Investment Incentives

Depending on the size of the investment, investors may benefit from reduced tax liability on profits or imported industrial equipment for up to one year from the date of business registration. Investors must meet several criteria including employing a minimum number of Beninese nationals, safeguarding the environment, and meeting nationally accepted accounting standards. The Investment Control Commission monitors companies that receive these incentives to ensure compliance.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Investment Code allows for the creation of SEZs and establishes incentives such as tax reductions for investors. There are currently three SEZs in Benin, but only one, located in southeastern Benin, is active. SEZ zone investors may benefit from reduced tax liability on profits and exemptions for import and export duties. Investors must meet several criteria including employing a minimum number of Beninese nationals, safeguarding the environment, and meeting nationally accepted accounting standards. Local entities and foreign investors enjoy the same opportunities.

Performance and Data Localization Requirements

There are no government-imposed conditions on permission to invest and there is no “forced localization” policy pertaining to the use of domestic content in goods or technology. There are no requirements in place for foreign IT providers to turn over source code and/or provide access to encryption.

The Benin Post and Communications Regulatory Authority (ARCEP) ensures the confidentiality of the content of all communications by the service provider or operator, whether this is information or other data the service provider obtains in the course of providing the services offered. No information may be disclosed without the written consent of ARCEP or a signed order of the competent judicial authority. Additional information may be found at www.arcep.bj .

There are several wholly owned SOEs operating in the country, including public utilities (electricity and water), fixed and mobile telecommunications, postal services, port and airport management, gas distribution, pension funds, agricultural production, and hotel and convention center management. There is also a number of partially owned SOEs in Benin. Some of these receive subsidies and assistance from the government. There are no available statistics regarding the number of individuals employed by SOEs.

With the exception of public utilities (including electricity and water), pension funds, and landline telephone service for which the public telephone company retains a monopoly, many private enterprises compete with public enterprises on equal terms.

SOE senior management may report directly to a government ministry, a parent agency, or a board of directors comprised of senior government officials along with representatives of civil society and other parastatal constituencies. SOEs are required by law to publish annual reports and hold regular meetings of their boards of directors. Financial statements of SOEs are reviewed by certified accountants, private auditors, and the government’s Bureau of Analysis and Investigation (BAI). The government audits SOEs, though it does not make available information on financial transfers to and from SOEs.

SOEs are established pursuant to presidential decrees, which define their mission and responsibilities. The government appoints senior management and members of the Board of Directors. SOEs are generally run like private entities and are subject to the same tax policies as the private sector. The courts process disputes between SOEs and private companies or organizations.

Privatization Program

Foreign investors may participate in privatization programs. The Talon administration has targeted divestiture programs rather than total privatization of state-owned enterprises.  The state-owned telecommunications company, Benin Telecom Infrastructure, is targeted for either a divestiture program or dissolution by 2021.  With support from MCC, the state-owned electricity utility, Société Beninoise d’Energie Electrique (SBEE), is managed privately through a management contract through 2023, even though the government retains full ownership.  The government is pursuing major transactions to attract private investment into thermal and solar power generation, as well as natural gas supply for power generation. In 2017, the government signed a three-year renewable management contract for the Port of Cotonou with the Belgian firm Port of Antwerp International (PAI).  PAI took over management of the port in May 2018. The move was intended to improve port management and attract foreign investors to fund a planned project to modernize and expand the port.

In general, government policies and public tenders are made public online and in the newspapers. Anti-corruption, human rights, environmental protection, and consumer NGOs and activists are active in Benin, though their ability to report misconduct and violations of good governance has weakened under the current government. There are government-funded agencies in charge of monitoring business conduct. They include the National Anti-Corruption Authority (ANLC), ARCEP, the Supreme Court Chamber of Accounts, the National Financial Information Processing Unit, and the National Commission on Systems and Freedom.

Benin has laws aimed at combatting corruption, though corruption remains a recurring problem in areas including public administration, government procurement, customs and taxation, and the judiciary. The ANLC is the lead government entity on corruption issues and has the authority to refer corruption cases to court. The ANLC also has the authority to combat money laundering, electoral fraud, and economic fraud in the public and private sectors. Benin’s State Audit Office is also responsible for identifying and acting against corruption in the public sector. The CRIET processes cases related to economic crimes, which can include corruption. In 2018, the National Assembly approved the lifting of parliamentary immunity of a small number of opposition parliamentarians accused of corruption or embezzlement during their past positions in former governments.

