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Ecuador

Executive Summary

The government of Ecuador under President Moreno has focused on reducing the size of the public sector and its influence on the economy and sought private sector investment to drive economic growth. Facing serious budget deficits and the economic fallout from the COVID-19 pandemic, the Moreno Administration rationalized the size of government, merged ministries, and reduced the number of state-owned enterprises. Other cost-cutting measures include reducing fuel subsidies and reducing the number of public employees. Still, Ecuador is saddled with a very large public sector, and Moreno has committed to continue government spending on social welfare programs. In September 2020, the International Monetary Fund approved a $6.5 billion, 27-month Extended Fund Facility for Ecuador, and has already disbursed $4 billion to aid in economic stabilization and reform. The IMF program is in line with the government’s efforts to correct fiscal imbalances and to improve transparency and efficiency in public finance. The economy will likely be slow to recover as the Central Bank estimates an 8.8 percent GDP contraction in 2020 and 3.1 percent projected growth in 2021. By the end of 2020, only 34 percent of the eligible working age population was fully employed.

To increase private sector engagement in the economy and attract Foreign Direct Investment (FDI), the Ecuadorian government passed a Productive Development Law containing tax incentives in 2018 to spur investment, changed tax and regulatory policies for mining, and issued new Public-Private Partnership regulations to increase private investment in infrastructure projects. Ecuador is a dollarized economy that has few limits on foreign investment or repatriation of profits, with the exception of a five percent currency exit tax, and is actively seeking foreign investors. It has a population that views the United States positively, and the Moreno Administration has expanded bilateral ties and significantly increased cooperation with the United States on a broad range of economic, security, political, and cultural issues.

Despite these efforts, FDI inflow to Ecuador has remained very low compared to other countries in the region, due to a number of problems, most notably corruption. Ecuador is ranked in the bottom third of countries surveyed for Transparency International’s Perceptions of Corruption Index. President Moreno declared the fight against corruption as a top priority. The independent judicial branch prosecuted government officials, including two of Moreno’s former vice presidents, as well as individuals involved in the Odebrecht and other corruption scandals. Ecuador’s highest court upheld convictions against former President Rafael Correa and 19 others in 2020 for a bribery scheme involving contributions by private companies to finance his political party illegally. Economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador.

Sectors of Interest to Foreign Investors

Petroleum: Per the 2008 Constitution, all subsurface resources belong to the state, and the petroleum sector is dominated by one state-owned enterprise (SOE) that cannot be privatized. To improve efficiencies, the government may offer concessions of its refineries and issue production-sharing contracts for oil exploration and exploitation. The government has gradually reduced its consumer fuel subsidies since May 2020 by aligning domestic fuel prices with international prices. The Ecuadorian government held a successful public tender for oil production-sharing contracts (Intracampos I) in 2019 and reportedly plans to move to production sharing contracts as the standard for future tenders.

Mining: The Ecuadorian government has reduced taxes in the mining sector to attract FDI. Presidential Decree 475, published in October 2014, reduced the windfall tax and sovereign adjustment calculations. The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, included provisions to improve tax stability and lower the income tax rate in the mining sector. The previous Correa administration also developed mining sector incentives such as fiscal stability agreements, limited VAT reimbursements, remittance tax exceptions, and mechanisms for companies to recover their investments before certain taxes are applied.

Electricity: The government plans to offer concessions to develop wind, solar, hydro, biomass, biogas, geothermal, biofuel, combined cycle, and gas fired electrical generation plants to further diversify the energy matrix. It is also exploring possibilities to connect to the electrical grid the oil and shrimp sectors, which largely use independent generation capacity, and improve the cross-border electrical transmission connection with Peru. Non-hydro renewable energy projects in Ecuador are eligible for U.S. International Development Finance Corporation (DFC) financing.

Telecommunications: The government is finalizing the valuation model for 4G bands (700 and 2.5ghz) following consultations with the International Telecommunications Union and the U.S. Federal Communications Commission. Ecuador’s telecommunications regulator Arcotel plans to publish the new valuation model as well as an updated fee schedule for telecommunications services by the end of April 2021. The spectrum auctions for the 4G bands will take place under the new administration as well as any 5G valuation model, deployment, and commercial rollout. The current government is considering a concession of the state-owned telecommunications company CNT, as well as diversification of its core network hardware away from Chinese vendors.

ECommerce: In 2020, ECommerce sales comprised approximately two percent of Ecuadorian GDP – one percentage point higher than in 2019. The COVID-19 pandemic provoked an overnight digital transformation in the country changing consumer habits and business strategies. While many Ecuadorians are interested in purchasing online, they are limited in their ability to receive international shipments due to logistics and customs problems upon arrival in Ecuador. The Ministry of Production launched the National E-Commerce Strategy in 2021, establishing a framework for facilitating the digital transformation in the country. The strategy focuses on strengthening the current legal framework, capacity building for small and medium enterprises (SMEs), and improving logistics and payment gateway capabilities.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 92 of 198 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 129 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 99 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2019 $619 https://apps.bea.gov/international/factsheet/factsheet.cfm
World Bank GNI per capita 2019 $6,090 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Ecuador is open to FDI in most sectors. The 2008 Constitution established that the state reserves the right to manage strategic sectors through state-owned or -controlled companies. The sectors identified are energy, telecommunications, non-renewable natural resources, transportation, hydrocarbon refining, water, biodiversity, and genetic patrimony (i.e. flora, fauna and ancestral knowledge). Although in recent years Ecuador took steps to attract FDI, its overall investment climate remains challenging as economic, commercial, and investment policies are subject to frequent change. From January to September 2020 (latest information available), FDI flows to Ecuador amounted to USD 897 million, 45 percent more than 2019 levels (USD 619 million) but still 36 percent lower than 2018 levels (USD 1.4 billion). FDI continues to be lower compared to other countries in the region.

There are no laws or practices that discriminate against foreign investors, but the legal complexity resulting from the inconsistent application and interpretation of existing laws and regulations increases the risks and costs of doing business in Ecuador. Under the prior Correa administration, disputes involving U.S. companies were politicized, especially in sensitive areas such as the energy sector. This resulted in several high-profile international investment dispute cases, with companies awarded damages in international arbitral rulings against Ecuador in the last few years. In addition, several cases are pending final arbitral rulings.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities are allowed to establish and own business enterprises and engage in all forms of remunerative activity, with limitations in strategic sectors as enumerated in the Constitution. There are no investment screening mechanisms for inbound investment, and the Ecuadorian government actively seeks international investors. One hundred percent foreign equity ownership is allowed.

For license and franchise transactions, no limits exist on royalties that may be remitted, although financial outflows are subject to a five percent capital exit tax. All license and franchise agreements must be registered with the National Service for Intellectual Property Rights (SENADI). In addition to registering with the Superintendence of Companies, Securities, and Insurance, foreign investors must register investments with Ecuador’s Central Bank for statistical purposes.

Other Investment Policy Reviews

Ecuador conducted a trade policy review with the World Trade Organization in March 2019; information can be found at https://www.wto.org/english/tratop_e/tpr_e/tp483_e.htm.

In the past three years, Ecuador has not conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD) or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

In 2018, Ecuador folded ProEcuador (https://www.proecuador.gob.ec/), the entity that is responsible for promoting economic development through exports, imports, and investment in Ecuador, into the Ministry of Production, Foreign Trade, Investments and Fisheries (MPCIEP). ProEcuador is now a Vice Ministry within MPCIEP and has 27 offices in 23 countries, including three in the United States. Ecuador is ranked 129th out of 190 countries in the World Bank’s Ease of Doing Business report for 2020, with particularly low rankings for Starting a Business (177), Resolving Insolvency (160), and Paying Taxes (147).

A newly created company will at a minimum be required to register with the Superintendence of Companies, Securities, and Insurance (http://www.supercias.gob.ec/), the municipal government, the Internal Revenue Service, and the Social Security Institute. The registry with the Superintendence of Companies is a completely online process as of April 2019. The incorporation of companies in Ecuador grew almost eight percent in 2020 (10,800 new companies), propelled by the introduction of the simplified joint-stock company (SAS). The SAS came into effect in May 2020 following the enactment of the Organic Law on Entrepreneurship and Innovation.

Outward Investment

Ecuador does not restrict domestic investors from investing abroad. ProEcuador (see above) is responsible for promotion of outward investment from Ecuador. Foreign investments are subject to a currency exit tax of five percent.

In February 2017, voters passed a government-backed referendum prohibiting elected officials and public servants from having financial dealings in tax havens and other suspect jurisdictions. The list includes several U.S. states and territories that do not have state income taxes. The prohibition entered into force in September 2017.

