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Ethiopia

Executive Summary

Over the last year, Ethiopia has undertaken unprecedented economic and political reforms.  The new Ethiopian government, led by Prime Minister (PM) Abiy Ahmed, who was sworn in on April 2, 2018, announced at the outset its plan to democratize the country, reform the economy, and increase private sector participation.  Early in his tenure, PM Abiy addressed some of the public’s numerous longstanding grievances, including: ending the State of Emergency imposed by the government prior to his ascension; closing a notorious detention center; releasing thousands of detained individuals; restoring mobile internet throughout the country; retiring members of the political “old guard,” who were perceived as in the way of reform; and, reframing the government’s posture towards opposition parties.

On the economic front, the new administration is working to partially or wholly privatize major state-owned enterprises (SOEs) in the telecom, aviation, power, sugar, railway, and industrial parks sectors.  In addition, the Government of Ethiopia (GOE) lifted a restriction on the logistics sector and enacted a law that allows Public Private Partnerships (PPP) to gradually open up some sectors of the economy to foreign investors.  Ethiopia’s rapprochement with Eritrea could possibly open up alternative ports for trade. Furthermore, the country recently ratified the African Continental Free Trade Area Agreement and eased visa requirements for African Union member countries with the goal of enhancing regional trade and tourism and attracting foreign direct investment (FDI).  The GOE announced its commitment to modernize the financial sector, improve the ease of doing business, and enhance macroeconomic and fiscal management.

Ethiopia’s economy is currently in transition.  Coming off a decade of double-digit growth, fueled primarily by public infrastructure projects funded through debt, the GOE has tightened its belt, reducing inefficient government expenditures, putting a moratorium on most new government mega-projects, and attempting to get its accounts in order at bloated state-owned enterprises (SOEs).  The IMF put the growth of the Ethiopian economy at 7.7 percent for FY2017/18 and is projecting an 8.5 percent annual growth rate for the medium term. Ethiopia is the second most populous country in Africa after Nigeria, with a population of over 100 million, approximately two-thirds of whom are under age 30. Low-cost labor, a national airline with 105 passenger connections, and growing consumer markets are key elements attracting foreign investment.

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

All land in Ethiopia belongs to “the people” and is administered by the government.  Private ownership does not exist, but “land-use rights” have been registered in most populated areas.  The GOE retains the right to expropriate land for the “common good,” which it defines to include expropriation for commercial farms, industrial zones, and infrastructure development.  Successful investors in Ethiopia conduct thorough due diligence on land titles at both the state and federal levels, and undertake consultations with local communities regarding the proposed use of the land.  The largest volume of foreign direct investment (FDI) in Ethiopia comes from China, followed by Saudi Arabia and Turkey. Political instability associated with various ethnic conflicts could negatively impact the investment climate and lower future FDI inflow.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 114 of 180 https://www.transparency.org/country/ETH
World Bank’s Doing Business Report “Ease of Doing Business” 2019 159 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 N/A https://www.globalinnovationindex.org/gii-2018-report#
U.S. FDI in partner country (M USD, stock positions) 2018 $600 http://www.investethiopia.gov.et/
World Bank GNI per capita 2017 $740 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

2. Bilateral Investment Agreements and Taxation Treaties

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

Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 21 member countries.  The body has introduced a 10 percent tariff reduction on goods imported from member states. However, Ethiopia has not yet joined the COMESA free trade area.

In 2019 Ethiopia ratified the African Continental Free Trade Area (AfCFTA) Agreement, which aims to create a single continental market for goods and services, with free movement of business persons and investments, to pave the way for accelerating the establishment of the Continental Customs Union and the African customs union.  Ethiopia is the 21st country to sign the agreement, with just one more country needing to ratify to make AfCFTA operational.

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

9. Corruption

The Federal Ethics and Anti-Corruption Commission (FEACC) is charged with preventing corruption and is accountable to the Office of the Prime Minister.  The Commission is mandated to provide ethics training and education to prevent corruption.  The investigation and prosecution of corruption crimes are the mandates of the Federal Police Commission and the Federal Attorney General, respectively.

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

Transparency International’s 2018 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 34 (the score indicates the perceived level of public sector corruption on a scale of zero to 100, with the former indicating highly corrupt and the latter indicating very clean).  Its comparative rank in 2018 was 114 out of 180 countries, compared to 107 out of 180 countries in 2017.

In December, the American Chamber of Commerce in Ethiopia polled its members and asked what the leading business climate challenges were.  Transparency and governance ranked as the 4th leading business climate challenge, ahead of licensing and registration and public procurement.

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

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

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

Resources to Report Corruption

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

Federal Police Commission
Addis Ababa
+251 11 861-9595

Contact at “watchdog” organization:

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

10. Political and Security Environment

Ethnic conflict —often sparked by historical grievances or resource competition, including land disputes— has resulted in varying levels of violence that have internally displaced as many as two million people nationwide.  Communal conflict between Oromos and Somalis has persisted along their shared border.  Remnants of the Oromo Liberation Front, an opposition movement, have battled ethnic neighbors, regional security forces, and the military.  In the south, conflict between communities in the Guji and Gedeo zones has been particularly violent and intractable.  Disputed territory in the north between the Amhara and Tigray regions is a continuing flash point.  Recent violence between Oromos and Amharas has occurred along a main road from Addis Ababa to the north.

Under PM Abiy’s administration, political space in Ethiopia has opened dramatically.  Constitutional rights, including freedoms of assembly and expression, are broadly respected.  Political prisoners have been released. Opposition parties have been allowed to form or return to the country, and they operate freely. Independent media is re-establishing itself, and laws are being revised to facilitate the rebuilding of civil society.  Nationwide elections are scheduled for May of 2020.  The electoral and pre-electoral period could represent a potential catalyst for unrest.

PM Abiy has also initiated a process of modernization, de-politicization, professionalization, and civilian accountability in his security services.  The past year provides numerous examples where security forces have allowed demonstrators space to operate peacefully.  In some instances, though, security forces have failed to stop ethnic violence in a timely fashion.  Though foreigners are rarely, if ever, specifically targeted, spillover ethnic violence has occasionally resulted in the deaths of foreign employees.

