshall Islands due to the small size of foreign investment in the country. The most common type of business disputes are with landowners over land use, and land rights issues, and as there is currently no official dispute resolution procedure, these are frequently resolved informally or only after protracted court disputes. Domestic civil society has traditionally not been actively engaged in dispute resolution.  The Marshall Islands Courts are generally considered fair, without undue influence or interference.  There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The Republic of the Marshall Islands does not have any alternative dispute resolution (ADR) mechanisms or domestic arbitration bodies available as a means for setting disputes between two private parties.  There is no known history of the RMI enforcing foreign commercial arbitral decisions.

Bankruptcy Regulations

There is no legal provision for bankruptcy in the Marshall Islands.  It ranks 153 out of 190 for resolving insolvency in World Bank’s 2020 Doing Business Report.

Investment Incentives

The Republic of the Marshall Islands offers a range of investment incentives, many of which can be found at https://www.rmiocit.org.

The Marshall Islands offers tax and duty exemptions for investments in certain private sector industries. These investment incentives apply uniformly to both domestic and foreign investors through submission of a letter to the Minister of Finance. Tax incentives are specified by law, but have been rarely awarded, given the relative lack of large-scale investment.

All imports are subject to import duties, and the only current duty exemptions are for renewable and alternative energy items. Import duties are generally low ad valorem rates on cost, insurance, and freight (CIF), and the number of tariff categories is small to facilitate administration. Goods in transit are exempt from the import tax, and the import tax on re-exported goods is refundable.  The Marshall Islands has no taxes on exports. Due to weak infrastructure and enforcement, tax and revenue continue to seep through the economy at a loss of about USD 60 million.

Under the terms of the Compact of Free Association, as amended, all items grown, made or produced in the Marshall Islands are exempt from U.S. duties with the following exceptions:

• Watches, clocks, and timing apparatus provided for in Chapter 91, excluding heading 9113, of the Harmonized Tariff Schedule of the United States;
• Buttons (whether finished or not finished) provided for in items 9606.21.40 and 9606.29.20 of such schedule;
• Textile and apparel articles which are subject to textile agreements; and
• Footwear, handbags, luggage, flat goods, work gloves, and leather wearing apparel which were not eligible for the generalized system of preferences in the Trade Act of 1974.

Tuna in airtight containers exported to the U.S. is duty-free, provided it does not exceed 10 percent of total U.S. tuna consumption during the previous calendar year. The Compact also stipulates that U.S. products imported to the Marshall Islands receive Most-Favorable Nation status, and the country must consult with the U.S. should they enter into a Free Trade Agreement with another country or customs territory.

Investors who invest a minimum of USD 1 million or provide employment and wages in excess of USD 150,000 annually to Marshallese citizens are exempt from paying gross revenue tax for a five-year period in the following sectors:

• Off-shore or deep-sea fishing
• Manufacturing for export, or for both export and local use
• Agriculture
• Hotel and resort facilities

Investors in seabed hard mineral mining are exempt from paying all taxes, duties, and other charges (except taxes on wages and salaries, individual income tax, and social security contributions). In return, investors are required to pay the Government of the Marshall Islands a share of net proceeds accruing from the investment in the form of royalties, production charge, or some combination thereof as agreed to between the government and investor.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no geographic foreign trade zones or free ports in the Marshall Islands.

Performance and Data Localization Requirements

The RMI government requires all investors employing non-resident workers to agree to:

• Cover the cost of repatriating non-resident workers to the place hired,
• Train one or more citizen workers to perform the work for which the non-resident worker is employed,
• Pay a levy of USD 0.25 per hour for every hour of work performed by non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise.

This requirement is set and evaluated on a case by case basis and is usually included as part of a whole package that also includes investment incentives such as favorable taxation statuses.

U.S. Citizens do not require a visa to enter the Marshall Islands, and may be employed in the Marshall Islands without obtaining a work permit or a visa.  They must register as an alien with the Department of Immigration on an annual basis.  Though use of local products is encouraged, the government does not follow “forced localization.”

The RMI does not currently have laws or regulations on domestic storage or localization requirements.

Real Property

Land rights are a highly complex and frequently contentious issue in the Marshall Islands. Land ownership is through family lineage and according to social class. Paramount Chiefs (Iroij) have title to entire islands or portions of islands within an atoll, clan elders (alaps) have title to several parcels of land under their Paramount Chiefs, and workers (dri-jerbal) have title to the parcel of land associated with their Paramount Chief on which they live. Each parcel of land is thus owned by at least three separate individual landowners, one each from the classes described above. Non-Marshallese may not purchase land, and land purchases by Marshallese are also very rare. Paramount Chiefs may grant land rights to others, though they retain their share of ownership in all circumstances.

Available land for development is scarce, particularly in the two major urban areas of Majuro and Ebeye. Non-citizen investors must negotiate lease agreements directly with customary groups of landowners. Land may be leased in perpetuity with many leases having a term of 50 years, and options for renewal.  The Kwajalein land lease to the U.S. Government runs fifty years (to 2066) with an option to renew for another twenty years, for example. Mortgages against the title of land are not permitted, but commercial lease agreements and land lease payments may be used as collateral. There is limited written documentation of titles to land in the Marshall Islands, although local citizens generally know who controls each parcel of land on their particular atoll. In 2003, the Government of the Marshall Islands established a Land Registration Authority to create a voluntary register of customary land and establish a legal framework for recording documents related to ownership rights.

In the World Bank’s Doing Business 2020 report, the Marshall Islands rank 187th out of 190 countries for registering property.

Intellectual Property Rights

The Marshall Islands is not a member of the World Trade Organization, the World Intellectual Property Organization (WIPO), or any other international agreement on intellectual property rights. There is inadequate protection for intellectual property, patents, copyrights, and trademarks. The only intellectual property-related legislation relates to locally produced music recordings, and it has never been enforced.  The Marshall Islands are not listed on the USTR’s Special 301 Report, nor are they listed in the notorious market report. Pirated DVDs and CDs imported from off-island are readily available.

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

Capital Markets and Portfolio Investment

There are no stock exchanges or financial regulatory institutions in the country.

Money and Banking System

There are currently two banks with branches in the Marshall Islands. The Bank of Guam is a publicly owned U.S. company with its headquarters in Guam. It complies with all U.S. regulations and is FDIC-insured. The Bank of the Marshall Islands is a privately-owned Marshallese company with headquarters in Majuro.

Foreign Exchange and Remittances

Foreign Exchange

The government does not impose any restrictions on converting or transferring funds associated with an investment. The Marshall Islands uses the U.S. dollar as its official currency, and there is no central bank. There are no official remittance policies and no restrictions on foreign exchange transactions. There have been no reported difficulties in obtaining foreign exchange as the vast majority of funds are denominated in U.S. dollars.

Remittance Policies

While the government encourages reinvestment of profits locally, there are no laws restricting repatriation of profits, dividends, or other investment capital acquired in the Marshall Islands. To comply with international money laundering commitments, cash transactions and transfers exceeding USD 10,000 are reported by the banks to the Banking Commission, which monitors this information and has the authority to investigate financial records when necessary. To date, however, the country has not successfully prosecuted any money laundering cases.

Sovereign Wealth Funds

The Marshall Islands has no sovereign wealth fund (SWF) or asset management bureau (AMB), but the Compact of Free Association established a Trust Fund for the Marshall Islands that is independently overseen by a committee composed of the United States, Taiwan, and Marshall Islands representatives.

Nearly all major industries are controlled by state-owned enterprises (SOEs). The SOE sector, comprising 11 public enterprises, continues to underperform and to impose significant risks and burden on the fiscal system and economy.  In the Republic of the Marshall Islands Single Audit for FY2019, the government recognized the need for continued reforms at SOEs.  Air Marshall Islands, Marshall Islands Resort, Marshall Islands National Communications Agency, and Tobolar all have negative cash flows and require subsidies each year.  The Marshall Islands Marine Resource Authority (MIMRA) is the only SOE to be a net revenue provider for the Marshall Islands, but the audit cautioned that the long-term future support from the fisheries sector cannot be taken for granted.  The Marshall Islands is not a member of the WTO.

In 2015 the Marshallese parliament passed the State-Owned Enterprises Act which set standards for the formation and operation of SOEs.  The Act changed the way the boards of directors of SOEs are structured, and set minimum reporting requirements for the 11 SOEs.  Boards must consist of at least three but no more than seven directors, only one of which can be a public official and that public official may not hold a term longer than three years after the Act goes into effect.  A public official may not be selected as Chairman of the Board.

All SOEs are required to have their books independently audited as part of the government’s overall audit.

Privatization Program

There is no formal privatization program in the RMI.  Currently, foreign investors are allowed to purchase shares only in the National Telecommunications Agency, but foreign investors may not own a majority of shares. Bidding criteria are not readily available, and the process remains largely controlled by the national government.

The Marshall Islands has some basic worker protection laws, including a minimum wage and protections for foreign workers.  With the exception of a few retail businesses, the banking sector, and the ship registry, there is little general awareness of corporate social responsibility or responsible business conduct among producers or consumers. Firms that pursue these objectives are viewed neither favorably nor unfavorably.

There are credible allegations and periodic prosecutions for misuse of government funds and abuse of public office for private gain. Government procurement and transfers appear most vulnerable to corruption, and personal relationships sometimes play a role in government decisions. Government officials at all levels are permitted to invest in and own private businesses without regard for conflict-of-interest considerations. Foreign aid has been abused and past audits report a number of financial irregularities connected to donor-funded activities. Bribery is a second-degree felony, whether to a domestic or foreign official.  The Marshall Islands acceded to the UN Convention against Corruption in September 2011.

Domestic and international firms as well as NGOs have repeatedly identified corruption as a problem in the business environment and a major detractor for international firms exploring investment or business activities in the local market.

Resources to Report Corruption

Richard Hickson
Attorney General
RMI Attorney General Office
PO Box 890
Majuro, Republic of the Marshall Islands 96960
RichardHicksonLawyer@gmail.com
Tel: +692 625 3244
Fax: +692 625 5218

No international, regional, or local watchdog organizations operate in the country.

There have been no reported incidents involving politically motivated damage to projects or installations.

The RMI workforce is estimated at 11,465 based on the 2019 economic summary, of which 45 percent work in the public sector. Results from the 2011 Marshall Islands census indicate the country has a 31 percent unemployment rate, and a significant portion of the population remains underemployed as well. Unemployment rates among youth and young adults could be as high as 50–60 percent.

Under the Compact of Free Association, Marshallese citizens are entitled to live, attend school, and work in the United States visa-free as “nonimmigrant residents.” Accordingly, many skilled and professional workers migrate to the U.S. for its higher wages and standards of living. Professional, medical, management, and other special labor skills are in high demand in the Marshall Islands.