The United States and Ecuador signed the Protocol on Trade Rules and Transparency in December 2020 under the Ecuador-U.S. Trade and Investment Council Agreement (TIC). The agreement updates the TIC with new annexes in four areas: Trade Facilitation and Customs Administration, Good Regulatory Practices, Anti-Corruption, and SMEs. The Protocol awaits legislative ratification (as of April 2021).

3. Legal Regime

Transparency of the Regulatory System

While there is a focus within the Moreno administration to improve transparency and government accountability, progress has been slow. Economic, commercial, and investment policies are subject to frequent changes and can increase the risks and costs of doing business in Ecuador. National and municipal level regulations can conflict with each other. Regulatory agencies are not required to publish proposed regulations before enactment, and rulemaking bodies are not required to solicit public comments on proposed regulations, although there has been some movement toward public consultative processes. Government ministries generally consult with relevant national actors when drafting regulations, but not always and not broadly.

The Government of Ecuador publishes regulatory actions in the Official Registry and posts them online at https://www.registroficial.gob.ec/ . Publicly listed companies generally adhere to International Financial Reporting Standards (IFRS). While there are some transparency enforcement mechanisms within the government, they tend to be weak and rarely enforced.

There are no identified informal regulatory processes led by private sector associations or nongovernmental organizations.

International Regulatory Considerations

Ecuador is a member of the Andean Community of Nations (CAN) along with Bolivia, Colombia, and Peru. Ecuador is an associate member of the Southern Cone Common Market (MERCOSUR). Ecuador is a member of the World Trade Organization (WTO) and notifies draft regulations to the WTO Technical Barriers to Trade (TBT) Committee. Ecuador ratified the WTO Trade Facilitation Agreement on October 16, 2018.

Legal System and Judicial Independence

Ecuador has a civil codified legal system. Systemic weakness in the judicial system and its susceptibility to political and economic pressures constitute challenges faced by U.S. companies investing in Ecuador. While Ecuador updated its Commercial Code in May 2019, enforcement of contract rights, equal treatment under the law, intellectual property protections, and unstable regulatory regimes continue to be concerns for foreign investors.

Laws and Regulations on Foreign Direct Investment

Ecuador does not have laws specifically on FDI, but several have effects on overall investment. The Organic Law for Production Incentives and Tax Fraud Prevention, passed in December 2014, includes provisions to improve tax stability and lower the income tax rate in the mining sector. The Organic Law of Incentives for Public-Private Associations and Foreign Investment from 2015 includes provisions to improve legal stability, reduce red tape, and exempt public private partnerships from paying income and capital exit taxes under certain conditions. The Productive Development Law of 2018 enumerates tax incentives for new investments and investments in rural or border areas. ProEcuador’s website https://www.proecuador.gob.ec/  provides a guide for investors in English and Spanish and highlights the procedures to register a company, types of incentives for investors, and relevant taxes related to investing in Ecuador.

Competition and Antitrust Laws

The Superintendence of Control of Market Power reviews transactions for competition-related concerns. Ecuador’s 2011 Organic Law for Regulation and Control of Market Power includes mechanisms to control and sanction market power abuses, restrictive market practices, market concentration, and unfair competition. The Superintendence of Control of Market Power can fine up to 12 percent of gross revenue companies found to be in violation of the law.

Expropriation and Compensation

The Constitution establishes that the state is responsible for managing the use and access to land, while recognizing and guaranteeing the right to private property. It also provides for the redistribution of land if it has not been in active use for more than two years.

The Article 101 of the 2015 Telecommunications Law grants permission for the occupation or expropriation of private property for telecommunication network installation provided there are no other economically viable alternatives. Service providers must assume costs associated with the property’s expropriation or occupation.

Dispute Settlement

ICSID Convention and New York Convention

Ecuador withdrew from the International Centre for the Settlement of Investment Disputes (ICSID Convention) in 2010. Ecuador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). The 2018 Productive Development Law clarifies the permissibility of international investor-state arbitration under the 2008 constitution and includes provisions permitting arbitration at venues within Latin America.

Investor-State Dispute Settlement

Ecuador’s National Assembly voted on May 3, 2017 to terminate 12 of its bilateral investment treaties, including its agreement with the United States. The Government of Ecuador notified the U.S. government of its withdrawal from the BIT on May 18, 2017, with the effective date of May 18, 2018. The treaty further specifies that all U.S. investments in place at the date of termination enjoy the protections of the treaty for the subsequent 10 years. There have been numerous claims against Ecuador under the BIT that have gone to international arbitration. There are two active cases awaiting a final decision.

International Commercial Arbitration and Foreign Courts

Several U.S. companies operating in Ecuador, most notably in the petroleum sector, have filed for international arbitration due to investment claims. The Government of Ecuador in the past treated these disputes as a political issue, speaking negatively about investors involved in these cases. Payment of arbitration awards generally takes longer than a year, although the Government of Ecuador has paid all final awards. Ecuador’s 2008 Constitution limited investor-state arbitration to regional arbitration entities and was the primary driver of the 2017 termination of BITs.

Bankruptcy Regulations

Ecuador is ranked 160 out of 190 in the category of Ease of Resolving Insolvency in the World Bank’s 2020 Ease of Doing Business Report. With the goal of protecting consumers and preventing a real estate bubble, the National Assembly approved in June 2012 a law that allows homeowners to default on their first home and car loan without penalty if they forfeit the asset. The provisions do not apply to homes with a market value of more than 500 times the basic monthly salary (currently USD 200,000) or vehicles worth more than 100 times the basic monthly salary (currently USD 40,000).

In cases of foreclosure, the average time for banks to collect on debts is 5.3 years, usually taking 4.5 years for courts to approve the initiation of foreclosures. After the appointment and acceptance of an auctioneer, it takes about six months for the auction to take place. World Bank’s Doing Business Report estimates that foreclosure proceedings result in costs equal to about 18 percent of the value of the estate in question, and a recovery rate of 18.3 cents on the dollar.

6. Financial Sector

Capital Markets and Portfolio Investment

The 2014 Law to Strengthen and Optimize Business Partnerships and Stock Markets created the Securities Market Regulation Board to oversee the stock markets. Investment options on the Quito and Guayaquil stock exchanges are very limited. Sufficient liquidity to enter and exit sizeable positions does not exist in the local markets. The five percent currency exit tax also inhibits free flow of financial resources into the product and factor markets. Foreigners are able to access credit on the local market, but interest rates are high and the number of credit instruments is limited.

Money and Banking System

Ecuador is a dollarized economy, and its banking sector is healthy. According to the Ecuadorian Central Bank’s Access to the Financial System Report, approximately 59 percent of the adult (over 15 years old) population (6.9 million people) has access to a bank account. Ecuador’s banks hold in total USD 47.9 billion in assets, with the largest banks being Banco Pichincha with about USD 12.2 billion in assets, Banco del Pacifico with about USD 6.9 billion, Banco de Guayaquil with about USD 5.7 billion, and Produbanco with about USD 5.4 billion. The Banking Association (ASOBANCA) estimates 2.7 percent of loans are non-performing. Foreigners require residency to open checking accounts in Ecuador.

Ecuador’s Superintendence of Banks regulates the financial sector. Between 2012 and 2013, the financial sector was the target of numerous new restrictions. By 2012, most banks had sold off their brokerage firms, mutual funds, and insurance companies to comply with Constitutional changes following a May 2010 referendum. The amendment to Article 312 of the Constitution required banks and their senior managers and shareholders with more than six percent equity in financial entities to divest entirely from any interest in all non-financial companies by July 2012. These provisions were incorporated into the Anti-Monopoly Law passed in September 2011.

The Organic Monetary and Financial Code, published in the Official Registry September 12, 2014, created a five-person Monetary and Financial Policy and Regulation Board of presidential appointees to regulate the banking sector. The law gives the Monetary and Financial Policy and Regulation Board the ability to prioritize certain sectors for lending from private banks. The Code also established that finance companies had to become banks, merge, or close their operations by 2017. Of the 10 finance companies in Ecuador, two became banks, six closed their operations or are in the process of closing, and two were absorbed by other financial institutions. There are 24 private banks in Ecuador as of December 2020.

Electronic currency appeared in 2014 with the approval of the Organic Monetary and Financial Code, which established the exclusive management of the system by Ecuador’s Central Bank. In 2017, with the approval of the Law for the Reactivation of the Economy, Strengthening of Dollarization and Modernization of Financial Management, electronic currency management was transferred to private banks. The Central Bank issued Regulation 29 in July 2012 requiring all financial transfers (inflows and outflows) to be channeled through the Central Bank’s accounts. In principle, the regulation increases monetary authorities’ oversight and prevents banks from netting their inflows and outflows to avoid paying the five percent currency exit tax.