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

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) has offered risk insurance and loans to U.S. investors in Ethiopia in the past, but is not currently present in Ethiopia.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD) 2017/18 $84,356 2017 $80,561 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (M USD, stock positions) 2018 $600  2018 N/A http://www.investethiopia.gov.et/  
Host country’s FDI in the United States (M USD, stock positions) 2017 N/A 2017 N/A http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Total inbound stock of FDI as % host GDP 2018 10.6% 2017 23.6% http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  

*National Bank of Ethiopia and Ethiopian Investment Commission


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars*, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $8,930  100% Total Outward*** N/A N/A
China $2,219  24.9% N/A N/A N/A
Saudi Arabia $1,525  17.1% N/A N/A N/A
Turkey $917  10.3% N/A N/A N/A
India $719 8.1% N/A N/A N/A
EU** $685 7.7% N/A N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

Data regarding inward direct investment are not available for Ethiopia via IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS  ) so we have used data from Ethiopian investment Commission.

*The yearly average exchange rate is used for each year from 1992-2017 to convert the amount of FDI from domestic currency into USD.
** EU includes Netherlands, France, Ireland, Germany and UK.
*** Total Outward investment data are not available.


Table 4: Sources of Portfolio Investment

Data regarding the equity/debt breakdown of portfolio investment assets are not available for Ethiopia via the IMF’s Coordinated Portfolio Investment Survey (CPIS) and are not available for external publication from the Government of Ethiopia.

Kenya

Executive Summary

Kenya has a positive investment climate that has made it attractive to international firms seeking a location for regional or pan-African operations.  In the World Bank’s 2019 Doing Business report, Kenya moved up 19 places, ranking 61 of 190 economies reviewed. In the last three years, it has jumped 47 places on this index.  Year-on-year, Kenya continues to improve its regulatory framework and its attractiveness as a destination for foreign direct investment. Corruption, however, remains endemic and Transparency International’s (TI) 2018 Global Corruption Perception Index ranked Kenya 144 out of 180 countries, one place lower than in 2017.  Kenya has strong telecommunications infrastructure, a robust financial sector, and extensive aviation connections throughout Africa, Europe, and Asia. In 2018, Kenya Airways initiated direct flights to New York City in the United States. Mombasa Port is the gateway for the majority of East African trade and Kenya’s membership in the East African Community (EAC), as well as other regional trade blocs, provides growing access to larger regional markets.

In 2018, Kenya took steps to improve its business environment, including passage of the Tax Laws (amended) Bill (2018) and the Finance Act (2018), establishing new procedures and provisions relating to income taxes, value-added taxes, and excise duties.  In 2017, Kenya instituted broad business reforms: simplifying registration procedures for small businesses; improving access to credit information; reducing the cost of construction permits; enhancing electricity reliability; easing the payment of taxes through the iTax platform; and establishing a single window system to speed movement of goods across borders.

Kenya’s macroeconomic fundamentals remain among the strongest in Africa, with five to six percent GDP growth over the past five years, six to eight percent inflation, improving infrastructure, and strong consumer demand from a growing middle class.  A prolonged and acrimonious national election period during the second half of 2017 raised business anxiety and created a drag on growth but, following the elections, business and investment quickly recovered, and tourism was little affected by this turmoil.  President Kenyatta has remained focused on his second term “Big Four” development agenda, seeking to provide universal healthcare coverage; establish national food security; build 500,000 affordable new homes; and increase employment by doubling the manufacturing sector’s share of the economy.

The World Bank’s annual Kenya Economic Update, released in April 2019, cited some short term economic risks to Kenya’s continued growth such as the interest rate cap inhibiting monetary policy and continuing drought conditions, but noted positive developments including the Government of Kenya (GOK) enhancing agricultural financing programs.  At the same time, Kenya’s medium-term economic outlook appears strong especially in the agricultural sector. There has been great interest on the part of American companies to establish or expand their business presence and engagement in Kenya, especially following President Kenyatta’s August 2018 meeting with President Trump in Washington, D.C.  Sectors offering the most opportunities for investors include: agro-processing, financial services, energy, extractives, transportation, infrastructure, retail, restaurants, technology, health care, and mobile banking.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 144 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 61 of 190 www.doingbusiness.org/rankings
Global Innovation Index 2018 78 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2017 $405 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $1,460 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

2. Bilateral Investment Agreements and Taxation Treaties

BITs or FTAs

In 2018, Kenya did not sign any new BITs or FTAs with other countries.  Kenya’s BIT with Japan was signed in 2016 and came into force in 2017. Kenya’s BIT with the Republic of Korea was signed in 2014 and entered into forced in 2017.

Bilateral Taxation Treaties

The United States does not have a free trade agreement, bilateral investment treaty, or bilateral taxation treaty with Kenya.  Kenya, however, is a beneficiary of the African Growth and Opportunity Act (AGOA), a U.S. trade preference and export promotion policy, which Congress renewed in 2015 for an additional 10 years.  Under AGOA, Kenyan exporters enjoy duty-free access to U.S. markets for products falling under more than 6,400 tariff lines. Kenya’s primary exports to the United States under AGOA are apparel and accessories, coffee, tea, and nuts.  According to the Kenya National Bureau of Statistics’ 2018 Economic Survey, apparel exported under AGOA decreased to USD 327 million in 2017, down 4.6 percent from USD 344 million in 2016. Kenya, however, remains the largest textile exporter under AGOA.  In 2019, the United States and Kenya established a bilateral Trade and Investment Working Group (TIWG) to deepen trade and investment ties between the two countries, including exploratory talks on a future bilateral trade and investment framework.

The GOK has trade facilitation agreements (TFA) through the WTO, EAC Customs Union Protocol, Common Market for Eastern and Southern Africa (COMESA) Protocol on FTA, and the EU-EAC economic partnership agreement.  The nine COMESA FTA member countries are Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, and Zimbabwe.  The other 10 COMESA countries that are not part of the FTA trade with Kenya on preferential terms, observing tariff reductions between 60 and 80 percent.  The status of EU-EAC economic partnership agreement is unclear at this time because of the failure of Tanzania and Uganda to renew the agreement in 2016 and 2017.  Kenya is continuing to participate in negotiations towards an African Continental Free Trade Area (AfCFTA) which seeks to establish the largest free-trade areas since the formation of the WTO.

According to World Bank and Price Waterhouse Coopers’ 2018 Paying Taxes Report, Kenya improved marginally in the ease of paying taxes, rising to 91 in 2018. The report shows that a medium sized company in Kenya pays a total tax rate of 37.2 percent, 9.8 percent less than the sub Saharan Africa average of 47 percent and below the global average of 40.4 percent.  The iTax system launched by the Kenya Revenue Authority in mid-2015 has reduced tax compiling time from 186 hours in 2016 to 180 in 2017, compared to the global average of 237 hours. Kenya, however, still performs poorly in the post-filing index, which measures value-added tax (VAT) refunds and corrections made to corporate income tax returns, scoring only 59.6 out of 100 in post-filing efficiency.