Given the scarcity of resident qualified workers, the Marshall Islands allows investors to employ non-resident workers provided they agree to cover the cost of repatriation, that they hire and train at least one citizen to perform the same work, and pay a levy of USD 0.25 per hour for every hour of work performed by non-resident worker, to be paid to the Resident Workers Training Account for the purposes of training citizen workers, and repatriating non-resident workers should the need arise.  Non-citizen investors issued with a foreign investment business license are exempted from obtaining a work permit for themselves. Also, citizens of the United States, Federated States of Micronesia and Palau do not require work permits to work in the Marshall Islands. Investors and nationals of these countries, however, are required to register with the Labor Office. The RMI government may also issue investors work permit exemptions if investors can demonstrate that their investments will provide substantial economic benefits to the country. Such exemptions are limited to export-oriented investments. Applications for such exemptions should be submitted to the Chief of Labor.

Foreign workers are generally hired on a contract basis with opportunities for annual renewals.  The National Training Council provides training resources for Marshallese workers. While many consider the law discriminatory against foreign workers, employers are willing to pay the fee in order to hire skilled labor, which is not widely available in the country. Some companies, particularly in fisheries, seeking to expand business and hire additional workers are limited by other infrastructure constraints, such as the lack of available land, water, and power.

There are no laws that require employers to pay a severance package when an employee is released from service, either due to firing or lay-offs.  Arrangements for severance payments are generally made at the time of hire through terms in the hiring instrument.  There is no employment insurance or any other social safety net programs for unemployed individuals.

There is no legislation concerning collective bargaining or trade union organization. The country has a very limited history or culture of organized labor. The only union ever created in the country, the Teachers’ Union, was formed several years ago and is inactive. The Marshall Islands has been a member of the International Labor Organization (ILO) since 2007.

The U.S. International Development Finance Corporation (DFC) provides investment insurance, financing, and loan guarantees in the Marshall Islands for qualified investors. Because the Marshall Islands uses the U.S. dollar as its national currency, there are no convertibility risks. The Marshall Islands are not a member of the Multilateral Investment Guarantee Agency.

*Local GDP statistics from the Economic Policy, Planning and Statistics Office (EPPSO) serves as an economic advisor to the Government of the Republic of the Marshall Islands. It is responsible for Policy & Strategy Development, Statistics & Analysis, and Performance Monitoring, Evaluation & Aid Co-ordination. EPPSO is directly responsible to the Office of the President.

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

Table 4: Sources of Portfolio Investment
Data not available.

Dewey Moore
Political, Economic, and Consular Officer
U.S. Embassy Majuro; Republic of the Marshall Islands
Tel: +692-247-4011 Ext. 2350
MooreDE@state.gov
http://majuro.usembassy.gov/
http://www.facebook.com/usembassymajuro 

Policies Towards Foreign Direct Investment

The Government of Uzbekistan (“the government” or “the GOU”) has declared attracting foreign direct investments (FDI) one of its core policy priorities, acknowledging that greater private sector involvement is critical for economic growth and addressing social challenges caused by relatively high unemployment and poverty rates.  In 2019, the GOU launched a policy to improve the business environment through simplification of registration procedures for new businesses, combatting corruption, and increasing transparency.  To attract more foreign investors, the government simplified entry visa procedures and extended residence permits for foreigners.  The new Tax Code, which became effective on January 1, 2020, lowered corporate and individual income taxes by almost 50% and considerably simplified taxation procedures for private entrepreneurs.  President Mirziyoyev challenged all regional governments to improve the attractiveness of their territories to foreign investors and provide FDI progress reports on a quarterly basis.  He also created a Supreme Economic Council, envisioned as a platform for coordination of further economic reforms with international businesses, expert communities, and development banks.

The government has yet to address several fundamental problems plaguing businesses and investors, such as the domination of state-owned monopolies in key sectors of Uzbekistan’s economy, the lack of transparency in public procurements, its poor track record on enforcing public-private contracts, an underdeveloped and overregulated banking sector, poor protection of private property rights, and insufficient enforcement of intellectual property rights.  Uzbekistan’s 2020 Ease of Doing Business (DB) rank rose from 76^th to 69^th place and its DB Score indicator improved by 2.1 points to 69.9 (100 is the standard of excellence).

By law, foreign investors are welcome in all sectors of Uzbekistan’s economy and the government cannot discriminate against foreign investors based on nationality, place of residence, or country of origin.  However, government control of key sectors, including energy, telecommunications, transportation, and mining has discriminatory effects on foreign investors.  The government has demonstrated a continued desire to control capital flows in major industries, encouraging investments in a preapproved list of import-substituting and export-oriented projects, while investments in import-consuming projects can generally expect very little support.

The Ministry of Investments and Foreign Trade (https://mft.uz/en/, http://www.invest.gov.uz/en/) provide foreign investors with consulting services, information and analysis, business registration, and other legal assistance, as does the Chamber of Commerce and Industry of Uzbekistan (http://www.chamber.uz/en/index), on a contractual basis.

The GOU organizes and attends media events and joint government-business forums on a regular basis.  In June 2019, Uzbekistan hosted the first U.S. Department of Commerce Certified Trade Mission to Tashkent.  Supported by the American Chamber of Commerce in Uzbekistan, this event provided a valuable opportunity to meet and discuss business opportunities with senior GOU officials and Uzbekistan business counterparts for 35 representatives of 13 U.S. companies.  The Presidential Council of Foreign Investors was established in November 2019 as an enhanced platform of communication with foreign business and the expert community.  In May 2017, the Parliament established the “Institute of the Business Ombudsperson” to protect the rights and legitimate interests of businesses and provide them legal support.  In public forums, GOU officials continue to stress their interest in seeing new companies establish operations in Uzbekistan.

Limits on Foreign Control and Right to Private Ownership and Establishment

By law Uzbekistan guarantees the right of foreign and domestic private entities to establish and own business enterprises, and to engage in most forms of remunerative activity.  However, due to the prevalence in state-owned monopolies in several sectors, in reality the right to establish business enterprises has been limited in some sectors.  The GOU has started the process of reconsidering the role of large state-owned monopolies, especially in the transportation, banking, energy, and cotton sectors.  In 2017, President Mirziyoyev ended the monopoly of state-owned enterprise Uzpaxtasanoat to buy and sell raw cotton.  In January 2018, the GOU launched pilot projects for a new integrated value chain system in the industry to allow private investors to independently manage cotton cultivation, harvesting, processing, and exports.  In 2020, the GOU committed to eliminate the monopoly of state-owned carrier Uzbekistan Air in the air cargo, airport service, and domestic air transportation market.  The state still reserves the exclusive right to export some commodities, such as nonferrous metals and minerals.  In theory, private enterprises may freely establish, acquire, and dispose of equity interests in private businesses, but, in practice, this is difficult to do because Uzbekistan’s securities markets are still underdeveloped.

Private capital is not allowed in some industries and enterprises.  The Law on Denationalization and Privatization (adopted in 1991, last amended in 2019) lists state assets that cannot be sold off or otherwise privatized, including land with mineral and water resources, the air basin (atmospheric resources in the airspace over Uzbekistan), flora and fauna, cultural heritage sites and assets, state budget funds, foreign capital and gold reserves, state trust funds, the Central Bank, enterprises that facilitate monetary circulation, military and security-related assets and enterprises, firearm and ammunition producers, nuclear research and development enterprises, some specialized producers of drugs and toxic chemicals, emergency response entities, civil protection and mobilization facilities, public roads, and cemeteries.

Foreign ownership and control for airlines, railways, power generation, long-distance telecommunication networks, and other sectors deemed related to national security requires special GOU permission, but so far foreigners have not been welcomed in these sectors.  By law, foreign nationals cannot obtain a license or tax permit for individual entrepreneurship in Uzbekistan.  In practice, therefore, they cannot be self-employed, and must be employed by a legally recognized entity.

According to the law, local companies with at least 15 percent foreign ownership can qualify as having foreign capital.  The minimum fixed charter funding requirement for such companies is 400 million soum ($42,000 as of March 2020).  Some restrictions apply: foreign investment in media enterprises is limited to 30 percent; in finance, foreign investors may operate only as joint venture partners with Uzbekistani firms, and banks with foreign participation face minimum fixed charter funding requirements (100 billion soum for commercial and private banks, and ranging from 7.5 to 30 billion soum for insurance companies – equivalent to $10.5 million and $0.8-$3.1 million respectively), while the required size of charter funds for Uzbekistani firms is set on a case-by-case basis.

The government closely scrutinizes all foreign investment, with special emphasis on sectors of the economy that it considers strategic, such as mining, cotton processing, oil and gas refining, and transportation.  There is no standard, transparent screening mechanism, and some elements of Uzbekistan’s legal framework are expressly designed to protect domestic industries and limit competition from abroad.  The government also uses licensing as a tool to control enterprises in several important sectors such as energy, telecommunications, wholesale trading, and tourism.  There are no legislative restrictions that specifically disadvantage U.S. investors.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), and the United Nations Conference on Trade and Development (UNCTAD) have not conducted investment policy reviews of Uzbekistan in the past three years.

Business Facilitation

The GOU has declared that business facilitation and improvement of the business environment are among its top policy priorities.  Uzbekistan’s working-age population grew by about 200,000 people in 2019.  Therefore, the GOU prioritizes private businesses and joint ventures with the potential to create additional jobs and help the government address unemployment concerns.  The introduction of one-window and on-line registration practices and electronic reporting systems simplified and streamlined business registration procedures.  The GOU has created three special economic zones (Navoi, Jizzakh, and Angren) to attract more FDI.  New legislation has created additional tax incentives for private businesses and promised firms protection against unlawful actions by government authorities.

By legislation (effective from January 2018), foreign and domestic private investors can register their business in Uzbekistan using any Center of Government Services (CGS) facility, which operate as “Single Window” (SW) registration offices, or the Electronic Government (EG) website – https://my.gov.uz/en.  The registration procedure requires electronic submission of an application, company name or trademark, and foundation documents.  The SW/EG service will register the company with the Ministry of Justice, Tax Committee, local administration, and other relevant government agencies.  The registration fee is equivalent to one base calculation value (BCV) (223,000 soum ($24) as of March 2020) for local investors and 10 BCV (2,230,000 soum ($234) as of March 2020) for foreign investors.  Applicants receive a 50 percent discount for using the EG website.  The new system has reduced the length of the registration process from several weeks to 30 minutes.

Depending on the extent of foreign participation, a business can be defined as an “enterprise with foreign capital” (EFC) if less than 15 percent foreign-owned, or as an “enterprise with foreign investment” (EFI) if more than 15 percent foreign-owned and holding a minimum charter capital of 400 million soum ($42,000 as of March 2020).  Foreign companies may also maintain a physical presence in Uzbekistan as “permanent establishments” without registering as separate legal entities, other than with the tax authorities.  A permanent establishment may have its own bank account.