Foreign Exchange and Remittances

Foreign Exchange

Ecuador adopted the U.S. dollar as the official currency in 2000. Foreign investors may remit 100 percent of net profits and capital, subject to a five percent currency exit tax. There are no restrictions placed on foreign investors in transferring or repatriating funds associated with an investment.

Remittance Policies

Resolution 107-2015-F from Ecuador’s Monetary and Finance Board issued in July 2015 exempted some payments to foreign lenders from the capital exit tax. Among other requirements, the duration of the loan must be more than 360 days, the loan must be registered with the Central Bank, and the resources must be destined for specific purposes, such as to fund small businesses or social housing.

The Financial Action Task Force (FATF) announced October 23, 2015 that it had removed Ecuador from the list of countries with strategic deficiencies in anti-money laundering and countering the financing of terrorism (AML/CFT) regimes. Ecuador will undergo its next FATF mutual evaluation in 2021.

Sovereign Wealth Funds

The Government of Ecuador does not maintain a Sovereign Wealth Fund (SWF). Approved in July 2020, Ecuador’s Public Finance Law (COPLAFIP) established a Fiscal Stabilization Fund to invest excess revenues from extractive industries and hedge against oil and metal price fluctuations.

10. Political and Security Environment

Widespread public protests in 1997, 2000, and 2005 contributed to the removal of three elected presidents before the end of their terms. Large-scale but peaceful demonstrations against the Correa government occurred in June 2015. Some indigenous communities opposed to natural resource development have blocked access by petroleum and mining companies. Opposition to the government’s decision to remove fuel subsidies led to nationwide violent protests in October 2019. The protests paralyzed the country for 11 days, causing significant property damage, including to petroleum and telecommunications infrastructure. A dialogue between the government and indigenous protest leaders, mediated by the United Nations and the Catholic Church, led to the government’s decision to restore the fuel subsidies. Security along the northern border with Colombia deteriorated significantly in late 2017 and early 2018, when dissident Revolutionary Armed Forces of Colombia groups attacked police and military units and kidnapped civilians, resulting in several deaths. Military and police increased their presence in the zone, and violence in the northern border area calmed in 2019, although illicit activities continue. Violence related to drug-trafficking organizations increased in 2020 and 2021, particularly in Ecuador’s port cities.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International
Source of Data:
BEA; IMF; Eurostat;
UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($B USD) 2019 $107.4 2018 $107.6 https://data.worldbank.org/ 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international
Source of Data:
BEA; IMF; Eurostat;
UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $619 BEA data available at https://www.bea.gov/
international/
direct-investment-and-
multinational-enterprises-comprehensive-data 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $48 BEA data available at https://www.bea.gov/
international/
direct-investment-and-multinational-
enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP N/A N/A 2019 18.3% UNCTAD data available at https://unctad.org/
en/Pages/DIAE/
World%20Investment
%20Report/Country-Fact-Sheets.aspx 

* Source for Host Country Data: Central Bank of Ecuador. The Central Bank publishes FDI calculated as net flows only. Outward Direct Investment statistics are not published by the Central Bank.

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 $897.2 100% Total Outward Amount 100%
Canada $275.5 31% N/A N/A
Spain $239.8 27% N/A N/A
UK $95.5 11% N/A N/A
United States $83.9 9% N/A N/A
China $41.8 5% N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

Source: Central Bank of Ecuador – September 2020 data. The Central Bank publishes FDI calculated as net flows only. The Central Bank does not publish Outward Direct Investment statistics, nor is there information available on the IMF’s CDIS website.

Egypt

Executive Summary

The Egyptian government continues to make progress on economic reforms, and while many challenges remain, Egypt’s investment climate is improving.  The country has undertaken a number of structural reforms since the flotation of the Egyptian Pound (EGP) in November 2016, and after successfully completing a set of difficult macroeconomic reforms as part of a three-year, $12-billion International Monetary Fund (IMF) program, Egypt was one of the fastest-growing emerging markets prior to the COVID-19 outbreak.  Egypt was also the only economy in the Middle East and North Africa to record positive economic growth in 2020, despite the COVID-19 pandemic. Increased investor confidence and the reactivation of Egypt’s interbank foreign exchange (FX) market have attracted foreign portfolio investment and increased foreign reserves.  The Government of Egypt (GoE) increasingly understands that attracting foreign direct investment (FDI) is key to addressing many of its economic challenges and has stated its intention to create a more conducive environment for FDI.  FDI inflows grew 11 percent between 2018 and 2019, from $8.1 to $9 billion, before falling 39 percent to $5.5 billion in 2020 amid sharp global declines in FDI due to the pandemic, according to data from the Central Bank of Egypt and the United Nations Commission on Trade and Development (UNCTAD). UNCTAD ranked Egypt as the top FDI destination in Africa between 2016 and 2020.

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

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

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

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 117 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 114 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 96 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, on a historical-cost basis 2019 USD 11,000 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 USD 2,690 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Egypt’s completion of the three-year, $12-billion IMF Extended Fund Facility between 2016 and 2019, and its associated reform package, helped stabilize Egypt’s macroeconomy, introduced important subsidy and social spending reforms, and helped restore investor confidence in the Egyptian economy.  The flotation of the Egyptian Pound (EGP) in November 2016 and the restart of Egypt’s interbank foreign exchange (FX) market as part of this program was the first major step in restoring investor confidence that immediately led to increased portfolio investment and should lead to increased FDI over the long term.  Other important reforms have included a new investment law and an industrial licensing law in 2017, a new bankruptcy law in 2018, a new customs law in 2020, and other reforms aimed at reducing regulatory overhang and improving the ease of doing business. Egypt’s government has announced plans to improve its business climate further through investment promotion, facilitation, more efficient business services, and the implementation of investor-friendly policies.

With few exceptions, Egypt does not legally discriminate between Egyptian nationals and foreigners in the formation and operation of private companies. The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital.

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

The Capital Markets Law (Law 95 of 1992) and its amendments, including the most recent in February 2018, and relevant regulations govern Egypt’s capital markets.  Foreign investors are able to buy shares on the Egyptian Stock Exchange on the same basis as local investors.

The General Authority for Investment and Free Zones (GAFI, http://gafi.gov.eg) is the principal government body that regulates and facilitates foreign investment in Egypt, and reports directly to the Prime Minister.

The Investor Service Center (ISC) is an administrative unit within GAFI that provides “one-stop-shop” services, easing the way for global investors looking for opportunities presented by Egypt’s domestic economy and the nation’s competitive advantages as an export hub for Europe, the Middle East, and Africa. This is in addition to promoting Egypt’s investment opportunities in various sectors.

The ISC provides a start-to-end service to the investor, including assistance related to company incorporation, establishment of company branches, approval of minutes of Board of Directors and General Assemblies, increases of capital, changes of activity, liquidation procedures, and other corporate-related matters. The Center also aims to issue licenses, approvals, and permits required for investment activities within 60 days from the date of request. Other services GAFI provides include:

Advice and support to help in the evaluation of Egypt as a potential investment location;

Identification of suitable locations and site selection options within Egypt;

Assistance in identifying suitable Egyptian partners; and

Aftercare and dispute settlement services. ​

The ISC plans to establish branches in each of Egypt’s Governorates by the end of 2021.  Egypt maintains ongoing communication with investors through formal business roundtables, investment promotion events (conferences and seminars), and one-on-one investment meetings.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Egyptian Companies Law does not set any limitation on the number of foreigners, neither as shareholders nor as managers/board members, except for Limited Liability Companies where the only restriction is that one of the managers must be an Egyptian national. In addition, companies are required to obtain a commercial and tax license, and pass a security clearance process.  Companies are able to operate while undergoing the often lengthy security screening process.  However, if the firm is rejected, it must cease operations and may undergo a lengthy appeals process.  Businesses have cited instances where Egyptian clients were hesitant to conclude long-term business contracts with foreign businesses that have yet to receive a security clearance. They have also expressed concern about seemingly arbitrary refusals, a lack of explanation when a security clearance is not issued, and the lengthy appeals process. Although the Government of Egypt has made progress streamlining the business registration process at GAFI, inconsistent treatment by banks and other government officials has in some cases led to registration delays.

Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in the Sinai Peninsula. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians. Nevertheless, the new Investment Law does allow wholly foreign companies investing in Egypt to import goods and materials. In January 2021 the Egyptian government removed the 20-percent foreign ownership cap for international and private schools in Egypt.