9. Corruption

Many businesses deem corruption to be pervasive and entrenched in Kenya.  Transparency International’s (TI) 2018 Global Corruption Perception Index ranks Kenya 144 out of 180 countries, one place lower than in 2017 and Kenya’s score of 27 remains below the sub-Saharan Africa average of 32.  Historical lack of political will, little progress in prosecuting past corruption cases, and the slow pace of reform in key sectors were reasons cited for Kenya’s chronic low ranking. Corruption has been reported to be an impediment to FDI, with local media reporting allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts.  There are many reports that corruption often influences the outcomes of government tenders, and U.S. firms have had limited success bidding on public procurements. In 2018, President Kenyatta began a public campaign against corruption and Kenya’s anticorruption agencies now appear to be coordinating more effectively, including bringing cases against senior officials in an effort to secure high-level convictions.

Kenyan law provides for criminal penalties for official corruption, but no high-level officials were successfully prosecuted and convicted for corruption in 2018.  Relevant legislation and regulations include the Anti-Corruption and Economic Crimes Act (2003), the Public Officers Ethics Act (2003), the Code of Ethics Act for Public Servants (2004), the Public Procurement and Disposal Act (2010), the Leadership and Integrity Act (2012), and the Bribery Act (2016).  The Access to Information Act (2016) also provides mechanisms through which private citizens can obtain information on government activities; implementation of this act is ongoing. The Ethics and Anti-Corruption Commission (EACC) monitors and enforces compliance with the above legislation.

The Leadership and Integrity Act (2012) requires public officers to register potential conflicts of interest with the relevant commissions.  The law identifies interests that public officials must register, including directorships in public or private companies, remunerated employment, securities holdings, and contracts for supply of goods or services, among others.  The law requires candidates seeking appointment to non-elective public offices to declare their wealth, political affiliations, and relationships with other senior public officers. This requirement is in addition to background screening on education, tax compliance, leadership, and integrity.

The law requires that all public officers declare their income, assets, and liabilities every two years.  Public officers must also include the income, assets, and liabilities of their spouses and dependent children under the age of 18.  Information contained in these declarations is not publicly available, and requests to obtain and publish this information must be approved by the relevant commission.  Any person who publishes or makes public information contained in public officer declarations without permission may be subject to fine or imprisonment.

On August 31, 2016, the president signed into law the Access to Information Act (2016).  The law allows citizens to request government information and requires government entities and private entities doing business with the government proactively to disclose certain information, such as government contracts.  The act also provides a mechanism to request a review of the government’s failure to disclose requested information, along with penalties for failures to disclose. The act exempts certain information from disclosure on grounds of national security.

The private sector-supported Bribery Act (2016) stiffened penalties for corruption in public tendering and requires private firms participating in such tenders to sign a code of ethics and develop measures to prevent bribery.  Both the Bill of Rights of the 2010 Constitution and the Access to Information Act (2016) provide protections to NGOs, investigative journalism, and individuals involved in investigating corruption. The Witness Protection Act (2006) calls for the protection of witnesses in criminal cases and created an independent Witness Protection Agency.  A draft Whistleblowers Protection Bill (2016) is currently stalled in Parliament.

Kenya is a signatory to the UN Convention Against Corruption (UNCAC) and in 2016 published the results of a peer review process on UNCAC compliance:  (https://www.unodc.org/documents/treaties/UNCAC/CountryVisit
FinalReports/2015_09_28_Kenya_Final_Country_Report.pdf
 
).  Kenya is also a signatory to the UN Anticorruption Convention and the OECD Convention on Combatting Bribery, and a member of the Open Government Partnership.  Kenya is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Kenya is also a signatory to the East African Community’s Protocol on Preventing and Combating Corruption.

Resources to Report Corruption

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

Rev. Eliud Wabukala (Ret.)
Chairperson and Commissioner
Ethics and Anti-Corruption Commission
P.O.  Box 61130 00200 Nairobi, Kenya
Phones:  +254 (0)20-271-7318, (0)20-310-722, (0)729-888-881/2/3

Report corruption online: http://www.eacc.go.ke/default.asp?pageid=62 

Contact at “watchdog” organization:

Samuel Kimeu
Executive Director
Transparency International Kenya
Phone:  +254 (0)722-296-589
Email: skimeu@tikenya.org

Report corruption online: https://www.tikenya.org/ 

10. Political and Security Environment

Political tensions over the protracted and contentious 2017 election cycle spilled well into 2018.  In March 2018, however, President Kenyatta and opposition National Super Alliance (NASA) leader Raila Odinga publicly shook hands and pledged to work together to heal the political, social, and economic divides revealed by the election.  The 2017 electoral period had been marred by violence that claimed the lives of nearly 100 Kenyans, a contentious political atmosphere pitting the ruling Jubilee Party against NASA, and political interference and attacks by both sides on key institutions.  In November 2017, the Kenyan Supreme Court unanimously upheld the October 2017 repeat presidential election results and President Uhuru Kenyatta’s win in an election boycotted by NASA leader Odinga. The court’s ruling brought a close to Kenya’s protracted 2017 election cycle, a period that included the Supreme Court’s historic September 2017 annulment of the August 2017 presidential election and the unprecedented repeat election.

The United States’ Travel Advisory for Kenya advises U.S. citizens to exercise increased caution due to the threat of crime and terrorism, and not to travel to counties bordering Somalia and to certain coastal areas due to terrorism.  Instability in Somalia has heightened security concerns and led to increased security measures aimed at businesses and public institutions around the country. Tensions flare occasionally within and between ethnic communities. Regional conflict, most notably in Ethiopia, Somalia, and South Sudan, sometimes have spill-over effects in Kenya.  There could be an increase in refugees escaping drought and instability in neighboring countries, adding to the large refugee population already in Kenya from several countries. Security expenditures represent a substantial operating expense for businesses in Kenya.