The World Bank ranked Uzbekistan as eighth in the world for the “Starting a Business” indicator in its 2020 Doing Business report.

Outward Investment

In general, the GOU does not promote or incentivize outward investments.  There is no official institution or agency that promotes outward investment from Uzbekistan.  Some state-owned enterprises invest in development of their marketing networks abroad as part of efforts to boost export sales.  Private companies that operate primarily in the retail, construction, and textile sectors use outward investments for market outreach, to access foreign financial resources, for trade facilitation, and, in some cases, for expatriation of capital.  The most popular destinations for outward investments are Russia, China, Kazakhstan, Singapore, UAE, and Germany.

There are no formal restrictions on outward investments.  However, financial transactions with some foreign jurisdictions (such as Afghanistan, Iran, Syria, Libya, and Yemen) and offshore tax havens can be subject to additional screening by the authorities.

Uzbekistan has signed bilateral investment agreements with 53 countries, though the 1994 agreement signed with the United States has not been ratified, and those with several other countries, including Turkey, Bahrain, Belarus, and South Korea, have not yet entered into force.  In 2004, Uzbekistan and Russia signed a Strategic Framework Agreement that also includes free trade and investment concessions.  Uzbekistan has signed bilateral free trade agreements with 11 CIS countries (Russia, Belarus, Ukraine, Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan and Tajikistan).  In 2005, the government signed an alliance agreement with Russia as a follow on to the 2004 Strategic Framework Agreement, which provides for economic cooperation, and Uzbekistan and Ukraine agreed in 2004 to remove all bilateral trade barriers.  Uzbekistan joined the CIS Free Trade Zone Agreement in 2014.  In December 2015, the GOU officially announced that Uzbekistan would not join the Free Trade Zone within the Shanghai Cooperation Organization (SCO).  See UNCTAD’s database for more details:  http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu

Since its independence in 1991, Uzbekistan has signed double taxation agreements with 55 countries, of which three have not yet entered into force.  The U.S. Internal Revenue Service (https://www.irs.gov/businesses/international-businesses/uzbekistan-tax-treaty-documents) considers Uzbekistan to be one of the former Soviet republics now covered by a taxation treaty with the Commonwealth of Independent States (CIS), as the successor to the dual taxation treaty signed between the United States and the Union of Soviet Socialist Republics (USSR) (signed in 1973 and entered into force in 1976).  However, the Government of Uzbekistan argues that this agreement cannot be considered in effect and has proposed signing a new double taxation treaty.  Uzbekistan officially presented a draft of a new dual taxation treaty to the U.S. government in December 2017.  In 2015, Uzbekistan and the United States signed the Intergovernmental Agreement to Improve International Tax Compliance with respect to the United States Information Reporting Provisions, commonly known as the Foreign Account Tax Compliance Act (FATCA).  The FATCA agreement entered into force in July 2017.

Reform of the taxation system, which for many years had been considered discouragingly burdensome and inadequate, was among the most desired reforms by the new administration.  President Mirziyoyev first announced tax reform initiatives in 2016, and active discussions on their parameters started in 2017.  The new Tax Code went into effect on January 1, 2020.  The tax reform has led to a notable decrease of the tax burden to businesses and simplification of tax reporting.  Key changes included: the eight percent social security contributions and all mandatory payments to various state funds were abolished; corporate and individual income taxes were reduced from a progressive rate of up to 24% to a single flat rate of 12%; the income tax rate on dividends was reduced from 10% to 5%; the VAT tax rate also decreased from 20 to 15%; and 13 forms of tax inspections were consolidated into two.

Transparency of the Regulatory System

Uzbekistan has a substantial body of laws and regulations aimed at protecting the business and investment community.  Primary legislation regulating competition includes the 2012 Law on Competition (last updated in 2018), the Law on Guarantees of the Freedoms of Entrepreneurial Activity, the 2003 Law on Private Enterprise (last updated in 2018), the 2019 Law on Investments and Investment Activities and a body of decrees, resolutions and instructions.  In late 2016, the GOU publicly recognized the need to improve and streamline business and investment legislation, which is still perceived as complicated, often contradictory, and not fully consistent with international norms.  In some cases, the government may require businesses to comply with decrees or instructions that are not publicly available.  To avoid problems with tax and regulatory measures, foreign investors often secure government benefits through Cabinet of Ministers decrees, which are approved directly by the president.  These, however, have proven to be easily revocable.

For additional information, please review the World Bank’s Regulatory Governance assessment on Uzbekistan: https://rulemaking.worldbank.org/en/data/explorecountries/uzbekistan

Practices that appear as informal regulatory processes are not associated with nongovernmental organizations or private sector associations, but rather with influential local politicians or well-connected local elites.

Most rule-making and regulatory authority exists on the national level.  Businesses in some regions and special economic zones can be regulated differently, but relevant legislation must be adopted by the central government and then regulated by national-level authorities.

Only a few local legal, regulatory, and accounting systems are transparent and fully consistent with international norms.  Although the GOU has started to unify local accounting rules with international standards, local practices are still document- and tax-driven, with an underdeveloped concept of accruals.

In late 2016, President Mirziyoyev ordered publication of some draft legislation for public comment, including draft decrees on the government’s development strategies, tax and customs regulation, and legislation to create new economic zones.  Public review of the legislation is achieved through the website https://regulation.gov.uz.  Prior to 2016, publishing drafts of laws and regulations for public review was uncommon.

The GOU publishes presidential decrees and government decisions online.  Drafts of some legislation are published on a government website (https://regulation.gov.uz) for public consideration and comments.  Uzbekistan’s legislation digest (http://www.lex.uz/) serves as a centralized online location for current legislation in effect.  As of now, there is no centralized nor comprehensive online location for Uzbekistan’s legislation, similar to the Federal Register in the United States, where all key regulatory actions or their summaries are published.  There are other online legislative resources with executive summaries and comments that could be useful for businesses and investors, including http://www.norma.uz/ and http://www.minjust.uz/ru/law/newlaw/.

Formally, the Ministry of Justice and the Prosecutor’s Office of Uzbekistan are responsible for oversight to ensure that government agencies follow administrative processes.  In some cases, however, local officials have inconsistently interpreted laws, often in a manner detrimental to private investors and the business community at large.

GOU officials have publicly suggested that improvement of the regulatory system is critical for the overall business climate.  Presidential Decree UP-5690 “On Measures for the Comprehensive Improvement of the System of Support and Protection of Entrepreneurial Activity,” adopted in March 2019, set enforcement mechanisms for effective protection of private businesses, including foreign investors.  The Law on Investments and Investment Activities, adopted in December 2019, guarantees free transfer of funds to and from the country without any restrictions.  This law also guarantees protection of investments from nationalization.  The GOU has implemented several additional reforms in recent years, including the currency exchange liberalization, tax reform, simplification of business registration and foreign trade procedures, and establishment of the business Ombudsperson.

The government’s development strategies include a range of targets for upcoming reforms, such as ensuring reliable protection of private property rights; further removal of barriers and limitations for private entrepreneurship and small business; creation of a favorable business environment; suppression of unlawful interference of government bodies in the activities of businesses; improvement of the investment climate; decentralization and democratization of the public administration system; and expansion of public-private partnerships.

Previously implemented regulatory system reforms often left room for interpretation and were, accordingly, enforced subjectively.  New and updated legislation continues to leave room for interpretation and contains unclear definitions.  In many cases, private businesses still face difficulties associated with enforcement and interpretation of the legislation.  More information on Uzbekistan’s regulatory system can be reviewed at the World Bank’s Global Indicators of Regulatory Governance (http://rulemaking.worldbank.org/data/explorecountries/uzbekistan).

The scope of business-related regulations in Uzbekistan includes many laws, decrees, resolutions, rules, specific guidelines, and instructions.  Usually, regulations and rules are developed by relevant government agencies and are approved by the president or relevant ministers, as appropriate.  Public laws are subject to parliamentary approval.

The Ministry of Justice and the system of Economic Courts are formally responsible for regulatory enforcement, while the Institute of Business Ombudsperson was established in May 2017 to protect the rights and legitimate interests of businesses and render legal support.  The state body responsible for enforcement proceedings is the Bureau of Mandatory Enforcement under the General Prosecutor’s Office.  Several GOU policy papers call for expanding the role of civil society, non-governmental organizations, and local communities in regulatory oversight and enforcement.  The government also publishes drafts of business-related legislation for public comments, which are publicly available.  However, the development of a new regulatory system, including enforcement mechanisms outlined in various GOU reform and development roadmaps, has yet to be completed.

Multiple research centers and think tanks are involved in the development and review of regulations.  The process includes experts from government agencies and state-owned enterprises, as well as research centers funded by the government and international organizations like UNDP.  However, except under rare circumstances, the results of the experts’ scientific studies or analysis on the impact of regulations are not made publicly available.  In 2017, the GOU created a specialized Development Strategy Center as an NGO.  Its projects involve a number of local organizations, including the Independent Civil Society Monitoring Institute, the Legislation Monitoring Institute, the Chamber of Commerce and Industry, the Chamber of Advocates, the Academy of Public Administration, the National Association of Electronic Media, and the National Association of NGOs.  The Center is intended to consolidate efforts of these institutes to facilitate expert and public discussions on reforms outlined in the GOU’s development strategies.  In February 2019, the president ordered the creation of a new “National System of Monitoring and Evaluation of the Position of the Republic of Uzbekistan in International Ratings.” This initiative will consolidate efforts of specific scientific institutions and think tanks in the area of regulatory reforms.  Public review of the legislation is available through the website https://regulation.gov.uz. 

Uzbekistan’s fiscal transparency still does not meet generally accepted international standards, although the government demonstrated notable progress in this area in 2019.  A Presidential Resolution, dated August 22, 2018, called for transparency of public finances and wider involvement of citizens in the budgetary process.  One positive step was the publication of the detailed state budget proposals for fiscal years (FY) 2018, FY2019, and FY 2020 within the framework of Budget for Citizens project.  In August and September 2019, the GOU introduced amendments to the Budget Code mandating the publication of the conclusions of the Accounts Chamber of the Republic of Uzbekistan, which are based on the results of an external audit and evaluation of annual reports on the implementation of the state budget and the budgets of state trust funds.  In accordance with the law, the Ministry of Finance now posts state budget related reports on its Open Budget website: https://openbudget.uz.  Recent legislation also contains measures to harmonize budget accounting with international standards, provides for international assessment of budget documents through the Public Expenditure and Financial Accountability (PEFA) process, and submitting the budget for an Open Budget Survey ranking.  In 2019, the GOU officially requested the U.S. Government’s technical assistance to improve fiscal accountability and transparency, initiating an assistance program that will begin in 2020.