The ownership of land by foreigners is complicated, in that it is governed by three laws: Law 15 of 1963, Law 143 of 1981, and Law 230 of 1996.  Land/Real Estate Law 15 of 1963 explicitly prohibits foreign individual or corporation ownership of agricultural land (defined as traditional agricultural land in the Nile Valley, Delta and Oases). Law 15/1963 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land.  Law 143/1981 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is approximately equal to one acre) that may be owned by individuals, families, cooperatives, partnerships, and corporations regardless of nationality. Partnerships are permitted to own 10,000 feddans. Joint stock companies are permitted to own 50,000 feddans.

Under Law 230/1986, non-Egyptians are allowed to own real estate (vacant or built) only under the following conditions:

  • Ownership is limited to two real estate properties in Egypt that serve as accommodation for the owner and his family (spouses and minors) in addition to the right to own real estate needed for activities licensed by the Egyptian Government.
  • The area of each real estate property does not exceed 4,000 m².
  • The real estate is not considered a historical site.

Exemption from the first and second conditions is subject to the approval of the Prime Minister. Ownership in tourist areas and new communities is subject to conditions established by the Cabinet of Ministers. Non-Egyptians owning vacant real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians cannot sell their real estate for five years after registration of ownership, unless the Prime Minister consents to an exemption.

Other Investment Policy Reviews

In December 2020, the World Bank published a Country Private Sector Diagnostic report for Egypt, which analyzed key structural economic reforms that the Egyptian government should adopt in order to encourage private-sector-led economic growth. The report also included recommendations for the agribusiness, manufacturing, information technology, education, and healthcare sectors. https://www.ifc.org/wps/wcm/connect/publications_ext_content/ifc_external_publication_site/publications_listing_page/cpsd-egypt

https://www.ifc.org/wps/wcm/connect/publications_ext_content/ifc_external_publication_site/publications_listing_page/cpsd-egypt

The Organization for Economic Cooperation and Development (OECD) signed a declaration with Egypt on International Investment and Multinational Enterprises on July 11, 2007, at which time Egypt became the first Arab and African country to sign the OECD Declaration, marking a new stage in Egypt’s drive to attract more foreign direct investment (FDI).  On July 8, 2020, the OECD released an Investment Policy Review for Egypt that highlighted the government’s progress implementing a proactive reform agenda to improve the business climate, attract more foreign and domestic investment, and reap the benefits of openness to FDI and participation in global value chains. https://www.oecd.org/countries/egypt/egypt-continues-to-strengthen-its-institutional-and-legal-framework-for-investment.htm  

https://www.oecd.org/countries/egypt/egypt-continues-to-strengthen-its-institutional-and-legal-framework-for-investment.htm  

In January 2018 the World Trade Organization (WTO) published a comprehensive review of the Egyptian Government’s trade policies, including details of the Investment Law’s (Law 72 of 2017) main provisions. https://www.wto.org/english/tratop_e/tpr_e/s367_e.pdf 

https://www.wto.org/english/tratop_e/tpr_e/s367_e.pdf 

The United Nations Conference on Trade Development (UNCTAD) published an Information and Communications Technology (ICT) Policy Review for Egypt in 2017, in which it highlighted the potential for investments in the ICT sector to help drive economic growth and recommended specific reforms aimed at strengthening Egypt’s performance in key ICT policy areas.   https://unctad.org/en/PublicationsLibrary/dtlstict2017d3_en.pdf 

https://unctad.org/en/PublicationsLibrary/dtlstict2017d3_en.pdf   

Business Facilitation

GAFI’s ISC ( https://gafi.gov.eg/English/Howcanwehelp/OneStopShop/Pages/default.aspx ) was launched in February 2018 and provides start-to-end service to the investor, as described above.  The Investment Law (Law 72 of 2017) also introduces “Ratification Offices” to facilitate obtaining necessary approvals, permits, and licenses within 10 days of issuing a Ratification Certificate.

Investors may fulfill the technical requirements of obtaining the required licenses through these Ratification Offices, directly through the concerned authority, or through its representatives at the Investment Window at GAFI.  The Investor Service Center is required to issue licenses within 60 days from submission. Companies can also register online.  GAFI has also launched e-establishment, e-signature, and e-payment services to facilitate establishing companies.

Outward Investment

Egypt promotes and incentivizes outward investment. According to the Egyptian government’s FDI Markets database for the period from January 2003 to January 2021, outward investment featured the following:

  • Egyptian companies implemented 278 Egyptian FDI projects. The estimated total value of the projects, which employed about 49,000 workers, was $24.26 billion.
  • The following countries respectively received the largest amount of Egyptian outward investment in terms of total project value: The United Arab Emirates (UAE), Saudi Arabia, Algeria, Kenya, Jordan, Ethiopia, Germany, Libya, Morocco, and Nigeria.
  • The UAE, Saudi Arabia, and Algeria accounted for about 28 percent of the total amount.
  • Elsewedy Electric was the largest Egyptian company investing abroad, implementing 21 projects with a total investment estimated to be $2.1 billion.

Egypt does not restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

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

Enactment of laws is the purview of the Parliament, while executive regulations are the domain of line ministries.  Under the Constitution, the president, the cabinet, and any member of parliament can present draft legislation.  After submission, parliamentary committees review and approve, including any amendments.  Upon parliamentary approval, a judicial body reviews the constitutionality of any legislation before referring it to the president for his approval.

Although notice and full drafts of legislation are typically printed in the Official Gazette (similar to the Federal Register in the United States), there is no centralized online location where the government publishes comprehensive details about regulatory decisions or their summaries, and in practice consultation with the public is limited.  In recent years, the Ministry of Trade and other government bodies have circulated draft legislation among concerned parties, including business associations and labor unions. This has been a welcome change from previous practice, but is not yet institutionalized across the government.

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

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

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

http://www.fra.gov.eg/content/efsa_en/efsa_pages_en/laws_efsa_en.htm  

The Parliament and the independent “Administrative Control Authority” both ensure the government’s commitment to follow administrative processes at all levels of government.

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

The degree to which ministries and government agencies responsible for drafting, implementing, or enforcing a given regulation coordinate with other stakeholders varies widely.  Although some government entities may attempt to analyze and debate proposed legislation or rules, there are no laws requiring scientific studies or quantitative regulatory impact analyses prior to finalizing or implementing new laws or regulations. Not all issued regulations are announced online, and not all public comments received by regulators are made public.

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

International Regulatory Considerations

In general, international standards are the main reference for Egyptian standards.  According to the Egyptian Organization for Standardization and Quality Control, approximately 7,000 national standards are aligned with international standards in various sectors.  In the absence of international standards, Egypt uses other references referred to in Ministerial Decrees No. 180/1996 and No. 291/2003, which stipulate that in the absence of Egyptian standards, the producers and importers may use European standards (EN), U.S. standards (ANSI), or Japanese standards (JIS).

Egypt is a member of the WTO, participates actively in various committees, and notifies technical regulations to the WTO Committee on Technical Barriers to Trade.  Egypt ratified the Trade Facilitation Agreement (TFA) in June 2017 (Presidential decree No. 149/2017), and deposited its formal notification to the WTO on June 24, 2019.  Egypt notified indicative and definitive dates for implementing Category B and C commitments on June 20, 2019, but to date has not notified dates for implementing Category A commitments.  In August 2020 the Egyptian Parliament passed a new Customs Law, Law 207 of 2020, that includes provisions for key TFA reforms, including advance rulings, separation of release, a single-window system, expedited customs procedures for authorized economic operators, post-clearance audits, and e-payments.

Legal System and Judicial Independence

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

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

Judges in Egypt enjoy a high degree of public trust, according to Egyptian lawyers and opinion polls, and are the designated monitors for general elections.  The Judiciary is proud of its independence and can point to a number of cases where a judge has made surprising decisions that run counter to the desires of the regime.  The judge’s ability to interpret the law can sometimes lead to an uneven application of justice.

Laws and Regulations on Foreign Direct Investment

No specialized court exists for foreign investments.

The 2017 Investment Law (Law 72 of 2017) as well as other FDI-related laws and regulations, are published on GAFI’s website,  https://gafi.gov.eg/English/StartaBusiness/Laws-and-Regulations/Pages/default.aspx .