Bribery is illegal and subject to up to ten years’ imprisonment, but enforcement is uneven. Private companies often establish their own codes of conduct.

Beninese procurement law allows for open and closed bid processes. Contracts are often awarded based on government solicitations to short-listed companies with industry-specific expertise, often identified based on companies’ commercial activities conducted in other overseas markets. The government often uses sole sourcing for projects, including for PAG implementation, and in these cases does not publish procurement requests before selecting a vendor. Foreign companies have expressed concerns about unfair treatment, biased consideration, and improper practices specific to the process of selecting short-listed companies.

Benin is a signatory of the UN Anticorruption Convention and the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

NAME: JeanBaptiste Elias
TITLE: President
ORGANIZATION: ANLC
ADDRESS:01 BP 7060 Cotonou, Benin
TELEPHONE NUMBER: +229 21 308 686
EMAIL ADDRESS: anlc.benin@yahoo.fr

NAME: Ms. Blanche Sonon
TITLE: President
ORGANIZATION: Social Watch
ADDRESS: 02 BP 937, Cotonou, Benin
TELEPHONE NUMBER: +229 21042012 229 95961644
EMAIL ADDRESS swbenin@socialwatchbenin.org;

The government adheres to internationally recognized rights and labor standards. Benin’s constitution guarantees workers’ freedom to organize, assemble, and strike. Government authorities may declare strikes illegal if they are deemed a threat to public order or the economy and may require those on strike to maintain minimum services. In 2018, the Constitutional Court reinstated a law prohibiting public employees in the defense, health, justice, and security sectors from striking, and a new law limited strikes to a maximum of 10 days per year for private-sector workers and public employees not covered by the existing ban. Approximately 75 percent of salaried employees belong to unions. There are several union confederations. Unions are obliged to operate independently of government and political parties, but in practice often act to further political aims. Benin’s labor code, as revised in 2017, is favorable to employers.

The official unemployment rate in Benin in 2018 was 2.3 percent, though estimates of actual unemployment figures are much higher. Unskilled and skilled labor and qualified professionals are generally available. Nearly 90 percent of youth between the ages of 15 and 29 work in the informal sector. The standard legal workweek is 40 hours and payment of overtime is allowed.

In 2017, the government adopted a law on the framework for private sector and government employment, termination of employment, and placement of labor in Benin.  The law sets a maximum limit of three to nine months’ salary (calculated using the last 12 months of salary) to be paid to an employee in case of abusive termination of employment or layoffs.  If fired on legitimate grounds, but short of being caught red-handed doing something unlawful, an employee with a minimum of one year on the job is entitled to receive two months’ salary as severance pay.  The law also allows for multiple renewals of limited time contracts. Under the former law, private companies who dismissed employees for unsatisfactory performance were routinely sued.

The DFC offers financial underwriting and other products for companies wishing to invest in Benin.

Investment Incentives

Tax benefits and incentives fall under two categories detailed in the investment code. Investments greater than USD 280,000 that create a number of permanent jobs may be exempted from license and registration fees, property taxes, taxes on industrial and commercial profits, and taxes on the profits of corporate entities. Imported raw materials used in manufacturing are exempted from the internal consumption tax. These exemptions apply for up to a maximum of ten years after companies start producing materials in Djibouti. Incentives are often unique to an individual company or investment and are agreed upon with relevant ministries. Projects can be delayed if all relevant ministries are not consulted during negotiations. In order to promote exports, Djibouti has multiple free zones where companies enjoy full exemption from direct and indirect taxes for a period of up to ten years.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Djibouti Free Zone (DFZ) is located on 40 hectares and offers office space, warehouses, light industrial units, and hangars. Businesses located in the Free Zone do not pay corporate taxes, have a simplified registration process, and receive other benefits such as assistance obtaining work permits and visas. Currently, 180 companies from more than 30 countries operate out of the Free Zone. In December 2013, the DAM Commercial Free Zone opened in the Damerjog region, south of Djibouti City. In March 2018, the Djibouti Ports and Free Zone Authority and China Merchants Group began construction on a large free zone called Djibouti International Free Trade Zone (DIFTZ). As of mid-2020 this free zone was partially opened. When complete it will cover 48 square kilometers and offer office space, warehouses, industrial units, and will be connected directly with the ports in later phases. It will be the largest free zone in Africa.