Under the December 2019 Law on the State Budget, starting in 2020, all government agencies, state trust funds, and the Reconstruction and Development Fund of Uzbekistan (FRDU) shall publish quarterly reports on: distribution of budget funds by subordinate budget organizations; financial statements; implementation of budget funded projects; and all major public procurements.  Such reports must be published within 25 days after the end of the reporting quarter.  In addition, the government will use https://openbudget.uz/ to ensure transparency of state budget funds directed to the Investment Program of Uzbekistan, tax and customs benefits provided to the taxpayers, measures to control and combat financial violations, and spending of above-forecasted budget incomes.

Despite this progress, the government is still not releasing complete information on its off-budget accounts or on its oversight of those accounts, publishing only some generalized parameters at https://www.mf.uz/en/deyatelnost/deyatelnost-ii/mestnyj-byudzhet.html.  In FY2019, the GOU’s budget implementation reports were less itemized than in previous years.

International Regulatory Considerations

Uzbekistan is not currently a member of the WTO or any existing economic blocs although it is pursuing WTO accession and its parliament has approved observer status in the Eurasian Economic Union.  No regional or other international regulatory systems, norms, or standards have been directly incorporated or cited in Uzbekistan’s regulatory system – although GOU officials often claim the government’s regulatory system incorporates international best practices.  Uzbekistan joined the CIS Free Trade Zone Agreement in 2013, but that does not constitute an economic bloc with supranational trade tariff regulation requirements.

Legal System and Judicial Independence

Uzbekistan’s contemporary legal system belongs to the civil law family. The hierarchy of Uzbekistan’s laws descends from the Constitution of the Republic of Uzbekistan, constitutional laws, codes, ordinary laws, decrees of the president, resolutions of the Cabinet of Ministers, and normative acts, in that order.  Contracts are enforced under the Civil Code, the Law “About the Contractual Legal Base of Activities of Business Entities” (No.  670-I, issued August 29, 1998, and last revised in 2018), and several other decrees and resolutions.

Uzbekistan’s contractual law is established by the Law “About the Contractual Legal Base of Activities of Business Entities.”  It establishes the legal basis for the conclusion, execution, change, and termination of economic agreements, the rights and obligations of business entities, and also the competence of relevant public authorities and state bodies in the field of contractual relations.  Economic disputes, including intellectual property claims, can be heard in the lower-level Economic Court and appealed to the Supreme Court of the Republic of Uzbekistan.  Economic court judges are appointed for five-year terms.  This judicial branch also includes regional, district, town, city, Tashkent city (a special administrative territory) courts, and arbitration courts.

On paper, the judicial system in Uzbekistan is independent, but government interference and corruption are common.  Government officials, attorneys, and judges often interpret legislation inconsistently and in conflict with each other’s interpretations.  In recent years, for example, many lower level court rulings have been in favor of local governments and companies which failed to compensate plaintiffs for the full market value of expropriated and demolished private property, as required under the law.

Court decisions or enforcement actions are appealable though a process that can be initiated in accordance with the Economic Procedural Code and other applicable laws of Uzbekistan, and can be adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

Several laws, presidential decrees, and government resolutions relate to foreign investors.  The main laws are:

• Law on Investments and Investment Activities (ZRU-598, December 25, 2019)
• Law on Guarantees of the Freedoms of Entrepreneurial Activity (ZRU-328, 2012)
• Law on Special Economic Zones (ZRU-604, February 17, 2020)
• Law on Production Sharing Agreements (№ 312-II, 2001)
• Law on Concessions (№ 110-I, 1995)
• Law on Investment and Share Funds (ZRU-392, 2015)

The GOU adopted several new laws, presidential decrees, and government resolutions related to foreign investments in 2019.  These include:

• Law on Currency Regulation (ZRU-573, October 22, 2019). The law liberalized currency operations, current cross-border transactions, and capital movement transactions.

• Law on Investments and Investment Activities (ZRU-598, December 25, 2019). The law replaces several laws on investments adopted in the 1990s and provides more rights to foreign investors.  Among other things, it guarantees free transfer of funds in foreign currency to and from Uzbekistan without any restrictions, including currency conversion for repatriation.  Foreign investors are granted the right to terminate investment activities and to freely repatriate assets.  The law guarantees protection of foreign investors’ assets from nationalization.

• Law on Amendments to the Tax Code of the Republic of Uzbekistan (ZRU-599, December 30, 2019). This law introduces the new Tax Code, which provides a significant decrease of the tax rate and simplifies tax reporting for all businesses.

• Law on Special Economic Zones (ZRU-604, February 17, 2020). The law will enter into force in May 2020.  It will streamline and simplify rules and regulations that apply to businesses registered in previously created specialized economic and industrial zones.

• Decree on the State Program for the Implementation of the Action Strategy on Five Priority Development Areas in the Year of Science, Education and Digital Economy (March 2, 2020).

• Decree on Improvement of Investments and Foreign Trade Governance through Establishment of the Ministry of Investments and Foreign Trade of the Republic of Uzbekistan (UP-5643, January 28, 2019). This law consolidated the functions of the State Investments Committee of the Republic of Uzbekistan and the Ministry of Foreign Trade into a newly formed ministry.

• Decree on Measures to Improve Uzbekistan’s position in International Ratings and Indexes (UP-5687, March 7, 2019).

As of now, there is no real “one-stop-shop” website for investors that provides relevant laws, rules, procedures, and reporting requirements in Uzbekistan.  In December 2018, the GOU created a specialized web portal for investors called Invest Uz (http://invest.gov.uz/en/), which provides some useful information.  The website of the Ministry of Investments and Foreign Trade (http://mift.uz/) offers some general information on laws and procedures, but mainly in the Uzbek and Russian languages.

Competition and Anti-Trust Laws

Competition and anti-trust legislation in Uzbekistan is governed by the Law on Competition (ZRU-319, issued January 6, 2012, and last revised in 2019).  The main entity that reviews transactions for competition-related concerns is the State Antimonopoly Committee (established in January 2019).  This government agency is responsible for advancing competition, controlling the activities of natural monopolies, protecting consumer rights and regulating the advertisement market.  There were no significant competition-related cases involving foreign investors in 2019.

Expropriation and Compensation

Private property is protected against baseless expropriation by legislation, including the Law on Investments and Investment Activities and the Law on Guarantees of the Freedoms of Entrepreneurial Activity.  Despite these protections, however, the government potentially may seize foreign investors’ assets due to violations of the law or for arbitrary reasons, such as a unilateral revision of an investment agreement, a reapportionment of the equity shares in an existing joint venture with an SOE, or in support of a public works or social improvement project (similar to an eminent domain taking).  By law, the government is obligated to provide fair market compensation for seized property, but many who have lost property allege the compensation has been significantly below fair market value.

Uzbekistan has a history of expropriations.  Profitable, high-profile foreign businesses have been at greater risk for expropriation, but smaller companies are also vulnerable.  Under the previous administration, large companies with foreign capital in the food processing, mining, retail, and telecommunications sectors faced expropriation.  In cases where the property of foreign investors is expropriated for arbitrary reasons, the law obligates the government to provide fair compensation in a transferable currency.  However, in most cases the private property was expropriated based upon court decisions after the owners were convicted for breach of contract, failure to complete investment commitments, or other violations, making them ineligible to claim compensation.

Decisions of Uzbekistan’s Economic Court on expropriation of private property can be appealed to the Supreme Court of the Republic of Uzbekistan in accordance with the Economic Procedural Code or other applicable local law.  Reviews usually are quite slow.  Some foreign investors have characterized the process as unpredictable, non-transparent, and lacking due process.

Dispute Settlement

ICSID Convention and New York Convention

Uzbekistan is a member of the International Center for the Settlement of Investment Disputes (ICSID) and a signatory to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).

In November 2006, the Constitutional Court of Uzbekistan issued its ruling that a provision of Uzbekistan law providing for international arbitration does not constitute Uzbekistan’s consent to have any particular dispute settled through international arbitration.  ICSID arbitration does not stipulate the consent of the involved parties to have their dispute settled at the international level.  In practice, this means that Uzbekistan’s courts do not recognize foreign businesses’ attempts to submit their disputes to international arbitration absent a separate consent to such arbitration, such as a bilateral investment treaty.

Investor-State Dispute Settlement

Dispute settlement methods are regulated by the Economic Procedural Code, the Law on Arbitration Courts, and the Law on Contractual Basics of Activities of Commercial Enterprises.  The Law on Guarantees to Foreign Investors and Protection of their Rights requires that involved parties settle foreign investment disputes using the methods they define themselves, generally in terms predefined in an investment agreement.  Investors are entitled to use any international dispute settlement mechanism specified in their contracts and agreements with local partners, and these agreements should define the methods of settlement.

The Law on Guarantees to Foreign Investors and Protection of their Rights permits resolution of investment disputes in line with the rules and procedures of the international treaties to which Uzbekistan is a signatory, including the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1992 CIS Agreement on Procedure for Settling Disputes Arising Out of Business Activity, and other bilateral legal assistance agreements with individual countries.  Currently there is no such bilateral treaty that covers U.S. citizens.

If the parties fail to specify an international mechanism, Uzbekistan’s economic courts can settle commercial disputes arising between local and foreign businesses.  The economic courts have subordinate regional and city courts.  Complainants may seek recognition and enforcement of foreign arbitral awards pursuant to the New York Convention through the economic courts.  When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling.

Currently Uzbekistan does not have a ratified Bilateral Investment Treaty (BIT) or a Free Trade Agreement (FTA) with an investment chapter with the United States.  The governments of the United States and Uzbekistan signed a BIT in 1994, but ratification documents have not been exchanged and the agreement never entered into force.

Post is aware of a number of previous cases of commercial or investment disputes involving foreign investors.  These have included asset seizures, expropriations, or liquidations; lengthy forced production stoppages; and pressure to sell off foreign shares in joint ventures.  These cases have involved a variety of sectors, including food production, mining, telecommunications, and agriculture.  Although government actions in such cases have been taken under the guise of law enforcement, some observers have claimed more arbitrary or extralegal motives were at play.

However, since President Mirziyoyev came to power, investment disputes have been more limited in scope, but still exist.  Foreign investors should have no reasonable expectation that the government will honor an international arbitration verdict.  The Constitutional Court of Uzbekistan ruled in 2006 that the written consent of all parties involved is required to recognize an international decision.

Although in many cases investor-state disputes in Uzbekistan were associated with immediate asset freezes, almost all of them were followed by formal legal proceedings.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution institutions of Uzbekistan include arbitration courts (also known as Third-Party Courts), and specialized arbitration commissions.  Businesses and individuals can apply to arbitration courts only if they have a relevant dispute-settlement clause in their contract or a separate arbitration agreement.  The Civil Procedural Code and the Commercial Procedural Code also have provisions that regulate arbitration.  The Law on International Commercial Arbitration, drafted in late 2018, has yet to be approved by Uzbekistan’s Parliament.