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

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

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

Competition and Anti-Trust Laws

The Egyptian Competition Law (ECL), Law 3 of 2005, provides the framework for the government’s competition rules and anti-trust policies. The ECL prohibits the abuse of dominant market positions, which it defines as a situation in which a company’s market share exceeds 25 percent and in which the company is able to influence market prices or volumes regardless of competitors’ actions. The ECL prohibits vertical agreements or contracts between purchasers and suppliers that are intended to restrict competition, and also forbids agreements among competitors such as price collusion, production-restriction agreements, market sharing, and anti-competitive arrangements in the tendering process. The ECL applies to all types of persons or enterprises carrying out economic activities, but includes exemptions for some government-controlled public utilities. In early 2019, the Egyptian Parliament endorsed a number of amendments to the ECL, including controls on price hikes and prices of essential products and higher penalties for violations.

In addition to the ECL, other laws cover various aspects of competition policy. The Companies Law (Law 159/1981) contains provisions on mergers and acquisitions; the Law of Supplies and Commerce (Law 17 of 1999) forbids competition-reducing activities such as collusion and hoarding; and the Telecommunications Law (Law 10 of 2003), the Intellectual Property Law (Law 82 of 2002), and the Insurance Supervision and Control Law (Law 10 of 1981) also include provisions on competition.

The Egyptian Competition Authority (ECA) is responsible for protecting competition and prohibiting the monopolistic practices defined within the ECL. The ECA has the authority to receive and investigate complaints, initiate its own investigations, and take decisions and necessary steps to stop anti-competitive practices. The ECA’s enforcement powers include conducting raids; using search warrants; requesting data and documentation; and imposing “cease and desist orders” on violators of the ECL. The ECA’s enforcement activities against government entities are limited to requesting data and documentation, as well as advocacy.

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

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

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

Investor-State Dispute Settlement

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

Many foreign investors employ clauses that specify that U.S. companies employ contractual clauses that specify binding international (not local) arbitration of disputes in their commercial agreements.

Bankruptcy Regulations

Egypt passed a Bankruptcy Law (Law 11 of 2018) in January 2018, which was designed to speed up the restructuring of troubled companies and settlement of their accounts.  It also replaced the threat of imprisonment with fines in cases of bankruptcy.  As of July 2020, the Egyptian government was considering but had not yet implemented amendments to the 2018 law that would allow debtors to file for bankruptcy protection, and would give creditors the ability to determine whether debtors could continue operating, be placed under administrative control, or be forced to liquidate their assets.

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

6. Financial Sector

Capital Markets and Portfolio Investment

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

The Egyptian Stock Exchange (EGX) is Egypt’s registered securities exchange. Some 240 companies were listed on the EGX, including Nilex, as of February 2021. There were more than 500,000 investors registered to trade on the exchange in 2019, and the Egyptian market attracted 28,240 new investors in 2020.  Stock ownership is open to foreign and domestic individuals and entities.  The Government of Egypt issues dollar-denominated and Egyptian Pound-denominated debt instruments, for which ownership is open to foreign and domestic individuals and entities. The government has developed a positive outlook toward foreign portfolio investment, recognizing the need to attract foreign capital to help develop the Egyptian economy.  Foreign investors conducted 16 percent of sales on the EGX in 2020.

The Capital Market Law 95/1992, along with Banking Law 94 that President Sisi ratified in September 2020, constitute the primary regulatory frameworks for the financial sector.  The law grants foreigners full access to capital markets, and authorizes establishment of Egyptian and foreign companies to provide underwriting of subscriptions, brokerage services, securities and mutual funds management, clearance and settlement of security transactions, and venture capital activities.  The law specifies mechanisms for arbitration and legal dispute resolution and prohibits unfair market practices.  Law 10/2009 created the Egyptian Financial Supervisory Authority (EFSA) and brought the regulation of all non-banking financial services under its authority.  In 2017, EFSA became the Financial Regulatory Authority (FRA).

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

Prior to November 2020, foreign companies enlisting on the EGX had to possess minimum capital of $100 million. With the FRA’s passage of new rules, foreign companies joining the EGX must now meet lesser requirements matching those for Egyptian companies: $6.4 million (100 million EGP) for large companies and between $63,000 and $6.4 million (1-100 million EGP) for smaller companies, depending on their size. Foreign businesses are only eligible for these lower minimum capital requirements if the EGX is their first exchange and if they attribute more than 50 percent of their shareholders’ equites, revenues, and assets to Egyptian subsidiary companies.

The Finance Ministry announced in May 2020 the suspension of stock market capital gains taxes for Egyptian tax residents until December 31, 2021, and made stock market capital gains permanently tax-exempt for non-tax residents and foreigners. The government also set the stamp tax on stock market transactions by non-tax residents at 0.125 percent and at 0.05 percent for tax residents.

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

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

Money and Banking System

Benefitting from the nation’s increasing economic stability over the past two years, Egypt’s banks have enjoyed both ratings upgrades and continued profitability. Thanks to economic reforms, a new floating exchange system, and a new Investment Law (Law 72/2017) passed in 2017, the project finance pipeline is increasing after a period of lower activity. Banking competition is serving a largely untapped retail segment and the nation’s challenging, but potentially rewarding, small and medium-sized enterprise (SME) segment.

The Central Bank of Egypt (CBE) requires that banks direct 25 percent of their lending to SMEs.  In December 2019, the Central Bank launched a $6.4 billion (100 billion EGP) initiative to spur domestic manufacturing through subsidized loans. Also, with only about a quarter of Egypt’s adult population owning or sharing an account at a formal financial institution (according press and comments from contacts), the banking sector has potential for growth and higher inclusion, which the government and banks discuss frequently. A low median income plays a part in modest banking penetration.

The CBE has taken steps to work with banks and technology companies to expand financial inclusion.  The employees of the government, one of the largest employers, must now have bank accounts because salary payment is through direct deposit. The CBE approved new procedures in October 2020 to allow deposits and the opening of new bank accounts with only a government-issued ID, rather than additional documents. The maximum limits for withdrawals and account balances also increased. In July 2020, President Sisi ratified a new Micro, Small and Medium Enterprises (MSMEs) Development Law (Law 152 of 2020) that will provide incentives, tax breaks, and discounts for small, informal businesses willing to register their businesses and begin paying taxes.

As an attempt to keep pace with best practice and international norms, President Sisi ratified a new Banking Law, Law 94 of 2020, in September 2020. The law establishes a National Payment Council headed by the President to move Egypt away from cash and toward electronic payments; establishes a committee headed by the Prime Minister to resolve disputes between the CBE and the Ministry of Finance; establishes a CBE unit to handle complaints of monopolistic behaviors; requires banks to increase their cash holdings to $320 million (5 billion EGP), up from the prior minimum of $32 million (500 million EGP); and requires banks to report deficiencies in their own audits to the CBE.

Egypt’s banking sector is generally regarded as healthy and well-capitalized, due in part to its deposit-based funding structure and ample liquidity, especially since the flotation and restoration of the interbank market.  The CBE declared that 3.6 percent of the banking sector’s loans were non-performing by December 2020. However, since 2011, a high level of exposure to government debt, accounting for over 40 percent of banking system assets, at the expense of private-sector lending, has reduced the diversity of bank balance sheets and crowded out domestic investment. Given the flotation of the Egyptian Pound and restart of the interbank trading system, Moody’s and S&P have upgraded the outlook of Egypt’s banking system to stable from negative to reflect improving macroeconomic conditions and ongoing commitment to reform. In December 2020, Moody’s affirmed Egypt’s government issuer rating of B2 stable due to the government’s relatively low issuance of foreign currency loans and relatively low external government debt.

Thirty-eight banks operate in Egypt, including several foreign banks. The CBE has not issued a new commercial banking license since 1979. The only way for a new commercial bank, whether foreign or domestic, to enter the market (except as a representative office) is to purchase an existing bank. To this end, in 2013, QNB Group acquired National Société Générale Bank Egypt (NSGB). That same year, Emirates NBD, Dubai’s largest bank, bought the Egypt unit of BNP Paribas. In 2015, Citibank sold its retail banking division to CIB Bank. In 2017, Barclays Bank PLC transferred its entire shareholding to Attijariwafa Bank Group.  In January 2021, Bahrain’s bank ABC completed its purchase of the Egypt-based, Lebanon-owned BLOM bank, while First Abu Dhabi Bank (FAB) signed an agreement to acquire Bank Audi in Egypt. In 2016 and 2017, Egypt indicated a desire to partially (less than 35 percent) privatize at least one state-owned bank and a total of 23 firms through either expanded or new listings on the Egypt Stock Exchange. As of April 2020 the only step towards implementing this privatization program was the offering of 4.5 percent of the shares of state-owned Eastern Tobacco Company on the stock market. The state-owned Banque du Caire postponed plans to offer some of its shares on the EGX due to the novel coronavirus.