Performance and Data Localization Requirements

The government mandates local employment as long as the qualifications or expertise is available locally. However, these schemes are not equally applied to senior management and board of directors where foreign employment is more readily accepted. The process for visas, work permits, and other requirements in order to operate as a foreign employee is not onerous and is easily accessible through Djibouti’s One Stop Shop. Work permits follow a graduated fee schedule: 200,000 Djibouti francs (USD 1,124), 100,000 Djibouti francs (USD 563) and 50,000 Djibouti francs (USD 281) according to the qualifications required for a position.

The government does not follow “forced localization.” The Djiboutian investment code guarantees investors the right to freely import all goods, equipment, products, or material necessary for their investments; display products and services; determine and run marketing policy and production; choose customers and suppliers; and set prices. Performance requirements are not a pre-condition for establishing, maintaining, or expanding foreign direct investments. Incentives do, however, increase with the size of the investment and the number of jobs created.

There are no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the economy/country’s territory. However, there are no mechanisms that are used to enforce rules on local data storage within Djibouti.

Wholly-owned SOEs control telecommunications, water, and electricity distribution in Djibouti. Major print, television, and radio outlets are also state-run. Additionally, Djibouti’s ports, airport, and free zones are managed by an SOE. There is a state-owned national airline that is wholly managed by the ports and free zones authority. SOEs are required by law to publish an annual report. The Court of Auditors is charged with auditing SOEs, but they have not yet released assets, income, employment, or other details about the SOEs. There is no publicly available list of SOEs.

State-run services, such as municipal garbage collection and real estate, do not hold legal monopolies, but are afforded material advantages by the government (e.g., government-backed loan guarantees for the real estate sector). Djibouti is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).

In order to exercise ownership in SOEs, the government uses several laws and decrees, most of which were promulgated in the 1990s. The established practices are not consistent with OECD guidelines. No centralized ownership entity exists. SOE senior management reports directly to the relevant line ministry. There is also an independent board of directors whose members are chosen from other ministries.

Privatization Program

A few SOEs have been privatized such as a milk factory several years ago and a water bottling plant in 2015. No particular sector is targeted. The bidding process is not clear and transparent, which makes the participation of foreign investors difficult.

There is nascent but growing awareness among both companies and consumers in Djibouti of Responsible Business Conduct (RBC). Businesses which may harm the environment are, in general obligated to conduct studies on the environmental impact before proceeding with their project. The government does not promote RBC in a systematic way, although it does acknowledge good corporate social responsibility and covers it favorably in state media. However, the government does not factor RBC policies or practices into its procurement decisions. There are no corporate governance, accounting, or executive compensation standards to protect stakeholders. The government does not adhere to OECD guidelines in RBC matters. There have been reports that the government does not effectively and fairly enforce domestic laws relating to labor rights, environmental protections, consumer protections, and human rights. There are no independent NGOs, investment funds, worker organizations or associations that monitor RBC in Djibouti. Djibouti has a salt extraction industry, but it does not participate in the Extractive Industries Transparency Initiative or the Voluntary Principles on Security and Human Rights.

Djibouti has several laws to combat corruption by public officials. These laws were either passed by the government or contained in the Penal Code. However, there have been no records of cases to combat corruption by public officials. Corruption laws are extended to all family members of officials and across political parties, but they have not been applied in a non-discriminatory manner. Djibouti does not have laws or regulations to counter conflict-of-interest in awarding contracts or government procurement.

Djibouti is a party to the United Nations Convention against Corruption. There are two government entities responsible for investigating corruption and enforcing the regulations. The State General Inspection (SGI) is tasked with ensuring human and material resources in the public sector are properly utilized. The Court of Auditors is mandated to verify and audit all public establishments for transparency and accountability, and to implement necessary legal sanctions. Both institutions are mandated to produce annual corruption reports. Despite the legal mandates, both institutions lack the authority to push for meaningful reform. The newly-created National Commission for Anti-Corruption is also mandated to enforce the laws on combatting corruption and provide safe haven for whistleblowers. This Commission launched a program in March 2018 to urge high-ranking government officials to publicly declare all of their assets. However, its effectiveness has not been proven so far. The contracting code and other laws passed by Djibouti contain provisions to counter conflict-of-interest contracts or government procurement.