The main domestic arbitration body is the Arbitration Court.  General provisions of the Law on Arbitration Courts are based on principles of the UNCITRAL model law, but with some national specifics – namely that Uzbekistani arbitration courts cannot make reference to non-Uzbekistani laws.  According to the Law, parties of a dispute can choose their own arbiter and the arbiter in turn choses a chair.  The decisions of these courts are binding.  The Law says that executive or legislative bodies, as well as other state agencies, are barred from creating arbitration courts and cannot be a party to arbitration proceedings.  Either party to the dispute can appeal the verdict of the Arbitration Court to the general court system within thirty days of the verdict.  Separate arbitration courts are also available for civil cases, and their decisions can be appealed in the general court system.  Arbitration courts do not review cases involving administrative and labor/employment disputes.

The Tashkent International Arbitration Center (TIAC) under the Chamber of Commerce and Industry of Uzbekistan was created in late 2019 as a non-governmental non-profit organization.  The main function of this organization is to facilitate dispute resolution for businesses, including foreign investors.  The Center may employ qualified arbitration lawyers, both local and foreign.  The Center has the right to resolve disputes through mediation or other alternative methods permitted by the law.

Foreign arbitral awards or other acts issued by a foreign country can be recognized and enforced only if Uzbekistan has a relevant bilateral or multilateral agreement with that country.  If international arbitration is permitted, awards can be challenged in domestic courts.  However, local economic courts do not currently have a solid mechanism for enforcement of foreign courts’ decisions.

Most investment disputes involving Uzbekistan’s state-owned enterprises (SOEs) reviewed by domestic courts have been settled out of court and have not reached a verdict, or have been decided in favor of the SOEs.  When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling.  In some cases, the Ministry’s authority is limited and co-opted by other elements within the government.  Judgments against SOEs have proven particularly difficult to enforce.

Bankruptcy Regulations

The Law on Bankruptcy regulates bankruptcy procedures.  Creditors can participate in liquidation or reorganization of a debtor only in the form of a creditor’s committee.  According to the Law on Bankruptcy and the Labor Code, an enterprise may claim exemption from paying property and land taxes, as well as fines and penalties for back taxes and other mandatory payments, for the entire period of the liquidation proceedings.  Monetary judgments are usually made in local currency.  Bankruptcy itself is not criminalized, but in August 2013, the GOU introduced new legislation on false bankruptcy, non-disclosure of bankruptcy, and premeditated bankruptcy cases.  In its 2020 Doing Business report, the World Bank ranked Uzbekistan 100 out of 190 for the “Resolving Insolvency” indicator ( https://www.doingbusiness.org/en/data/exploreeconomies/uzbekistan).

Investment Incentives

All investment incentives to foreign investors are regulated by national level legislation, which can be adopted only by the president.  Regional and local governments have limited authorities to offer any additional preferences.  Exceptions can be made for tax incentives granted by special government resolutions or presidential decrees.  By the new Tax Code, the GOU may provide holidays for land taxes, property taxes and water use taxes to some companies with foreign direct investments on a case-by-case basis.

Foreign Trade Zones/Free Ports/Trade Facilitation

The first law on free economic zones in Uzbekistan appeared in 1996.  After dozens of modifications, on December 2019 it was replaced by the Law on Special Economic Zones (SEZ) (ZRU-604), which will enter into force May 19, 2020.  The law provides the following classification of special economic zones:

• Free Economic Zone (FEZ) – territory allocated for the construction of new high-tech, competitive, import-substituting, and export-oriented industrial production capacities, and for development of industrial, engineering, telecommunications, road, and social infrastructure, as well as appropriate logistics services.

• Special Scientific and Technological Zone – territory allocated for the development of innovation infrastructure by scientific and science-related organizations, including technology parks, technology distribution/transfer centers, innovation clusters, venture funds, and business incubators.

• Tourist-Recreational Zone – territory allocated for tourism infrastructure development investment projects, including construction of hotels, cultural and recreational facilities, and functional and seasonal recreation areas.

• Free Trade Zones – territories for consignment warehouses, areas of special customs and tax regimes, facilities at border crossing points for processing, packing, sorting, storing goods, airports, railway stations or other custom control sites.

• Special Industrial Zone – territory with special economic and financial regulations of production and logistical business activities.

According to the new Law of SEZ (Article 39) and the Tax Code (Article 473), investors to special economic zones of Uzbekistan may expect:

• Holidays for paying property taxes, land taxes and taxes for the use of water resources. The term of the holiday shall be determined by a separate presidential resolution depending on the size of investments.  Such tax holidays can be applied only to business activities stipulated in the relevant investment agreement with administration of a special economic zone.  Participants of special economic zones also may get some VAT exemptions and other tax benefits.

• Exemption from paying customs payments (except for value added tax and customs clearance fees) for construction materials that cannot be sourced locally; technological equipment that cannot be sourced locally, raw materials, materials and components used to produce export-oriented output.

The first Free Industrial and Economic Zone (FIEZ) was created in 2008 in the Navoi region.  By the end of 2019, there were eight free industrial zones and 49 small industrial zones operating in different regions of the country.  According to official statistics, 108 investment projects have been implemented in these zones, creating 83,000 new jobs.

Performance and Data Localization Requirements

There are several restrictions and quantitative limitations on employment of foreign nationals in Uzbekistan.  The chief accountants in banking and auditing companies must be Uzbekistani nationals.  The law also requires that either the CEO or one member of a board of directors be a citizen of Uzbekistan.  In the tourism sector, only Uzbekistani nationals can be professional tour guides.  All foreign citizens, except those from certain countries of the former Soviet Union, need visas to work in Uzbekistan and all individuals must register their residences with authorities.  Legislation permits foreign investors and specialists to obtain multiple entry visas for the period of their contract.  To apply for a work visa, American citizens must submit documents regarding their company to an Uzbekistani embassy or consulate.  American investors have complained in the past about the short validity of visas and the limited number of entries, though we understand that practice is changing, and investors can specifically request multiple entry/longer term visas.

Foreign workers must also register with the Ministry of Employment and Labor Relations.  The Agency on Foreign Labor Migration under the Ministry of Employment and Labor Relations is responsible for enforcing limits on employment of foreign nationals in various industries.  For example, the number of foreign nationals in energy companies that operate in the country under Production Sharing Agreement terms cannot exceed 20 percent of the total number of employees, and additional foreign personnel can be hired only if there is no qualified local labor.

Formally, permission from the government is not required to invest in Uzbekistan except for investments in the special economic zones and businesses that are subject to licensing.  At the same time, the GOU’s economic policy still maintains an intense focus on import substitution and export-oriented industrialization.  Investors in non-priority sectors can expect less support in importing capital and consumer products than those in priority industries.

Uzbekistan’s legislation stipulates that the government must apply requirements to use domestic inputs in manufacturing uniformly to enterprises with domestic and foreign investments, but in practice, this is not always the case.  There are no requirements for using only local sources of financing.  The government welcomes foreign investors mainly in the areas of localization, building local production capacities, and developing export potential.

To qualify as an enterprise or business with foreign investment and be eligible for tax and other incentives, the share of foreign investment must be at least 15 percent of the charter capital of a company.  The investment must consist of hard currency or new equipment, delivered within one year of registering the enterprise.  The minimum requirements for charter capital for incentives (except financial institutions) is 400 million soum ($43,000 as of March 2020).

Tax incentives for foreign investment are essentially the same as for local enterprises participating in an investment, localization, or modernization program.  Enterprises with significant investment in priority sectors or registered in one of free economic or special industrial zones can expect additional benefits.

On February 20, 2020, the GOU announced its plan to require localization of personal data storage, in line with the Law on Personal Data (ZRU-547), adopted July 2, 2019.  Per the law, large internet companies like Facebook, Google, and Russian search engine Yandex are encouraged to move their server equipment with local users’ personal data to the territory of Uzbekistan.  According to the law, the GOU may block services in the country in the event of non-compliance.

Legislation does not require transfer of technology or proprietary information; such transfers are negotiated between the foreign investor and its local partner.

Real Property

Property ownership is governed by the Law on Protection of Private Property and Guarantees of the Owner’s Rights.  Uzbekistani and foreign entities may own or lease buildings, but not the underlying land.  Mortgages are available for local individuals only, but not for legal entities.  There are no mortgage lien securities in Uzbekistan.

The new Law on Privatization of Non-agricultural Land Plots (ZRU-522, August 13, 2019) allows private land ownership for plots that do not fall under the definition of agricultural land by the Land Code of Uzbekistan.  Land ownership is granted only to entities and individuals who are residents of Uzbekistan.  Foreign citizens and entities do not have land property rights in Uzbekistan.  Effective March 1, 2020, Uzbekistan residents can privatize:

• Land plots of entities, on which their buildings, structures and industrial infrastructure facilities are located, as well as the land extensions necessary for their business activities;

• Land plots provided to citizens for individual housing construction and maintenance;

• Unoccupied land plots;

• Land plots allocated to the Urban Development Fund under the Ministry of Economy and Industry.

The following types of land cannot be privatized:

• Land plots located in territories that are not covered by officially documented layout plans.

• Land plots that contain mineral deposits or state property of strategic importance. The list of such land plots shall be specified by appropriate legislation.

• Land plots reserved for environmental, recreational, and historical-cultural purposes, state owned land and water resources, and public areas of cities and towns (e.g. squares, streets, roads, boulevards).

• Land plots affected by hazardous substances or susceptible to biogenic contamination.

• Land plots provided to residents of special economic zones.

The World Bank ranked Uzbekistan 72nd in the world in the Registering Property category of its 2020 Doing Business Report.  More details can be reviewed here: https://www.doingbusiness.org/en/data/exploreeconomies/uzbekistan#DB_rp

Land privatization is a new concept for Uzbekistan.  All agricultural land in Uzbekistan is still owned by the state.  As of March 1, 2020, a new law on privatization allows for the privatization of non-agricultural land plots.

Legislation governing the acquisition and disposition of immoveable property (buildings and facilities) poses relatively few problems for foreign investors and is similar to laws in other CIS countries.  Immoveable property ownership is generally respected by local and central authorities.  District governments have departments responsible for managing commercial real estate issues, ranging from valuations to sale and purchase of immoveable property.  Legally purchased but unoccupied immoveable property can be nationalized for several reasons, including by an enforcement process of a court decision, seizure for past due debts on utility or communal services, debts for property taxes, and, in some cases, for security considerations.  Unauthorized takeover of unoccupied immoveable property by other private owners (squatters) is not a common practice in Uzbekistan.  Usually, authorities inspect the legitimacy of immoveable property ownership at least once every year.