According to the CBE, banks operating in Egypt held nearly $446 billion (7 trillion EGP) in total assets as of December 2020, with the five largest banks holding more than 69 percent, or $309 billion (4.86 trillion EGP), of holdings by the end of 2020.

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

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

Foreign Exchange and Remittances

Foreign Exchange

There had been significant progress in accessing hard currency since the flotation of the pound and re-establishment of the interbank currency trading system in November 2016. While the immediate aftermath saw some lingering difficulty of accessing currency, as of 2017 most businesses operating in Egypt reported having little difficulty obtaining hard currency for business purposes, such as importing inputs and repatriating profits. There are no dollar deposit limits on households and firms importing priority goods such as food products, pharmaceuticals, and basic raw materials. With net foreign reserves of $40.2 billion as of February 2021, Egypt’s foreign reserves appear to be well capitalized, although recent inflows are in part due to assistance payments by international financial institutions such as the IMF.

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

The value of the EGP generally fluctuates depending on market conditions, without direct market intervention by authorities. In general, the EGP has stabilized within an acceptable exchange rate range, which has increased the foreign exchange market’s liquidity. Since the early days following the flotation, there has been very low exchange-rate volatility.

Remittance Policies

The 1992 U.S.-Egypt Bilateral Investment Treaty provides for free transfer of dividends, royalties, compensation for expropriation, payments arising out of an investment dispute, contract payments, and proceeds from sales. Prior to reform implementation throughout 2016 and 2017, large corporations had been unable to repatriate local earnings for months at a time, but repatriation of funds is no longer restricted.     The Investment Incentives Law (Law 72 of 2017) (IIL) stipulates that non-Egyptian employees hired by projects established under the law are entitled to transfer their earnings abroad. Conversion and transfer of royalty payments are permitted when a patent, trademark, or other licensing agreement has been approved under the IIL.

The Investment Incentives Law (Law 72 of 2017) (IIL) stipulates that non-Egyptian employees hired by projects established under the law are entitled to transfer their earnings abroad. Conversion and transfer of royalty payments are permitted when a patent, trademark, or other licensing agreement has been approved under the IIL.   Banking Law 94 of 2020 regulates the repatriation of profits and capital. The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock-exchange transactions. The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit-repatriation transactions using the bank’s posted daily exchange rates. The system is designed to allow for settlement of transactions in less than two days, though in practice some firms have reported short delays in repatriating profits due to the steps involved in processing.

Banking Law 94 of 2020 regulates the repatriation of profits and capital. The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock-exchange transactions. The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit-repatriation transactions using the bank’s posted daily exchange rates. The system is designed to allow for settlement of transactions in less than two days, though in practice some firms have reported short delays in repatriating profits due to the steps involved in processing.

Sovereign Wealth Funds

Egypt’s sovereign wealth fund (SWF), approved by the Cabinet and launched in late 2018, holds 200 billion EGP ($12.5 billion) in authorized capital as of December 2020.  The SWF aims to invest state funds locally and abroad across asset classes and manage underutilized government assets.  The sovereign wealth fund focuses on sectors considered vital to the Egyptian economy, particularly industry, energy, and tourism, and has established four new sub-funds covering healthcare, financial services, tourism, real estate, and infrastructure. The SWF participates in the International Forum of Sovereign Wealth Funds. The government is currently in talks with regional and European institutions to take part in forming the fund’s sector-specific units.

7. State-Owned Enterprises

State and military-owned companies compete directly with private companies in many sectors of the Egyptian economy. Although Public Sector Law 203/1991 states that state-owned enterprises (SOEs) should not receive preferential treatment from the government or be accorded exemptions from legal requirements applicable to private companies, in practice SOEs and military-owned companies enjoy significant advantages, including relief from regulatory requirements. Forty percent of the banking sector’s assets are controlled by three state-owned banks (Banque Misr, Banque du Caire, and National Bank of Egypt).  SOEs and other state-controlled “economic entities” in Egypt subject to Law 203/1991 are affiliated with 10 ministries and employ 450,000 workers.  The Ministry of Public Business Sector controls 90 SOEs operating under eight holding companies that employ 209,000 workers. The most profitable sectors include tourism, real estate, and transportation. The ministry publishes a list of SOEs and holding companies on its website, http://www.mpbs.gov.eg/Arabic/Affiliates/HoldingCompanies/Pages/default.aspx and http://www.mpbs.gov.eg/Arabic/Affiliates/AffiliateCompanies/Pages/default.aspx.   In an attempt to encourage growth of the private sector, privatization of state-owned enterprises and state-owned banks accelerated under an economic reform program that took place from 1991 to 2008. Following the 2011 revolution, third parties have brought cases in court to reverse privatization deals, and in a number of these cases, Egyptian courts have ruled to reverse the privatization of several former public companies. Most of these cases are still under appeal.

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

The state-owned telephone company, Telecom Egypt, lost its legal monopoly on the local, long-distance, and international telecommunication sectors in 2005, but held a de facto monopoly until late 2016, when the National Telecommunications Regulatory Authority (NTRA) implemented a unified license regime that allows companies to offer both fixed line and mobile networks. The agreement allowed Telecom Egypt to enter the mobile market and the three existing mobile companies to enter the fixed-line market.  

 

OECD Guidelines on Corporate Governance of SOEs 

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

Privatization Program

The Egyptian government last attempted to privatize stakes in SOEs in March 2018 with the successful public offering of a minority stake in the Eastern Tobacco Company. The government has indefinitely delayed plans for privatizing stakes in 22 other SOEs, including up to 30 percent of the shares of Banque du Caire, due to adverse market conditions and increased global volatility. Egypt’s privatization program is based on Public Enterprise Law 203/1991, which permits the sale of SOEs to foreign entities.

Law 32/2014 limits the ability of third parties to challenge privatization contracts between the Egyptian government and investors. The law was intended to reassure investors concerned by legal challenges brought against privatization deals and land sales dating back to the pre-2008 period. Court cases at the time Parliament passed the law had put many of these now-private firms, many of which are foreign-owned, in legal limbo over concerns that they may be returned to state ownership.

10. Political and Security Environment

Stability and economic development remain Egypt’s priorities. The Egyptian government has taken measures to eliminate politically motivated violence while also limiting peaceful protests and political expression. Egypt’s presidential elections in March 2018 and senatorial elections in August 2020 proceeded without incident. Militant groups also committed attacks in the Western Desert and Sinai. The government has been conducting a comprehensive counterterrorism offensive in the Sinai since early 2018 in response to terrorist attacks against military installations and personnel by ISIS-affiliated militant groups. In February 2020, ISIS-affiliated militants claimed responsibility for an attack against a domestic gas pipeline in the northern Sinai. Although the group claimed that the attack targeted the recently opened natural gas pipeline connecting Egypt and Israel, the pipeline itself was undamaged, and the flow of natural gas was not interrupted.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

 

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $319,056 2019 $335,175 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 11 2019 $11,000 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $1 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP N/A N/A 2019 41% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx 

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

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

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

El Salvador

Executive Summary

Since President Nayib Bukele took office on June 1, 2019, his administration has sought to attract foreign investment and has taken steps to reduce cumbersome bureaucracy and improve security conditions. The COVID-19 pandemic complicated implementation of reforms and dampened investment.

To respond to COVID-19, the Government of El Salvador (GOES) implemented several emergency measures, including travel restrictions beginning in February 2020 and a nationwide lockdown from March to June 2020. Unclear or conflicting wording among the numerous emergency decrees created uncertainty, complicated business operations, and increased the risks of inadvertent non-compliance. The discretionary application of emergency measures and severe penalties for non-compliance contributed to the uncertainty. Lockdown measures disrupted and limited business operations with even manufacturers of medical supplies and other essential products unable to receive formal permission to reopen. The Supreme Court found the GOES phased reopening decrees to be unconstitutional, mandating a complete nationwide reopening of the economy at the end of August 2020.

As a result of the lockdown and worldwide recession, El Salvador lost approximately 20 percent of formal jobs in 2020. El Salvador’s Gross Domestic Product (GDP) is forecasted to drop by 8.5 percent in 2020 according to the Central Bank, with recovery to pre-pandemic production in 2022.

Following the reopening, perceptions of the investment climate began to slowly recover. However, political gridlock and electoral uncertainty dampened business confidence. The victory of President Bukele’s New Ideas Party in the February 28 legislative and municipal elections should remove obstacles to governability during the remaining three years of Bukele’s presidential term. With a large majority of the seats in the Legislative Assembly, Bukele should be able to pass legislation and reforms. His administration has pledged to enact legislation to strengthen institutions and improve the regulatory environment to spur investment and create jobs. Policies and reforms, however, will take time to implement and show results.