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

12. OPIC and Other Investment Insurance Programs

In 2016, the U.S. Overseas Private Investment Corporation (OPIC) established a regional office in Nairobi, but the office is not currently staffed.  The agency is engaged in funding programs in Kenya with an active in-country portfolio of approximately USD 700 million, including projects in power generation, internet infrastructure, light manufacturing, and education infrastructure.  OPIC currently has an active pipeline of new projects including transactions in the energy, education, and financial service sectors. On October 2018, President Trump signed the Better Utilization of Investments Leading to Development Act (BUILD), which will consolidate the Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority (DCA) and increase OPIC’s overall portfolio from USD 29 Billion to USD 60 Billion.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($B USD) 2017 $79.26 201 $79.2 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2017 $405 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $6 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm  
Total inbound stock of FDI as % host GDP N/A N/A 2017 14.9% https://unctad.org/sections/dite_dir/docs/wir2018/wir18_fs_ke_en.pdf 


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $3,885 100% Total Outward $803 100%
U.K $1,086 28% Uganda $395 49%
Mauritius $675 17% Mauritius $293 37%
Netherlands $652 17% South Africa $52 6%
France $315 8% Mozambique $37 5%
South Africa $309 8% Italy $12 2%
“0” reflects amounts rounded to +/- USD 500,000.

Source:  IMF Coordinated Direct Investment Survey (CDIS). Figures are from 2012 (latest available).  IMF no longer publishes Kenya data as part of its CDIS.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $3,885 100% All Countries $2,817 100% All Countries $833 100%
U.K. $1,086 27% U.K $974 35% Netherlands $353 42%
Mauritius $675 17% Mauritius $618 22% France $174 21%
Netherlands $652 17% Netherlands $299 11% U.K. $112 13%
France $315 8% South Africa $290 10% Mauritius $57 7%
South Africa $309 8% Germany $181 6% Switzerland $55 7%

Source:  IMF Coordinated Portfolio Investment Survey (CPIS). Figures are from 2012 (latest available).  IMF no longer publishes Kenya data as part of its CPIS.

Mozambique

Executive Summary

The once-promising Mozambican economy, which had seen steady 8 percent growth for many years, skidded into economic crisis following the revelation of USD 2 billion in illicit government debt in 2016, causing the IMF to cancel a second tranche of its standby credit facility and donors to suspend direct budget support.  In 2016, economic growth rates fell to 3.5 percent, the local currency– the metical– devalued by over 40 percent against the U.S. dollar, and inflation rates climbed above 20 percent.  Through decisive actions, the Central Bank was able to stabilize the currency and reduce inflation rates to the single digits.  Devastated by Cyclones Idai and Kenneth in 2019, the IMF revised Mozambique’s economic growth forecasts down to 1.8 percent in 2019 and 6 percent in 2020, with growth accelerating to near 10 percent after 2023 with the advent of liquefied natural gas (LNG) exports.  Two consortiums led by ExxonMobil and Anadarko are expected to take final investment decisions (FID) in 2019, which would eventually lead to more than USD 50 billion in investment to the LNG sector in Mozambique.

The country still faces significant security challenges related to violent extremism in Cabo Delgado province, the future home of the LNG investment.  Since 2017, Islamic extremists have carried out more than 200 unprecedented attacks against government facilities and communities, killing scores of government security personnel and local villagers.  The extremists, which claim affiliation with ISIS and claim to wish to establish an Islamic state, reject secular government, secular education, and gender equality.  Most members of the extremist group appear motivated by local socio-economic grievances, income inequality, and perceptions of political favoritism and corruption.

Negotiations between the Government of Mozambique (GRM) and Renamo, the main opposition party, made significant progress towards a lasting peace.  The two sides have agreed to a decentralization package, which was incorporated into the Mozambican Constitution by Parliament in May 2018, and will allow for the first time, the election of provincial governors during the October 2019 elections.  The parties have also agreed in principle to the integration of Renamo personnel into leadership and working level positions in Mozambican security forces, and some critical appointments have already been made.  With ongoing technical and financial support from the international community, a comprehensive plan for disarmament and demobilization of Renamo military personnel and their reintegration into local communities is being developed and is scheduled to be implemented prior to the October 2019 elections.

Mozambique offers the experienced investor the potential for high returns, but remains a challenging place to do business.  Investors must factor in corruption, an underdeveloped financial system, poor infrastructure, and significant operating costs.  Transportation inside the country is slow and expensive, while bureaucracy, port inefficiencies, and corruption complicate imports.  Local labor laws remain an impediment to hiring foreign workers, even when domestic labor lacks the requisite skills.  The financial crisis also impacted the GRM’s ability to secure financing for even the most critical infrastructure projects.  Additionally, because of the economic crisis, inflation, and currency fluctuations, local Mozambican partners selling imported products in the local currency have trouble making payments in U.S. dollars to suppliers.

Natural gas development will drive economic growth in Mozambique, presenting many investment opportunities.  There are also significant opportunities for investment in the power and infrastructure sectors, particularly related to the reconstruction after Cyclones Idai and Kenneth in Manica, Sofala, and Cabo Delgado provinces.  The agriculture and tourism sectors remain underdeveloped relative to their potential, as do critical services sectors, such as the health care sector.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 158 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 135 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 115 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 $398 http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $420.00 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

2. Bilateral Investment Agreements and Taxation Treaties

The United States negotiated a Bilateral Investment Treaty (BIT) with Mozambique that went into force on March 3, 2005.  In June 2005, the two countries signed a Trade and Investment Framework Agreement (TIFA), establishing a Trade and Investment Council to discuss bilateral and multilateral trade and investment issues.  The Council held its first meeting in October of 2006.

In 2016, the United States and the GRM held the fourth round of TIFA talks, continuing the collaborative work of addressing trade constraints, improving Mozambique’s business and investment environment, and expanding and diversifying trade between the United States and Mozambique.  The talks also discussed how the U.S. government could work with the GRM to meet its World Trade Organization (WTO) obligations, and advance trade facilitating activities related to sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT).

Mozambique has also signed bilateral investment agreements with Algeria, BLEU (Belgium-Luxembourg Economic Union) , Brazil, China, Cuba, Denmark, Egypt, Finland, France, Germany, India, Indonesia, Italy, Japan, Mauritius, Netherlands, Portugal, South Africa, Sweden, Switzerland, Turkey, United Arab Emirates, the United Kingdom, Vietnam, and Zimbabwe.

Mozambique does not have a bilateral taxation treaty with the U.S. government, but has double taxation treaties with Portugal, Mauritius, Italy, South Africa, Botswana, India, Vietnam, Macau, Oman, and the UAE.  Double taxation treaties with Qatar and Uruguay are under negotiation.