Intellectual Property Rights

While the concept of registering intellectual property (IP) is still new to Uzbekistan, the GOU recognizes intellectual property rights (IPR) protections as critical to its economic goals.  As Uzbekistan prepares for accession to the World Trade Organization (WTO), its leaders have demonstrated a significant political shift towards improved IPR protections.  In 2018 and 2019, Uzbekistan completed accession to the Geneva Phonograms Convention and two WIPO Internet Treaties.  Responsibility for IPR issues lies with the formerly independent Uzbekistan Agency for Intellectual Property (AIP), which was subsumed under the Ministry of Justice (MOJ) (IPA, http://www.ima.uz/) in February 2019.

Uzbekistan’s Customs Code (which came into force on April 22, 2016) allows rights holders to control the importation of intellectual property goods.  The Code introduced a special Customs Record procedure, which is based on a database of legal producers and their distributors.  Uzbekistan also introduced several amendments to IPR law as well as amendments to civil and criminal codes meant to enforce stricter punishment for IPR violations.

Uzbekistan’s patent protections are generally sufficient, but enforcement remains one of the biggest IP challenges.  Foreign companies face obstacles proving IP violations and receiving compensation for losses sustained due to violations.  IP violators are rarely obligated to cease infringing activities or pay meaningful penalties.  AIP lacks any kind of enforcement power, as does the MOJ.  Enforcement is weak across different kinds of IP.  Copyright cases are almost never brought before the Antimonopoly Committee (the body responsible for responding to IP complaints) because companies makes the decision that the cost of fighting copyright violations outweighs the benefits.  Trademark cases often take years to settle in the courts, driving up costs and consuming time and resources.  For companies who cannot meet the demands of a multiyear court battle it becomes cost prohibitive to pursue action to protect their IP.

While Uzbekistan took important steps in 2018 to address longstanding issues pertaining to IPR, there remain serious deficiencies in trademark and copyright protections, judicial processes related to IPR, and enforcement of actions against IPR violations and violators.

On December 26, 2018, President Mirziyoyev signed a bill into law for Uzbekistan to accede to the Geneva Phonograms Convention.  The GOU forwarded signed copies of the law to WIPO and the UN, thus completing the formal ratification of these conventions.  Later, on February 16, 2019, the President approved adoption of two bills into the law for Uzbekistan to accede to the WIPO Copyright Treaty and the WIPO Performance and Phonograms Treaty (“Internet Treaties”).  The GOU is working on amendments to national legislation to bring it in line with the requirements of the IPR Treaties.  These measures represent the necessary short-term actions for Uzbekistan to maintain its benefits under the U.S. Generalized System of Preferences (GSP).  The full list of IPR-related international agreements/treaties that Uzbekistan has acceded to is available here: https://wipolex.wipo.int/en/legislation/profile/UZ.

In April 2018, the GOU provided greater authority to a new Inspectorate under the Ministry of Information Technologies and Communications to monitor compliance and enforce copyright protections on the internet.  The GOU is also establishing a system of licensing for companies that sell software legally, in order to stem the flow of pirated software to the marketplace, as described in GOU Resolution #72 of 2012 (https://www.lex.uz/acts/1982899).

There are no publicly available reports on seizures of counterfeit goods in 2019.  According to AIP officials, Uzbekistan law enforcement agencies recorded over 130 cases of illegal selling of audiovisual records and software copies.  In Tashkent, authorities seized 287 DVDs and CDs and documented 31 violation cases.  Under current Uzbekistani law, the court considers copyright infringement cases only after the copyright holder submits a claim of damages.  Similarly, for imported products, customs officials do not have an ex-officio function, and the onus is on the rights holder to initiate an action against a suspected infringer.  The Prosecutor General’s Office (PGO) has the authority to both penalize violators and order them to desist from producing, marketing, or selling infringing goods, but few cases ever make it to the PGO.  The burden of proving an IP violation is so high that most cases never leave the Antimonopoly Committee or the administrative court system.  While these cases are stalled in the court system, infringing companies may continue to operate without restrictions.

Uzbekistan has been on the Watch List of the United States Trade Representative’s (USTR) Special 301 Report since 2000.  The political will to improve IPR protection seems to exist at the highest levels of the government, but effective enforcement policies are still not in place.  Although Uzbekistan has taken some important first steps to address concerns raised in previous USTR’s reports, the country will have to demonstrate measurable and sustained progress before removal from the Special 301 Watch List.  Uzbekistan is not included in the USTR Notorious Markets List.

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

Capital Markets and Portfolio Investment

Prior to 2017, the government focused on investors capable of providing technology transfers and employment in local industries, and had not prioritized attraction of portfolio investments.  In 2017, the GOU announced its plans to improve the capital market and use stock market instruments to meet its economic development goals.  The government created a new Agency for the Development of Capital Markets (CMDA) in January 2019 as the institution responsible for development and regulation of the securities market and protection of the rights and legitimate interests of investors in securities market.  CMDA is currently implementing a capital markets development strategy for 2020-2025.  According to CMDA officials, the goal of the strategy is to make the national capital market big enough to attract not only institutional investors, but to become a key driver of domestic wealth creation.  The U.S. Government is supporting this strategy through a technical assistance program led by the Department of the Treasury.

Uzbekistan has its own stock market, which supports trades through the Republican Stock Exchange “Tashkent,” Uzbekistan’s main securities trading platform and only corporate securities exchange (https://www.uzse.uz).  The stock exchange mainly hosts equity and secondary market transactions with shares of state-owned enterprises.  In most cases, government agencies determine who can buy and sell shares and at what prices, and it is often impossible to locate accurate financial reports for traded companies.

The GOU is continuing to liberalize banking sector regulations to facilitate free flows of financial resources into the market.  The law adopted on March 20, 2019 (ZRU-531) has considerably simplified repatriation of capital invested in Uzbekistan’s industrial assets, securities and stock market profits.  According to the new rules, foreign investors that have resident entities in Uzbekistan can convert their dividends and other incomes to foreign currencies and transfer them to their accounts in foreign banks.  Non-resident entities that buy and sell shares of local companies can open bank accounts in Uzbekistan to accumulate their revenues.

Uzbekistan formally accepted IMF Article VIII in October 2003, but due to excessive protectionist measures of the government, businesses had limited access to foreign currency, which stimulated the grey economy and the creation of multiple exchange rate systems.  Effective September 5, 2017, the GOU eliminated the difference between the artificially low official rate and the black-market exchange rate and allowed unlimited non-cash foreign exchange transactions for businesses.  The Law on Currency Regulation (ZRU-573), which fully liberalized currency operations, current cross-border and capital movement transactions, received final approved on October 22, 2019.

Under the law, foreign investors and private sector businesses can have access to various credit instruments on the local market, but the still-overregulated financial system yields unreliable credit terms.  Access to foreign banks is limited and is usually only granted through their joint ventures with local banks.  Commercial banks, to a limited degree, can use credit lines from international financial institutions to finance small and medium sized businesses.

Money and Banking System

As of March 2020, 30 commercial banks operate in Uzbekistan.  Five commercial banks are state-owned, thirteen banks are registered as joint-stock financial organizations (eight of which are partly state-owned), six banks have foreign capital, and six banks are private.  Commercial banks have 854 branches and about 1,100 retail offices throughout the country.  State-owned banks hold 87% of banking sector capital and 84% of banking sector assets, leaving privately owned banks as relatively small niche players.  The nonbanking sector is represented by 56 microcredit organizations and 61 pawn shops.

According to assessments of international rating agencies, including Fitch and Moody’s, the banking sector of Uzbekistan is stable and poses limited near-term risks, primarily due to high concentration and domination of the public sector, which controls over 80% of assets in the banking system.  The average rate of capital adequacy within the system is 23.4%, and the current liquidity rate is 98.1%.  The growing volume of state-led investments in the economy supports the stability of larger commercial banks, which often operate as agents of the government in implementing its development strategy.  Privately owned commercial banks are relatively small niche players.  The government and the Central Bank of Uzbekistan (CBU) still closely monitor commercial banks.

Official information on non-performing assets is not publicly available.  According to the IMF’s 2019 Article IV Consultation report, the share of nonperforming loans out of total gross loans is about 1.3-1.4%.  A majority of Uzbekistan’s commercial banks have earned “stable” ratings from international rating agencies.

In February 2020, the banking sector’s capitalization was about $5.5 billion, and the value of total bank assets in the whole country was equivalent to $28.9 billion.  The three largest state-owned banks – the National Bank of Uzbekistan, Asaka Bank, and Uzpromstroybank – hold 50% of the banking sector’s capital ($2.7 billion) and 49.1% of the assets ($14.4 billion).

Uzbekistan maintains a central bank system.  The Central Bank of Uzbekistan (CBU) is the state issuing and reserve bank and central monetary authority.  The bank is accountable to the Supreme Council of Uzbekistan and is independent of the executive bodies (the bank’s organization chart is available here: http://www.cbu.uz/en/).

In general, any banking activity in Uzbekistan is subject to licensing and regulation by the Central Bank of Uzbekistan.  Foreign banks often feel pressured to establish joint ventures with local financial institutions.  Currently there are six small banks with foreign capital operating in the market, and six foreign banks have accredited representative offices in Uzbekistan, but do not provide direct services to local businesses and individuals.  Information about the status of Uzbekistan’s correspondent banking relationships is not publicly available.

Foreigners and foreign investors can establish bank accounts in local banks without restrictions.  They also have access to local credit, although the terms and interest rates do not represent a competitive or realistic source of financing.

Foreign Exchange and Remittances

Foreign Exchange

Uzbekistan adopted Article VIII of the IMF’s Articles of Agreement in October 2003, but full implementation of its obligations under this article began only in September 2017.  In accordance with new legislation (ZRU 531 of March 2019 and ZRU-573 of October 2019), all businesses, including foreign investors, are guaranteed the ability to convert their dividends and other incomes in local currencies to foreign currencies and transfer to foreign bank accounts for current cross-border, dividend payments, or capital repatriation transactions without limitations, provided they have paid all taxes and other financial obligations in compliance with local legislation.  Uzbekistan authorities may stop the repatriation of a foreign investor’s funds in cases of insolvency and bankruptcy, criminal acts by the foreign investor, or when so directed by arbitration or a court decision.

The exchange rate is determined by the CBU, which insists that it is based on free market forces (9,514 soum per U.S dollar as of March 3, 2020).  After the almost 50% devaluation of the national currency in September 2017, the exchange rate has been relatively stable, supported by strong FX reserves ($29.4 billion by February 1, 2020).  The CBU reported it had made $3.6 billion interventions in 2019 in the forex market to support the local currency.