According to a law passed in 2013, the government requires private and public companies to establish internal codes of conduct that prevent and prohibit bribery of public officials. However, these codes have not been implemented. Likewise, the government requirement that private companies use internal controls, ethics, and compliance to detect and prevent bribery of government officials is not enforced. Djibouti is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Djibouti is a signatory country of the UN Convention against Corruption.

U.S. firms have not specifically noted corruption as an obstacle to foreign direct investment in Djibouti, but there were allegations of foreign companies having to meet requirements such as renting houses of high dignitaries or hiring certain employees as a condition of receiving government procurement contracts. In addition, one company reported harassment of employees by local competitors. Prosecution and punishment for corruption is rare.

Resources to Report Corruption

Contact at government agency responsible for combating corruption is listed below:

Fatouma Mahamoud Abdillahi
President
Commission Nationale Independante pour la Prevention et de Lutte Contre la Corruption
Plateau du Serpent+253 21 35 16 03
anticorruption@intnet.dj

No “watchdog” organization is present in Djibouti.

Djibouti’s official unemployment rate is 39%. Youth unemployment, defined locally as the share of the labor force between age 15 and 24 without work but is available and actively seeing employment, has remained between 11% and 12% in the past three decades. Estimates of a sizeable informal labor market of up to 75% exist in Djibouti, with a larger informal market outside of the capital city of Djibouti. The formal labor market is heavily service- or government-oriented with growing markets in construction, logistics, and transportation. However, skilled Djiboutian workers, especially in high-demand trades such as construction, are in short supply.

Djibouti has complicated labor laws that favor the employee, especially in the areas of disputes and termination. Vocational and professional training facilities remain limited. The World Bank, the Ministry of Finance, USAID, and other entities are working on a variety of initiatives to address the shortage of workforce development programs. The government has promoted entrepreneurship as a means of stimulating the economy. In addition, the government plans to open a new center to assist start-up companies.

Foreign workers are legally allowed to work in Djibouti only if their qualifications or expertise are not available among the nationals. In January 2017, the cost for a work permit was reviewed and classified in three different categories based on the type of profession with respective annual fees of 50,000 Djibouti francs (USD 281), 100,000 Djibouti francs (USD 563) and Djibouti francs 200,000 (USD 1,125). The National Agency for Employment, Training, and Professional Integration (ANEFIP) maintains a database of Djiboutian job-seekers and issues work permits to foreign workers. No unemployment insurance or other social safety net programs exist for workers laid off for economic reasons. Only those workers who contributed to the social insurance for 25 years and are sixty years of age are entitled to retirement benefits.

Employers have to abide by the Labor Code. Workers who are laid off get more compensation than employees who are fired. No unemployment insurance or other social safety net programs exist for workers laid off for economic reasons. Only those workers who contributed to the social insurance for 25 years and are sixty years of age are entitled to retirement benefits.

Minimum wage is USD 250 per month. By law, all employers are obligated to make social security payments on behalf of their employees, through the National Council for Social Security. Two large labor unions exist in Djibouti, but only the Djiboutian Workers Union (UDT) is recognized by international organizations.

Labor laws are not waived to attract investment, but the investment code and free zones have separate legal provisions to attract investment. By law, labor unions are independent of the government and employers. In practice they can be influenced by the government and/or employers. In case of labor disputes, the Labor Inspector will bring together the employer and the employee to settle the case acting as a mediator. If the mediation fails, then the case will be sent to the Court. The process is opaque and the results are not publicized.

Djibouti is eligible for Development Finance Corporation (DFC) programs. DFC is authorized to do business in Djibouti with an active bilateral agreement. Djibouti is a member of the Multilateral Investment Guarantee Agency (MIGA), which guaranteed the loan for the construction of the Doraleh Container Terminal in 2009. Chinese firms have made significant investment financing in Djibouti, making it difficult for U.S. firms to compete.