Commonly cited challenges to doing business in El Salvador include the discretionary application of laws and regulations, lengthy and unpredictable permitting procedures, as well as customs delays. El Salvador has lagged its regional peers in attracting foreign direct investment (FDI). The sectors with the largest investment have historically been textiles and retail establishments, though investment in energy has increased in recent years.

The Bukele administration has proposed several large infrastructure projects, which could provide opportunities for U.S. investment. The GOES has established a technical working group to help prioritize investment projects and attract private sector participation. Project proposals include enhancing road connectivity and logistics, expanding airport capacity and improving access to water and energy, as well as sanitation. Having inherited a large public debt, the Bukele administration has begun pursuing Public-Private Partnerships (PPPs) to execute infrastructure projects. El Salvador awarded its first PPP project in October 2020 to expand the cargo terminal at the international airport. The contract award is pending legislative approval. It launched a second PPP to install highway lighting and video surveillance in January 2020 and extended the deadline to submit bids until March 15, 2021 due to COVID-19. With these two PPPs, the Bukele administration delivered on its commitment under the Millennium Challenge Corporation (MCC) Compact, which ends April 30, 2021.

As a small energy-dependent country with no Atlantic coast, El Salvador relies on trade. It is a member of the Central American Dominican Republic Free Trade Agreement (CAFTA-DR) and the United States is El Salvador’s top trading partner. Proximity to the U.S. market is a competitive advantage for El Salvador. As most Salvadoran exports travel by land to Guatemalan and Honduran ports, regional integration is crucial for competitiveness. Although El Salvador officially joined the Customs Union established by Guatemala and Honduras in 2018, implementation has stalled. The Bukele administration announced in 2020 that it would prioritize bilateral trade facilitation with Guatemala.

The Bukele administration has taken initial steps to facilitate trade. In 2019, the government of El Salvador (GOES) relaunched the National Trade Facilitation Committee (NTFC), which produced the first jointly developed private-public action plan to reduce trade barriers. The plan contains 60 strategic measures focused on simplifying procedures, reducing trade costs, and improving connectivity and border infrastructure. In 2020, NTFC technical committees continued working to implement the action plan, as well as develop a national trade facilitation strategy. However, the NFTC has not presented progress on the action plan. The NFTC did not convene in 2020.

Table 1
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 104 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report “Ease of Doing Business” 2020 91 of 190 http://www.doingbusiness.org/rankings 
Global Innovation Index 2020 92 of 131 http://www.globalinnovationindex.org/content/page/data-analysis 
U.S. FDI in partner country ($M USD, stock positions) 2019 3,380 https://apps.bea.gov/international/factsheet/factsheet.cfm 
World Bank GNI per capita 2019 4,000 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

The GOES recognizes the benefits of attracting FDI. El Salvador does not have laws or practices that discriminate against foreign investors. The GOES does not screen or prohibit FDI. However, FDI levels still lag behind regional neighbors, except for Nicaragua. The Central Bank reported net FDI inflows of $232.95 million at the end of September 2020.

The Exports and Investment Promotion Agency of El Salvador (PROESA) supports investment in seven main sectors: textiles and apparel; business services; tourism; aeronautics; agro-industry; light manufacturing; and energy. PROESA provides information for potential investors about applicable laws, regulations, procedures, and available incentives for doing business in El Salvador. Websites: https://investelsalvador.com/  and http://www.proesa.gob.sv/investment/sector-opportunities .

The National Association of Private Enterprise (ANEP), El Salvador’s umbrella business chamber, serves as the primary private sector representative in dialogues with GOES ministries. http://www.anep.org.sv/ .

In 2019, the Bukele administration created the Secretariat of Commerce and Investment, a position within the President’s Office responsible for the formulation of trade and investment policies, as well as coordinating the Economic Cabinet. In addition, the Bukele administration created the Presidential Commission for Strategic Projects to lead the GOES major projects.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign citizens and private companies can freely establish businesses in El Salvador.

No single natural or legal person – whether national or foreign – can own more than 245 hectares (605 acres) of land. The Salvadoran Constitution stipulates there is no restriction on foreign ownership of rural land in El Salvador, unless Salvadoran nationals face restrictions in the corresponding country. Rural land to be used for industrial purposes is not subject to the reciprocity requirement.

The 1999 Investments Law grants equal treatment to foreign and domestic investors. With the exception of limitations imposed on micro businesses, which are defined as having 10 or fewer employees and yearly sales of $121,319.40 or less, foreign investors may freely establish any type of domestic business. Investors who begin operations with 10 or fewer employees must present plans to increase employment to the Ministry of Economy’s National Investment Office.

The Investment Law provides that extractive resources are the exclusive property of the state. The GOES may grant private concessions for resource extraction, though concessions are infrequently granted.

Other Investment Policy Reviews

El Salvador has been a World Trade Organization (WTO) member since 1995. The latest trade policy review performed by the WTO was published in 2016 (document: WT/TPR/S/344/Rev.1). https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/tpr/s/*)%20and%20((%20@Title=%20el%20salvador%20)%20or%20(@CountryConcerned=%20el%20salvador))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true# 

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/tpr/s/*)%20and%20((%20@Title=%20el%20salvador%20)%20or%20(@CountryConcerned=%20el%20salvador))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true# 

The latest investment policy review performed by the United Nations Conference on Trade and Development (UNCTAD) was in 2010. http://unctad.org/en/Docs/diaepcb200920_en.pdf

Business Facilitation

El Salvador has various laws that promote and protect investments, as well as providing benefits to local and foreign investors. These include: the Investments Law, the International Services Law; the Free Trade Zones Law; the Tourism Law, the Renewable Energy Incentives Law; the Law on Public Private Partnerships; the Special Law for Streamlining Procedures for the Promotion of Construction Projects; and the Legal Stability Law for Investments.

Business Registration

Per the World Bank, registering a new business in El Salvador requires nine steps taking an average of 16.5 days. According to the World Bank’s 2020 Doing Business Report, El Salvador ranks 148 in the “Starting a Business” indicator. El Salvador launched an online business registration portal in 2017 designed as a one-stop shop for registering new companies. The online portal allows new businesses the ability to formalize registration within three days and conduct administrative operations online. The portal ( https://miempresa.gob.sv/ ) is available to all, though services are available only in Spanish.

The GOES’ Business Services Office (Oficina de Atención Empresarial) caters to entrepreneurs and investors. The office has two divisions: “Growing Your Business” (Crecemos Tu Empresa) and the National Investment Office (Dirección Nacional de Inversiones, DNI). “Growing Your Businesses” provides business advice, especially for micro-, small- and medium-sized enterprises. The DNI administers investment incentives and facilitates business registration.

Contact information:

Business Services Office
Telephone: (503) 2590-5107
Address: Boulevard Del Hipódromo, Colonia San Benito, Century Tower, 7th Floor , San Salvador. Schedule: Monday-Friday, 7:30 a.m. – 3:30 p.m.
Crecemos Tu Empresa
E-mail: crecemostuempresa@minec.gob.sv
Website: http://www.minec.gob.sv/ 

The National Investment Office:

Stephanie Argueta de Rengifo , National Director of Investments, sargueta@minec.gob.sv;
Sandra Llirina Sagastume de Sandoval, Deputy Director of Special Investments , llirina.sagastume@minec.gob.sv Christel Schulz, Business Climate Deputy, cdearce@minec.gob.sv 
Laura Rosales de Valiente, Deputy Director of Investment Facilitation, lrosales@minec.gob.sv
Telephone: (503) 2590-5116/ (503) 2590-5264.

The Productive Development Fund (FONDEPRO) provides grants to small enterprises to strengthen competitiveness. Website: http://www.fondepro.gob.sv/ 

The National Commission for Micro and Small Businesses (CONAMYPE) supports micro and small businesses by providing training, technical assistance, financing, venture capital, and loan guarantee programs. CONAMYPE also provides assistance on market access and export promotion, marketing, business registration, and the promotion of business ventures led by women and youth. Website: https://www.conamype.gob.sv/ 

The Micro and Small Businesses Promotion Law defines a microenterprise as a natural or legal person with annual gross sales up to 482 minimum monthly wages, equivalent to $146,609.94 and up to ten workers. A small business is defined as a natural or legal person with annual gross sales between 482 minimum monthly wages ($146,609.94) and 4,817 minimum monthly wages ($1,465,186.89) and up to 50 employees. To facilitate credit to small businesses, Salvadoran law allows for inventories, receivables, intellectual property rights, consumables, or any good with economic value to be used as collateral for loans.