Remittance Policies

President Mirziyoyev launched foreign exchange liberalization reform on September 2017 by issuing a decree “On Priority Measures for Liberalization of Monetary Policy.”  The Law on Currency Regulation (ZRU-573), adopted on October 22, 2019, has liberalized currency exchange operations, current cross-border, and capital movement transactions.  Business entities can purchase foreign currency in commercial banks without restrictions for current international transactions, including import of goods, works and services, repatriation of profits, repayment of loans, payment of travel expenses and other transfers of a non-trade nature.

Banking regulations mandate that the currency conversion process should take no longer than one week.  In 2019 businesses reported that they observed no delays with conversion and remittance of their investment returns, including dividends; return on investment, interest and principal on private foreign debt; lease payments; royalties; and management fees.

Sovereign Wealth Funds

The Fund for Reconstruction and Development of Uzbekistan (UFRD) serves as a sovereign wealth fund.  Uzbekistan’s Cabinet of Ministers, Ministry of Finance, and the five largest state-owned banks were instrumental in establishing the UFRD, and all those institutions have membership on its Board of Directors.

The fund does not follow the voluntary code of good practices known as the Santiago Principles, and Uzbekistan does not participate in the IMF-hosted International Working Group on sovereign wealth funds.  The GOU established the UFRD in 2006, using it to sterilize and accumulate foreign exchange revenues, but officially the goal of the UFRD is to provide government-guaranteed loans and equity investments to strategic sectors of the domestic economy.

The UFRD does not invest, but instead provides debt financing to SOEs for modernization and technical upgrade projects in sectors that are strategically important for Uzbekistan’s economy.  All UFRD loans require government approval.

State-owned enterprises (SOEs) dominate those sectors of the economy recognized by the government as being of national strategic interest.  These include energy (power generation and transmission, and oil and gas refining, transportation and distribution), metallurgy, mining (ferrous and non-ferrous metals and uranium), telecommunications (fixed telephony and data transmission), machinery (the automotive industry, locomotive and aircraft production and repair), and transportation (airlines and railways).  Most SOEs register as joint-stock companies, and a minority share in these companies usually belongs to employees or private enterprises.  Although SOEs have independent boards of directors, they must consult with the government before making significant business decisions.

The government owns majority or blocking minority shares in numerous non-state entities, ensuring substantial control over their operations, as it retains the authority to regulate and control the activities and transactions of any company in which it owns shares.  The Agency for Management of State-owned Assets is responsible for management of Uzbekistan’s state-owned assets, both those located in the country and abroad.  There are no publicly available statistics with the exact number of wholly and majority state-owned enterprises, the number of people employed, or their contribution to the GDP.  According to some official reports and fragmented statistics, there are over 3,500 SOEs in Uzbekistan, including 27 large enterprises and holding companies, about 2,900 unitary enterprises, and 486 joint stock companies, which employ about 1.5-1.7 million people, or about 13% of all domestically employed population.  Their share in the GDP was about 45% in 2019.

The published list of major Uzbekistani SOEs is available on the official GOU website (listing large companies and banks only): http://www.gov.uz/en/pages/government_sites.

In theory, private sector or foreign companies can be more competitive than local SOEs in sectors that are not under the control of state-owned monopolies, but regulations make them dependent on government SOEs.

By law, SOEs are obligated to operate under the same tax and regulatory environment as private businesses.  In practice, however, private enterprises do not enjoy the same terms and conditions.  A May 2019 IMF Staff Report mentioned that SOEs absorbed disproportionate shares of skilled labor, energy, and financial resources, while facing weak competition enforcement and enjoying a wealth of investment preferences.  The government leverages licensing and access to some commodities and utilities to protect quasi-governmental institutions and companies from commercial competition.  Private businesses face more than the usual number of bureaucratic hurdles if they compete with the government or a government-controlled firm.  Most SOEs have a range of advantages, including various tax holidays, as well as better access to commodities, energy and utility supplies, local and external markets, and financing.

On December 28, 2018, President Mirziyoyev ordered the GOU to develop a plan to restructure its SOEs.  He noted that strong involvement of the state in the fuel and energy, petrochemical, chemical, transport, and banking sectors was hampering their development.  The Agency for

Management of State Assets was ordered to implement a program on strengthening SOE corporate governance.  In February 2020, the GOU proposed an SOE reform roadmap, which is expected to be approved on May 1, 2020.  The reform will cover 13 large SOEs in the telecommunications, transportation, construction, food processing, automotive, machinery, wheat, cotton and chemical industries, as well as movie-making enterprises.  The government plans to optimize the structure of these enterprises to increase their efficiency.  Per the roadmap, 781 low-performing assets of these SOEs will be offered for privatization.  It is expected that a broader scale optimization reform will also cover the largest SOEs, which control the mining/base metal sectors of the economy.  The relevant draft of the decree has been published for public review.  Implementation of this SOE optimization and reform program will likely take some time, as the GOU seeks to avoid high social costs, such as mass unemployment.

Privatization Program

GOU policy papers indicate it is prioritizing further privatization of state-owned assets.  The GOU’s goal is to reduce the public share of capital in the banking sector and business entities through greater attraction of foreign direct investments, local private investments, and promotion of public-private partnerships.  By law, privatization of non-strategic assets does not require government approval and can be cleared by local officials.  Foreign investors are allowed to participate in privatization programs.  For investors that privatize assets at preferential terms, the payment period is three years, and the investment commitment fulfillment term is five years.  According to official reports, 842 state owned enterprises and facilities were privatized in 2019.  Privatization earnings of the state budget were equivalent to $54.3 million.

In May 2018, the Mirziyoyev administration first announced upcoming restructuring and privatization in various industries but noted that SOEs in extractive industries (energy, hydrocarbons and gold) would stay under state ownership.  On February 26, 2020, a draft of SOE privatization plan was posted by the State Assets Management Agency for public review.  The plan includes privatization of 1,115 enterprises, and public-private-partnerships in 42 enterprises.  Companies that operate critical infrastructure and enterprises that qualify as companies of strategic importance will remain in full state ownership.  The GOU timeline calls for this privatization program to be approved in May 2020 and implemented by 2025.

Senior government officials see privatization as a solution to improve the economic performance of inefficient large SOEs and as an instrument to attract private investments, primarily through public-private-partnership agreements.  They view such investments as critical for the creation of new jobs and mitigation of state budget deficits.  The GOU believes it needs to prepare SOEs for privatization, including modernization of equipment and organizational and financial restructuring of each underperforming industry.  Therefore, large scale privatization may be a long way off.

Privatization programs officially have a public bidding process, but it is often confusing, discriminatory, and non-transparent.  Large privatization deals with the involvement of foreign investment require GOU approval.  Formally, such approval can be issued after examination by the Contracts Detailed Due Diligence Center under the Ministry of Economy.  Many investors note a lack of transparency at the final stage of the bidding process, when the government negotiates directly with bidders before announcing the results.  In some cases, the bidders have been foreign-registered front companies associated with influential Uzbekistani families.

There is no legislation on responsible business conduct (RBC) in Uzbekistan, and the concept has not been widely adopted, though many companies are active in charitable and corporate social responsibility activities, either through their own initiative or because they were mandated by local government officials.

Relevant government agencies and departments inspect both newly registering and operating local businesses and enterprises for enforcement of the Labor Code in respect to labor and employment rights; the Law on Protection of Consumer’s Rights for consumer protections; and the Law on Protection of Nature for environmental protections.  Labor or environmental laws and regulations are not waived for enterprises with private and foreign investments.

Legislation, including the Law on Joint-Stock Companies and Protection of Shareholder’s Rights, issued in 1996 and last updated in 2018, sets a range of standards to protect the interests of minority shareholders.

The Law on the Securities Market requires businesses that issue securities (except government securities) to publish annual reports, which should include a summary of business activities for the previous year, financial statements with a copy of an independent audit, and material facts on the activities of the issuer during the corresponding period.

There are no independent NGOs, investment funds, worker organizations/unions, or business associations promoting or monitoring RBC in Uzbekistan.

At present, Uzbekistan does not adhere to the OECD guidelines regarding responsible supply chains of minerals from conflict-afflicted and high-risk areas, and there has been no substantial evidence to suggest the government encourages foreign and local businesses to follow generally accepted CSR principles such as the OECD Guidelines for Multinational Enterprises.  Uzbekistan does not participate in the Extractive Industries Transparency Initiative (EITI).

Uzbekistan’s legislation and Criminal Code both prohibit corruption.  President Mirziyoyev has declared combatting widespread corruption one of his top priorities.  On January 3, 2017, he approved the law “On Combating Corruption.” The law is intended to raise the efficiency of anti-corruption measures through the consolidation of efforts of government bodies and civil society in preventing and combating cases of corruption, attempted corruption, and conflict of interest, ensuring punishment for such crimes.  On May 27, 2019, Presidential Decree UP-5729 launched the State Anti-Corruption Program for 2019-2021 and created the Interagency Commission for Combating Corruption.  The program is focused on strengthening the independence of the judiciary system, developing a fair and transparent public service system requiring civil servants to declare their incomes and establishing mechanisms to prevent conflicts of interest, facilitating civil society and media participation in combating corruption, and other measures.

Formally, the anti-corruption legislation extends to all government officials, their family members, and members of all political parties of the country.  However, Uzbekistan has not yet introduced asset declaration requirements for government officials or their family members, although legislation with such a requirement was drafted in October 2019 and is expected to be enforced from January 2020 onwards.  Currently, the Prosecutor General’s Office of Uzbekistan (PGO) is the main government arm tasked with fighting corruption.  Since Mirziyoyev took office in September 2016, the government has prosecuted a number of officials under anti-corruption laws, and punishment has varied from a fine to imprisonment with confiscation of property.  According to official statistics, 1,200 corruption-related crimes were registered in 2018 and 1,071 in 2019.

The process of awarding GOU contracts continues to lack transparency.  According to a presidential decree issued on January 10, 2019, all government procurements must now go through a clearance process within the Ministry of Economy.  Procurement contracts involving public funds or performed by state enterprises with values of over $100,000 need additional clearances from other relevant government agencies.

The law “On Combating Corruption” prescribes a range of measures for preventing corruption, including through raising public awareness and introduction of transparent rules for public-private interactions.  The law, however, does not specifically encourage companies to establish relevant internal codes of conduct.

Currently only a few local companies created by or with foreign investors have effective internal ethics programs.

Uzbekistan is a member of the OECD Anti-Corruption Network (ACN) for Eastern Europe and Central Asia.  One of the latest OECD reports on anti-corruption reforms in Uzbekistan (March 21, 2019) says that, although Uzbekistan has already undertaken a number of key anti-corruption reforms, the GOU now needs to systematize its anti-corruption policy by making it strategic in nature.  Uzbekistan is ranked 153 out of 180 rated countries in Transparency International’s 2019 Corruption Perceptions Index.