9. Corruption

The National Assembly passed an anti-corruption bill in 2004.  Mozambique established an anti-corruption unit, the Central Office for Fighting Corruption (GCCC), within the Office of the Attorney General to investigate corruption-related crimes.  In 2005, the government passed Decree 22/2005, which created provincial-level offices to combat corruption.  The 2012 Law on Public Integrity banned government officials and parliamentarians from simultaneously holding positions in SOEs.  Mozambique passed a Right to Information law in 2014, which came into force in January 2016, although there have been cases of some journalists being denied requests for information.

Though Mozambique has made progress developing the legal framework to combat corruption, the policies and leadership necessary to ensure effective implementation have been insufficient.

Mozambique fell five places to 158 out of 180 countries in Transparency International’s 2018 Corruption Perceptions Index.  Corruption is a concern across the government, and senior officials often have conflicts of interest between their public roles and their private business interests.  There are also frequent reports of corruption and bribe-seeking among Mozambican police forces.

A few civic organizations and journalists remain vocal on corruption-related issues.  One NGO, the Center for Public Integrity (Portuguese acronym -CIP), continues to publicly pressure the government to act against corrupt practices.  CIP finds that many local businesses are closely linked to the government and have little incentive to promote transparency.  Despite strong rules prohibiting the bribery of public officials, enforcement remains limited.

In 2018, there was an increase in the number of corruption cases involving high-level government officials, including the former Minister of Transport and Communications and the former Mozambique ambassador to the United States, who were convicted by the courts for abuse of power.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

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

Contact at “watchdog” organization

Fatima Mimbire
Project Coordinator Extractive Industries
Center for Public Integrity (Centro de Integridade Publica)

Rua Fernão Melo e Castro, 124
+258 82 5293957
fatima.mimbire@cipmoz.org

10. Political and Security Environment

Between 2013 and 2016, Mozambique experienced waves of politically motivated violence due to a simmering armed conflict between GRM forces and the main opposition party Renamo.  Tensions peaked in 2016, a year that saw GRM forces deploy armed convoys along the country’s two main commercial highways to counter Renamo attacks.  Thousands of Mozambicans sought asylum in neighboring Malawi to avoid the conflict.  International human rights organizations described alleged human rights violations against the refugees and their families carried out by GRM forces, as well as allegations of mass graves.  Political killings, attacks on public transportation, and kidnappings were also attributed to Renamo by Human Rights Watch.

After a cessation of hostilities was declared in December 2016, the GRM and Renamo made significant progress towards a lasting peace in 2017 and 2018.  The GRM and Renamo agreed to a power-sharing decentralization package in February 2018, which was incorporated into the Mozambican Constitution by Parliament in May 2018, and will allow for the first time, the election of provincial governors during the October 2019 elections.  Work continues on the implementation of the second element of the peace process having to do with the disarmament, demobilization, and reintegration of Renamo combatants.

On the security front, the GRM faces significant challenges in its efforts to combat transnational and organized crime, prevent the spread of violent extremism, and curb poaching and illegal wildlife trafficking.  Since 2017, Islamic extremists have carried out unprecedented attacks against government facilities and communities in Cabo Delgado province, killing scores of government security personnel and local villagers, often exhibiting extreme brutality.  The frequency and severity of the attacks increased in 2018.  On February 21, 2019, an attack was carried out against a convoy of a contractor working for an international oil company, the first attack on a multinational project by the extremists.  These attacks highlight long-simmering economic and social risk factors for radicalization in the north and underscore the need for national counterterrorism and countering violent extremism (CVE) strategies.

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC), an independent U.S. government agency that assists with project finance, through loans or loan guaranties, and political risk insurance, signed an investment incentive agreement with Mozambique in 1999.  Potential for OPIC investment is likely to increase in line with Mozambique’s own expected economic growth due to commercialization of Mozambique’s natural resources.  The recently approved Build Act has merged OPIC and USAID finance programs into one institution; the U.S. International Development Finance Corporation (USIDFC).  This new development finance institution has greatly increased its financial capabilities and scope of work, including the ability to make equity investments, as well as provide technical assistance, small grants, and local currency loans.  The USIDFC has also relaxed its preference for projects with U.S. investors.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2016 $11,400 2017 $12,600 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2016 $354 2017 $398 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 N/A N/A
Total inbound stock of FDI as % host GDP N/A N/A 2017 340.4% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx 

 


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $37,486 100% Total Outward Amount 100%
Mauritius $7,345 20% N/A
UAE $6,786 18%
Italy $5,398 14%
Portugal $3,381 9%
UK $2,890 8%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Data not available.

Tanzania

Executive Summary

The United Republic of Tanzania enjoys a relatively stable political environment, reasonable macroeconomic policies, resiliency from external shocks, and debt relief.  However, recently adopted Government of Tanzania (GoT) policies have raised questions about long-term prospects for foreign direct investment (FDI), and fostered a more challenging business environment.  Tanzania slipped 12 spots in two years on the World Bank’s “Doing Business” rankings. Despite Tanzania’s GDP growth, 28.2 percent of the population lives below the GoT-determined poverty line and youth unemployment remains a problem.  The IMF continues to warn of a slowdown in economic growth, and possible economic risks including private sector concerns about heavy-handed and arbitrary enforcement of rules; stagnated credit growth; poor budget credibility and implementation; and excessive domestic arrears. 

In 2016, the GoT began a campaign to raise revenue, encourage the hiring of Tanzanian citizens over foreigners, and protect/grow local industry.  These measures included new taxes in certain industries as well as aggressive collection by the Tanzania Revenue Authority (TRA) that some labeled as arbitrary and harassing.  On the employment front, the GoT implemented labor regulations that make it more difficult to hire foreign employees, creating unclear bureaucratic standards. Finally, on the local industry front, the GoT continued to use increased tariffs and import and export bans as a stated, but ineffective way to protect/grow local industry.

The private sector continues to struggle with recent legislation that is vague and often punitive to the private sector.  These laws increased the risk/cost of investing in broadly defined natural resources, primarily by removing rights to international arbitration and giving Parliament the unilateral right to rewrite undefined “unconscionable” contract terms.  In addition, new mining local content laws strongly encourage the hiring of, contracting with, and partnering with Tanzanian companies or individuals. In 2019, in response to calls from local and international investors, as well as the World Bank and the IMF, the GoT renewed its efforts to engage in public private dialogue and address challenges in the business environment.  President Magufuli named 2019 “the year of investment” and as such has made a number of high-profile remarks highlighting the importance of the private sector. 