There are very few officially registered local NGOs available to investigate corruption cases and Embassy Tashkent is not aware of any genuine NGOs that are presently involved in investigating corruption.  The law “On Combating Corruption” encourages more active involvement of NGOs and civil society in investigation and prevention of crimes related with corruption.

U.S. businesses have cited corruption and lack of transparency in bureaucratic processes, including public procurements and licensing, as among the main obstacles to foreign direct investment in Uzbekistan.

Resources to Report Corruption

The government agencies that are responsible for combating corruption are the Prosecutor General’s Office and the Ministry of Justice.  Currently, no international or local nongovernmental watchdog organizations have permission to monitor corruption in Uzbekistan.

Contact information for the office of Uzbekistan’s Prosecutor General:

Address: 66, Akademik Gulyamov St., 100047, Tashkent, Uzbekistan
Website: www.prokuratura.uz
Hotline telephone numbers: +998(71) 1007, 232-4391, 232-4550,

Contact information for the office of Uzbekistan’s Ministry of Justice:

Address: 5, Sayilgoh Street, 100047, Tashkent, Uzbekistan
Website: http://www.minjust.uz/en/, http://www.minjust.uz/ru/anticorruption/feedback/
Hotline telephone numbers: +998(71) 1008, 233-2610, 233-1305, 236-0509
E-mail: info@minjust.gov.uz

Uzbekistan does not have a history of politically motivated violence or civil disturbance.  There have not been any examples of damage to projects or installations over the past ten years.  Uzbekistani authorities maintain a high level of alert and aggressive security measures to thwart terrorist attacks. The environment in Uzbekistan is not growing increasingly politicized or insecure.

During 2019, the population of Uzbekistan increased by 650,300 people (2%) to 33,905,800.  According to publicly available statistics, 30.5% of the population is under 16 years old; 58.9% is working age (16-60); and 10.6% are 60 years old and older.  The Ministry of Employment and Labor Relations of Uzbekistan (MOL) reports indicate that the total number of labor resources in 2019 was about 19 million people (0.9% increase year-on-year).  13.54 million of them were considered employed (2% increase year-on-year), wherein 5.7 million people were employed officially, while remaining 7.8 million were considered as self-employed.  The latter includes, among others, 5.37 million self-employed people and unregistered traders (the informal economy workforce), and about 2 million labor migrants.  The share of non-agricultural workforce is about 73%.  The official number of unemployed is 1.33 million people, or 9% of the total labor resource pool.  The level of youth unemployment is 15%, and the level of female unemployment is 12.8%.  Note: The accuracy of given statistics is based on records of the residents’ registration offices and studies conducted by the MOL.  It does not always reflect the actual situation in the country.  The next national census in Uzbekistan is expected in 2022, while the last one was in 1989.  End note.

With the closure or downsizing of many businesses, it is easy to find qualified employees, and salaries are low by Western standards.  According to both government and independent analysts’ statistics, 14% of the population live below the poverty level, and approximately 48 percent of the employed population have low-productivity and low-income jobs.  Accordingly, Uzbekistan is the largest supplier of labor migrants among former Soviet Union republics.

At 99 percent, literacy is nearly universal, but most local technical and managerial training does not meet international business standards.  Foreign firms report that younger Uzbekistanis are more flexible in adapting to changing international business practices but are also less educated than their Soviet-trained elders.  Widespread corruption in the education sector has lowered educational standards as unqualified students purchase grades and even admittance to prestigious universities and lyceums.

Legislation requires companies to hire Uzbekistani nationals for specified positions in banking and auditing companies.  The chief accountant must be an Uzbekistani national, as should either the CEO or any one member of the board of directors.  Only Uzbekistani nationals can be tour guides.

According to Uzbekistan’s Labor Code, labor-management relations should be formalized in a fixed-term or temporary employment contract.  The maximum length of a single fixed-term contract is 60 months (https://www.doingbusiness.org/en/data/labormarketeconomy/uzbekistan).  The Labor Code and subordinate labor legislation differentiate between layoffs and firing.  Employees can terminate their employment by filing written notice two-weeks prior or applying for leave without pay.  Layoffs or temporary leave without pay can be initiated by an employer if the economic situation declines.  For firing (severance), the employer should personally give two months’ advance notice in the case of corporate liquidation or optimization, two weeks’ advance notice in the case of an employee’s incompetence, and three days’ advance notice in the case of an employee’s malpractice or unacceptable violations.  In case of severance caused by corporate liquidation or optimization, an employee should receive compensation, which should not be less than two average monthly salaries paid during their employment plus payment for unused leave (if another form of compensation was not agreed to in the employment contract).  In reality, however, many businesses choose to avoid signing formal contracts with employees, especially those involved in seasonal agricultural or construction work.

Officially, labor legislation cannot be waived or applied differently for private or foreign-owned enterprises, including those that operate in free and special economic zones.  On March 4, 2020, Uzbekistan joined the Hague Conference on Private International Law.

The new Law on Trade Unions (ZRU-588) was adopted in December 2019.  According to this law, all trade union activities should be based on the principles of the compliance, voluntariness, non-discrimination, independence and self-governance, equality, transparency and openness.  The law guarantees rights of trade unions and their associations and protects them from illegal interventions of government agencies, officials and employers.  Currently, the Board of the Federation of Trade Unions of Uzbekistan incorporates 37,632 primary organizations and 14 regional trade unions, with official reports of 60 percent of employees in the country participating.  These trade unions are all government owned and operated, including the Federation of Trade Unions.

By law, all employees of either local or foreign-owned enterprises operating in Uzbekistan have the right to:

• fair and timely payment of wages that should not be less than the minimum monthly salary amounts set by the government;

• a standard workweek of forty hours, with a mandatory rest period of twenty-four hours and annual leave;

• overtime compensation as specified in employment contracts or agreed to with an employee’s trade union, which can be implemented in the form of additional pay or leave. The law states that overtime compensation should not be less than 200 percent of the employee’s average monthly salary rate (broken down by hours worked).  Additional leave time should not be less than the length of actual overtime work;

• working conditions that meet occupational health and safety standards prescribed by legislation;

• compensation of any health or property damages incurred as a result of professional duties through an employer’s fault;

• professional training;

• formation and joining of labor unions;

• pensions; and

• legal support in protection of workers’ rights.

There is no single state institution responsible for labor arbitration.  The general court system, where civil and criminal cases are tried, is responsible for resolving labor-related disputes.  This can be done on a regional or city level.  Formally, workers can file their complaints through the Prosecutor General’s Office.  The Ministry of Employment and Labor Relations should provide legal support to employees in their labor disputes.

The law neither provides for nor prohibits the right to strike.  In recent years, SOE employees in the mining sector and workers involved in various large state-facilitated civil construction projects conducted strikes, protesting against salary payment delays and demanding improvement of their working conditions.  Reportedly, law enforcement authorities inspected the employing company, which eventually addressed most of the issues raised by the workers.  There is no public information about the role of official unions in these negotiations.

Although employees in Uzbekistan enjoy many rights by law, in practice these laws are subject to arbitrary and inconsistent interpretation.  For example, the law prohibits compulsory overtime – and only 120 hours of overtime per year is permitted.  In practice, overtime limitations are not widely observed, and compensation is rarely paid.  Wage violations have become more common in recent years.

14 conventions of the UN’s International Labor Organization (ILO) are officially in force in Uzbekistan:

• Forced Labor Convention;
• Freedom of Association and Protection of the Right to Organize Convention
• Right to Organize and Collective Bargaining Convention;
• Equal Remuneration Convention;
• Abolition of Forced Labor Convention;
• Discrimination [Employment and Occupation] Convention;
• Minimum Age Convention;
• Worst Forms of Child Labor Convention;
• Employment Policy Convention;
• Forty-Hour Week Convention;
• Holidays with Pay Convention;
• Maternity Protection Convention [Revised];
• Workers’ Representatives Convention; and
• Collective Bargaining Convention.

The most recent observations of the ILO’s Committee of Experts on the Application of Conventions and Recommendations (CEACR) can be reviewed here: https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:11200:0::NO::P11200_COUNTRY_ID:103538

The law prohibits all forms of forced or compulsory labor, including by children, except as legal punishment for offenses such as robbery, fraud, or tax evasion, or as specified by law.  Uzbekistan has eliminated the systematic use of child labor in the annual cotton harvest and has implemented reforms to significantly improve its record on adult forced labor.  Despite strong political will in the central government to eradicate adult forced labor, at the local level its use in the cotton harvest is still reported, albeit in steadily decreasing numbers.  The Ministry of Employment and Labor Relations establishes and enforces occupational health and safety standards.  Labor inspectors conduct routine inspections of small and medium-sized businesses once every four years and inspect larger enterprises once every three years.   The labor inspectorate – significantly expanded in size — was previously unable to conduct unscheduled inspections, but these are now legal and in regular use.

In 2019, Uzbekistan adopted a number of labor related laws and regulations, including:

• Law on Trade Unions (ZRU-588, entered into force December 6, 2019)

• Law Ratification of Protocol of 2014 to the ILO Forced Labor Convention 29, 1930. (ZRU-545, June 25, 2019)

• Presidential Decree on Additional Measures to Improve the System of Countering Trafficking in Persons and Forced Labor (UP-5775, July 30, 2019)

• Presidential Decree and Government Resolution on introduction of Unified National Labor System interagency operational software and my.mehnat.uz portal (PP-4502, October 31, 2019, and N971, December 5, 2019)

• Presidential Decree on Measures to Improve the Personnel Policy and the System of Public Civil Service in the Republic of Uzbekistan”(UP-5843, October 3, 2019)

• Amendments to safety on job regulations in various industries and social service sectors.

The U.S. International Development Finance Corporation (DFC) began working in Uzbekistan in 1992 (as the Overseas Private Investment Corporation, or OPIC) and has loaned approximately $229 million over the course of its operations in Uzbekistan.  On May 17, 2018, the Corporation and the GOU officials signed a Memorandum of Cooperation (MOC) on bolstering investment in natural resources, energy, infrastructure and other critical sectors.  DFC did not initiate any new projects in FY2019.  Uzbekistan is a developing country member of the Multilateral Investment Guarantee Agency.

* Source for Host Country Data: The State Statistics Committee of Uzbekistan

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

Table 4: Sources of Portfolio Investment
Data not available.

Contact at the U.S. Embassy in Tashkent:
Eric Salzman
Economic and Commercial Officer
3, Maykurgan St., Yunusabad District, 100093, Tashkent, Uzbekistan
Telephone Number: +998-71-140-2130
Email address: BusinessInUzbekistan@state.gov.