Profitable sectors for foreign investment in Tanzania have traditionally included agriculture, mining and services, driven by banking, construction, tourism, and trade.  However, aggressive revenue raising measures and unfriendly investor legislation have made investment less attractive in recent years. Corruption, especially in government procurement, privatization, taxation, and customs clearance remains a concern for foreign investors, though the government has prioritized efforts to combat the practice.  GoT plans for infrastructure development are expected to offer investment opportunities in rail, real estate development, and construction. 

Compared to its many neighboring countries, Tanzania remains a politically stable and peaceful country, as well as a regional leader, including in the East African Community (EAC).  Since November 2015, however, the government is placing increasing restrictions on political activity, including severely limiting the ability of opposition political parties and civil society organizations to debate issues publicly, or peacefully assemble.  October 2015 general elections were conducted in a largely open and transparent atmosphere; however, simultaneous elections in Zanzibar were controversially annulled after an opposition candidate declared victory. A re-run election was boycotted by the opposition.  By-elections in 2017 and 2018 were marred by allegations of irregularities and instances of political violence. 

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 99 out of 180  http://www.transparency.org/country/TZA  
World Bank’s Doing Business Report 2019 144 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 92 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $1.38   http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $910  http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

2. Bilateral Investment Agreements and Taxation Treaties

Tanzania has bilateral investment treaties with 18 countries, and seven investment agreements with regional economic blocs.  On April 1 2019, Tanzania terminated its BIT agreement with Netherlands. The country is also a signatory to global investment instruments such as the International Centre for Settlement of Investment Disputes (ICSID) Convention, the New York Convention, and the UN Guiding Principles on Business and Human Rights.

The U.S. and Tanzania do not have bilateral investment or taxation agreements.  Tanzania is a member of the EAC, which signed a 2008 Trade and Investment Framework Agreement (TIFA) and a 2012 Trade and Investment Partnership (TIP) with the United States.  Under the U.S.-EAC TIP, the U.S. and EAC are seeking to expand trade, investment and dialogue with the private sector.

9. Corruption

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

Tanzania has three institutions specifically focused on anti-corruption.  The PCCB prevents corruption, educates the public, and enforces the law against corruption.  The Ethics Secretariat and its associated Ethics Tribunal under the President’s office enforces compliance with ethical standards defined in the Public Leadership Codes of Ethics Act 1995.  Lastly, the Economic, Corruption and Organized Crime Court, created in 2016, prosecutes corruption cases. As of April 2017, the Court had registered a total of 25 cases – some of which are high-profile grand corruption cases.

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

The GoT is currently implementing its National Anti-Corruption Strategy and Action Plan Phase III (2017-2022) (NACSAP III) which is a decentralized approach focused on broad government participation.  NACSAP III has been prepared to involve a broader domain of key stakeholders including GoT local official, development partners, civil society organization (CSOs), and the private sector. The strategy puts more emphasis on areas that historically have been more prone to corruption in Tanzania such as revenue collection of oil, gas, and natural resources.  Despite the outlined role of the GoT, CSOs, NGOs and media find it increasingly more difficult to investigate corruption in the current political environment. (See Chapter 11)

President Magufuli’s current anti-corruption campaign has affected public discourse about the prevailing climate of impunity, and some officials are reluctant to engage openly in corruption.  Transparency International (TI), which ranks perception of corruption in public sector, gave Tanzania a score of 36 points out of 100 for both 2017 and 2018. The TI ranking, however, improved from 116 out of 180 countries in 2017 to 99 in 2018.

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

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

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

Contact at “watchdog” organization:

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

10. Political and Security Environment

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

October 2015 general elections were conducted in a largely open and transparent atmosphere; however, simultaneous elections in Zanzibar were controversially annulled after an opposition candidate declared victory.  A heavily criticized re-run election was held on March 20, 2016 despite an opposition boycott. Since the 2015 election, the GoT has placed several restrictions on political activity, including severely limiting the ability of opposition political parties and civil society organizations to debate issues publicly, or peacefully assemble.  An attempted assassination of opposition politician Tundu Lissu in October 2017 resulted in international calls for investigation; as of May 2018 police had not identified a suspect. Subsequent by-elections in 2017 and 2018 were marred by allegations of irregularities, and instances of political violence, including the unintended police killing of a young woman on apublic bus near a political demonstration.

Over a period of several months in 2017, a string of 43 killings took place; victims included local government officials and police in the southern half of Tanzania’s Pwani region near Dar es Salaam.  Authorities, who referred to the incident as presenting “unprecedented security threats and challenges” established a special police zone in the area and ultimately succeeded in halting the killings after a violent confrontation with the alleged perpetrators.

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

12. OPIC and Other Investment Insurance Programs

In 1996, the U.S. Overseas Private Investment Corporation (OPIC) signed an incentive agreement with the GoT.  . The current portfolio includes projects in agriculture, energy, microfinance and logistics. OPIC provides financing or insurance to these projects.  In addition, USAID’s Development Credit Authority (DCA) provides guarantees for commercial loans and has active portfolio guarantees with four banks to encourage lending to small and medium sized enterprises.  Tanzania is also a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA), which offers political risk insurance and technical assistance to attract FDI.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $50,479 2017 $52,090 www.worldbank.org/en/country  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2017 $1,383 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP N/A N/A N/A N/A UNCTAD data available at

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

* Source for Host Country Data: National Bureau of Statistics (NBS); 2017 GDP: TZS 116,101,908,000,000 (Ex/rate TZS/USD: TZS 2300/USD)


Table 3: Sources and Destination of FDI

Data not available.


Table 4: Sources of Portfolio Investment

Data not available.

Zambia

Executive Summary

The Republic of Zambia is a landlocked country in Southern Africa that shares its borders with eight countries: Angola, Democratic Republic of the Congo, Tanzania, Malawi, Mozambique, Zimbabwe, Botswana, and Namibia.  The country has a population of 17.2 million and GDP per capita of USD 1,513, according to the World Bank.

The economy grew by 4 percent in 2018, meeting IMF projections, and inflation remained broadly stable and within the Bank of Zambia’s target range of 6-8 percent.  Though the agriculture sector performed poorly in 2018 due to erratic rainfall, other sectors such as mining, energy (electricity generation), manufacturing, and financial services performed above expectations.  The mining sector grew 6 percent, with copper production increasing above 850,000 metric tons (MT) in 2018 from 797,000 MT in 2017; electricity generation increased by 11.7 percent; manufacturing and financial sector growth was at 5 percent and 4 percent, respectively.  Overall, GDP growth was better than expected, as many financial analysts did not expect the economy to achieve the 4 percent growth rate projected by the IMF in 2017, and the World Bank had revised its projections down to 3.6 percent.

Zambia’s large debt load remains a concern.  Zambia’s external debt rose to USD 10.05 billion in 2018, up from USD 8.74 billion in 2017.  The fiscal deficit ended 2018 at 7.6 percent of GDP, well above the 2018 target of 6.1 percent.  This was mainly due to the increase in interest payments on Eurobond debt and service payments on foreign financed projects.  Domestic arrears rose to K15.1 billion from K12.7 billion (approximately USD 1.3 billion and USD 1.2 billion, with respective exchange rates for 2018 and 2017).  The kwacha also depreciated against the dollar by 22.4 percent in 2018, increasing the cost of external debt service. Investor appetite for domestic bonds continued to shrink, and short- and long-term domestic borrowing costs rose.  Government austerity and fiscal consolidation remain key to ensuring that the macroeconomic fundamentals do not deteriorate further. Foreign exchange reserves stood at USD 1.59 billion at the end of 2018, representing 1.9 months of import cover.  Reserves are projected to fall further in 2019, making Zambia vulnerable to outside shocks to its economy. In addition to debt sustainability concerns, erratic rainfall in the 2018/2019 growing season, with severe drought in certain areas, poses threats to agricultural output and electricity generation; eighty-five percent of the latter relies on hydroelectric dams.  These challenges will constrain businesses looking to partner with the government on new projects.

Budget execution by the Government of the Republic of Zambia (GRZ) has historically been poor, with documented evidence of significant extra-budgetary spending.  The IMF has delayed a much-anticipated USD 1.3 billion loan deal due to large-scale borrowing by, and lack of clarity on fiscal policies from, the government; the government requested the IMF recall the Resident Representative in August 2018, and as of early 2019 there did not appear to be substantive discussions on a new IMF program taking place.

Foreign direct investment (FDI) into Zambia to support structural transformation that can lead to domestic production of export-quality products remains low.  FDI in the manufacturing sector eroded from 9.4 percent of total FDI in 2007 to 3.3 percent in 2017. Zambia recorded USD 310 million of FDI inflow by mid-year 2018, down from USD 329 million over the same time period for 2017.  Large mining investments from Canada, Australia, UK, China, and the United States, in addition to large infrastructure and other projects performed almost entirely by Chinese companies, continue to dominate FDI flows.

The legal environment is generally conducive to U.S. investors, although there is a relatively small commercial presence of U.S. companies in Zambia.  Agriculture and mining continue to be the headlining sectors of Zambia’s economy. While U.S. companies continue to incrementally grow their presence in the agricultural sector, new, large-scale agricultural investments remain elusive.  Despite these challenges, interest from U.S. firms in new projects remains high, and could translate into growth in economic sectors beyond mining, such as tourism, power generation, and agriculture, particularly if the government continues with its plan to reduce or eliminate market-distorting subsidies.

In spite of broad economic reforms in the early 2000s, Zambia today confronts the challenge of diversifying its economy and accelerating private-led growth to address the poverty of its people.  Cumbersome administrative procedures, unpredictability of legal and regulatory changes, lack of transparency in government contracting, the high cost of doing business due to poor infrastructure, the high cost of finance, inadequate human resources, and the lack of reliable electricity and internet service remain concerns.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 105 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report “Ease of Doing Business” 2018 87 of 190 http://www.doingbusiness.org/rankings  
Global Innovation Index 2018 120 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in Partner Country (M USD, stock positions) 2017 $58 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $1,290 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

2. Bilateral Investment Agreements and Taxation Treaties

Zambia has signed Bilateral Investment Treaties (BITs) with thirteen countries (six in force and seven not yet in force).  Six countries have BITs in force with Zambia: France, Germany, Italy, Mauritius, the Netherlands, and Switzerland. Zambia has signed bilateral reciprocal promotional and protection of investment protocols with most of the member states of both the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC).

On October 2, 2000, Zambia became a beneficiary of the African Growth and Opportunity Act (AGOA) market access treaty with the United States and was again found eligible for continuous benefits under AGOA in March 2019.  In November 2001, COMESA, of which Zambia is a member, signed a Trade and Investment Framework Agreement with the United States. Zambia initiated market access through the Eastern and Southern Africa (ESA) interim Economic Partnership Agreement (IEPA) with the European Union on September 30, 2008.  In completing these negotiations, the provisions of the trade in goods chapter and related annexes of the ESA IEPA now apply to Zambia. Zambia has signed protective agreements with Chinese, Nigerian, Libyan, and Indian investors.

9. Corruption

Zambia’s anti-corruption activities are governed by the Anti-Corruption Act of 2010 and the National Anti-Corruption Policy of 2009, which stipulate penalties for different offenses.  While legislation and stated policies on anti-corruption are adequate, implementation sometimes falls short. The Public Interest Disclosure (Protection of Whistleblowers) Act of 2010 provides for the disclosure of conduct adverse to the public interest in the public and private sectors; however, like with other laws and policies, enforcement is weak. Zambia lacks adequate laws on asset disclosure, evidence, and freedom of information.  In March 2019, Cabinet approved the Access to Information Bill (ATI); the draft bill had not been made public or presented to Parliament as of March 2019. The bill aims to ensure the government is proactive and organized in disseminating information to the public. Versions of the ATI Bill have been pending since 2002.

Zambia had made some progress in the fight against corruption in the last decade, as reflected by improvements recorded in several governance indicators.  However, recent years have seen the persistent perception that corruption has increased and it remains a primary impediment to governance and development programs.  In the 2018 Corruption Perception Index (CPI) report, Zambia ranked 105 out of 180 countries, which is a drop from 96 in the 2017 report. The legal and institutional frameworks against corruption have been strengthened, and efforts have been made to reduce red tape and streamline bureaucratic procedures, as well as to investigate and prosecute corruption cases, including those involving high-ranking officials.  Most of these cases, however, remain on the shelves waiting to be tried while officials remain free, sometimes still occupying the positions through which the alleged corruption took place. In March 2018, Parliament passed the Public Finance Management Bill that will allow the government to prosecute public officials for misappropriating funds, something previous legislation lacked. The government has not yet established implementing regulations.  In spite of progress made, corruption remains a serious issue in Zambia, affecting the lives of ordinary citizens and their access to public services. Corruption in the police service emerges as an area of particular concern (with frequency of bribery well above that found in any other sector), followed by corruption in the education and health services. The government has cited corruption in public procurements and contracting procedures as major areas of concern.

The Anti-Corruption Commission (ACC) is the agency mandated to spearhead the fight against corruption in Zambia.  The Anti-Money Laundering Unit of the Drug Enforcement Commission (DEC) also assists with investigation of allegations of misconduct.  An independent Financial Intelligence Center (FIC) was established in 2010, but does not have the authority to prosecute financial crimes.  In November 2012, the FIC Board of Directors was appointed and sworn in with a challenge to implement its mandate. Zambia’s anti-corruption agencies generally do not discriminate between local and foreign investors.  Transparency International has an active Zambian chapter.

The government encourages private companies to establish internal codes of conduct that prohibit bribery of public officials.  Most large private companies have internal controls, ethics, and compliance programs to detect and prevent bribery. The Integrity Committees (ICs) Initiative is one of the strategies of the National Anti-Corruption Policy (NACP), which is aimed at institutionalizing the prevention of corruption.  The NACP received Cabinet’s approval in March 2009 and the Anti-Corruption Commission spearheads its implementation. The NACP targets eight institutions, including the Zambia Revenue Authority, Immigration Department, and Ministry of Lands. The government has taken measures to enhance protection of whistleblowers and witnesses with the enactment of the Public Disclosure Act as well as to strengthen protection of citizens against false reports, in line with Article 32 of the UN Convention.

U.S. firms and the Zambian government have identified corruption as an obstacle to foreign direct investment.  Corruption is most pervasive in government procurement and dispute settlement. Giving or accepting a bribe by a private, public, or foreign official is a criminal act, and a person convicted of doing so is liable to a fine or a prison term not exceeding five years.  A bribe by a local company or individual to a foreign official is a criminal act and punishable under the laws of Zambia. A local company cannot deduct a bribe to a foreign official from taxes. Many businesses have complained that bribery and kickbacks, however, remain rampant and difficult to police, as some companies have notedgovernment officials’ complicity in and/or benefitting from corrupt deals.

Zambia signed and ratified the United Nations Convention against Corruption in December 2007.  Other regional anti-corruption initiatives are the SADC Protocol against Corruption, ratified July 8, 2003, and the AU Convention on Preventing and Combating Corruption, ratified March 30, 2007.  Zambia is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, but is a party to the Anticorruption Convention. Currently, there are no local industries or non-profit groups that offer services for vetting potential local investment partners.  Normally, the U.S. Embassy provides limited vetting of potential local investment partners for U.S. businesses, when contracted as a commercial service.

Resources to Report Corruption

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

Mr. Kapetwa Phiri
Director General, Anti-Corruption Commission
Kulima House, Cha Cha Cha Road, P.O. Box 50486, Lusaka
+260 211 237914
Email: kphiri@acc.gov.zm

Contact at “watchdog” organization:

Mr. Wesley Chibamba
Executive Director, Transparency International Zambia
3880 Kwacha Road, Olympia Park, P.O. Box 37475, Lusaka
+260 211 290080
Email: tizambia@zamtel.zm and wchibanda@tizambia.org.zm

10. Political and Security Environment

Zambia does not have a history of large-scale political violence.  It has a laudable record of democratic elections, which has resulted in two peaceful transitions of power from one party to another since independence in 1964.  More recently, political tensions have been on the rise. Before and during the 2016 elections, there were numerous clashes of supporters of different political parties, resulting sometimes in injuries and arrests.  The leading opposition party contested the election results, leading to a heightened state of political tension that continues to flare up whenever by-elections are held. The U.S. government acknowledged the 2016 election results as representative of Zambians’ choice on election day.  In July of 2017, the Zambian parliament approved a 90-day state of emergency decreed by President Edgar Lungu following a series of incidents of arson at local markets, but arrests were never made and critics saw the move as an effort by Lungu to tighten his grip on power by restricting public gatherings.  Media freedoms have been curtailed in Zambia, with government institutions taking numerous actions to silence private media critical of the ruling party. Similarly, the government often harasses those who raise voices critical of government actions.

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) is active in Zambia: several projects are already underway and more opportunities exist in strategic sectors.  OPIC and Zambia signed an agreement in June 1999 that provides for OPIC support through the African Trade Insurance Agency. This institution, open to all African states that are members of the AU, provides exporters with insurance against receivables on export trade deals and political risk insurance for trade transactions.  Zambia is also a signatory to MIGA, which guarantees foreign investment protection in cases of war, strife, disasters, other disturbances, or expropriation

Host country currency exchange restrictions can affect the commercial viability of a project, making it difficult to convert and transfer profits.  OPIC inconvertibility coverage can insure conversion and transfer of earnings, returns of capital, principal, and interest payments, technical assistance fees, and similar remittances pursuant to the bilateral agreement providing for the OPIC program while giving priority for U.S. government expenses.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD) 2017 $25.86    2017 $25.86  www.worldbank.org/en/country /zambia  
Foreign Direct Investment Host Country Statistical source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country (M USD, stock positions) 2017 N/A 2017 $58 BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm   
Host Country’s FDI in the United States (M USD, stock positions) 2017 N/A 2017 N/A BEA data available at http://bea.gov/international/direct_investment_multinational_companies_comprehensive_data.htm   
Total Inbound Stock of FDI as % host GDP 2017 3.37% 2017 3.3% http://www.boz.zm/statistics3.htm  

https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS  

Host country statistical data used are almost non-existent. If they exist there is not a central source for retrieving the data and at most times do not match international source.


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $19,819 100% Total Outward $1,636 100%
Canada $3,981 20% Congo, Dem Rep Of  $550 34%
Switzerland $2,806 14% Mauritius $227 14%
British Virgin Islands $2,478 13% United Arab Emirates $ 224 14%
China, P.R. Mainland $ 2,112 11% Luxembourg $195 12%
South Africa $1826 9% South Africa $127 8%
“0” reflects amounts rounded to +/- $ 500,000.


Table 4: Sources of Portfolio Investment

Data not available.

Investment Climate Statements
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