El Salvador provides equitable treatment for women and under-represented minorities. The GOES does not provide targeted assistance to under-represented minorities. CONAMYPE provides specialized counseling to female entrepreneurs and women-owned small businesses.

Outward Investment

While the government encourages Salvadoran investors to invest in El Salvador, it neither promotes nor restricts investment abroad.

3. Legal Regime

Transparency of the Regulatory System

The laws and regulations of El Salvador are relatively transparent and generally foster competition. Legal, regulatory, and accounting systems are transparent and consistent with international norms. However, the discretionary application of rules can complicate routine transactions, such as customs clearances and permitting applications. Regulatory agencies are often understaffed and inexperienced in dealing with complex issues. New foreign investors should review the regulatory environment carefully. In addition to applicable national laws and regulations, localities may impose permitting requirements on investors.

Companies note the GOES has enacted laws and regulations without following notice and comment procedures. The Regulatory Improvement Law, which entered into force in 2019, requires GOES agencies to publish online the list of laws and regulations they plan to approve, reform, or repeal each year. Institutions cannot adopt or modify regulations and laws not included in that list. The implementation of the law is gradual; the Regulatory Agenda is required for the executive branch since 2020, for the legislative and judicial branches, and autonomous entities in 2022, and municipalities in 2023. Prior to adopting or amending laws or regulations, the Simplified Administrative Procedures Law requires the GOES to perform a Regulatory Impact Analysis (RIA) based on a standardized methodology. Proposed legislation and regulations, as well as RIAs, must be made available for public comment. In practice, the Legislative Assembly does not publish draft legislation on its website and does not solicit comments on pending legislation. The GOES does not yet require the use of a centralized online portal to publish regulatory actions. The reforms have not been fully implemented. In 2020, only three GOES agencies drafted and published their regulatory agendas. GOES agencies performed only three RIAs prior to approving new legislation. Although the implications of the reforms are still not apparent, private sector stakeholders have expressed support for the measures.

El Salvador began implementing the Simplified Administrative Procedures Law in February 2019. This law seeks to streamline and consolidate administrative processes among GOES entities to facilitate investment. In 2016, El Salvador adopted the Electronic Signature Law to facilitate e-commerce and trade. Policies, procedures and needed infrastructure (data centers and specialized hardware and software) are in place for implementation, but work continues on licensing digital certification providers. El Salvador also enacted the Electronic Commerce Law, which entered into force in February 2021. The law establishes the framework for commercial and financial activities, contractual or not, carried out by electronic and digital means, introduces fair and equitable standards to protect consumers and providers, and sets processes to minimize risks arising from the use of new technologies. The law aims to support rapidly growing online businesses and financial technology (FinTech).

In 2018, El Salvador enacted the Law on the Elimination of Bureaucratic Barriers, which created a specialized tribunal to verify that regulations and procedures are implemented in compliance with the law and sanction public officials who impose administrative requirements not contemplated in the law. However, the law is pending implementation until the GOES appoints members of the tribunal.

The GOES controls the price of some goods and services, including electricity, liquid propane gas, gasoline, public transport fares, and medicines. The government also directly subsidizes water services and residential electricity rates.

The Superintendent of Electricity and Telecommunications (SIGET) oversees electricity rates, telecommunications, and distribution of electromagnetic frequencies. The Salvadoran government subsidizes residential consumers for electricity use of up to 105 kWh monthly. The electricity subsidy costs the government between $50 million to $64 million annually.

El Salvador’s public finances are relatively transparent. Budget documents, including the executive budget proposal, enacted budget, and end-of-year reports, as well as information on debt obligations are accessible to the public at: http://www.transparenciafiscal.gob.sv/ptf/es/PTF2-Index.html  An independent institution, the Court of Accounts, audits the financial statements, economic performance, cash flow statements, and budget execution of all GOES ministries and agencies. The results of these audits are publicly available online.

However, the GOES provided incomplete information about its execution of $8.1 billion, including extraordinary resources to tackle COVID-19. The GOES also has not disclosed expenditure information requested by the Assembly nor provided the Court of Accounts with unrestricted access to pandemic-related financial records and procurement documentation, as well as to the accounts of the Intelligence Agency.

International Regulatory Considerations

El Salvador belongs to the Central American Common Market and the Central American Integration System (SICA), organizations which are working on regional integration, (e.g., harmonization of tariffs and customs procedures). El Salvador commonly incorporates international standards, such as the Pan-American Standards Commission (Spanish acronym COPANT), into its regulatory system.

El Salvador is a member of the WTO, adheres to the Agreement on Technical Barriers to Trade (TBT Agreement), and has adopted the Code of Good Practice annexed to the TBT Agreement. El Salvador is also a signatory to the Trade Facilitation Agreement (TFA) and has notified its Categories A, B, and C commitments. El Salvador has established a National Trade Facilitation Committee (NTFC) as required by the TFA, which was reactivated in July 2019 as it had not met since 2017.

El Salvador is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures: http://tramites.gob.sv . Investors can find information on administrative procedures applicable to investment and income-generating operations including the name and contact details for those in charge of procedures, required documents and conditions, costs, processing time, and legal bases for the procedures.

Legal System and Judicial Independence

El Salvador’s legal system is codified law. Commercial law is based on the Commercial Code and the corresponding Commercial and Civil Code of Procedures. There are specialized commercial courts that resolve disputes.

Although foreign investors may seek redress for commercial disputes through Salvadoran courts, many investors report the legal system to be slow, costly, and unproductive. Local investment and commercial dispute resolution proceedings routinely last many years. The judicial system is independent of the executive branch, but may be subject to manipulation by diverse interests. Final judgments are at times difficult to enforce. The Embassy recommends that potential investors carry out proper due diligence by hiring competent local legal counsel.

In February 2021, the Constitutional Chamber of the Supreme Court declined to review a 2019 civil judgement against a foreign bank on grounds that the case had no constitutional merits. The civil ruling that ordered the bank to pay substantial compensation caused widespread concern in the private sector due to perceived irregularities. .

Laws and Regulations on Foreign Direct Investment

Miempresa is the Ministry of Economy’s website for new businesses in El Salvador. At Miempresa, investors can register new companies with the Ministry of Labor (MOL), Social Security Institute, pension fund administrators, and certain municipalities; request a tax identification number/card; and perform certain administrative functions. Website: https://www.miempresa.gob.sv/ 

The country’s eRegulations site provides information on procedures, costs, entities, and regulations involved in setting up a new business in El Salvador. Website: http://tramites.gob.sv/ 

The Exports and Investment Promoting Agency of El Salvador (PROESA) is responsible for attracting domestic and foreign private investment, promoting exports of goods and services, evaluating and monitoring the business climate, and driving investment and export policies. PROESA provides technical assistance to investors interested in starting operations in El Salvador, regardless of the size of the investment or number of employees. Website: http://www.proesa.gob.sv/ 

Competition and Anti-Trust Laws

The Office of the Superintendent of Competition reviews transactions for competition concerns. The OECD and the Inter-American Development Bank note the Superintendent employs enforcement standards that are consistent with global best practices and has appropriate authority to enforce the Competition Law effectively. Superintendent decisions may be appealed directly to the Supreme Court, the country´s highest court. Website: http://www.sc.gob.sv/home/ 

Expropriation and Compensation

The Constitution allows the government to expropriate private property for reasons of public utility or social interest. Indemnification can take place either before or after the fact. There are no recent cases of expropriation. In 1980, a rural/agricultural land reform established that no single natural or legal person could own more than 245 hectares (605 acres) of land, and the government expropriated the land of some large landholders. In 1980, private banks were nationalized, but were subsequently returned to private ownership in 1989-90. A 2003 amendment to the Electricity Law requires energy-generating companies to obtain government approval before removing fixed capital from the country.

Dispute Settlement

ICSID Convention and New York Convention

El Salvador is a member state to the ICSID Convention. ICSID is included in a number of El Salvador’s investment treaties as the forum available to foreign investors.

Investor-State Dispute Settlement

In 2016, ICSID ruled in favor of El Salvador on a case brought by an international mining company that sought to force government acceptance of a gold-mining project.  Following the ruling, El Salvador banned the exploration and extraction of metal mining in the country.

The rights of investors from CAFTA-DR countries are protected under the trade agreement’s dispute settlement procedures. There have been no successful claims by U.S. investors under CAFTA-DR. There are currently no pending claims by U.S. investors.

For foreign investors from a country without a trade agreement with El Salvador, amended Article 15 of the 1999 Investment Law limits access to international dispute resolution and may obligate them to use national courts. Submissions to national dispute panels and panel hearings are open to the public. Interested third parties have the opportunity to be heard.

International Commercial Arbitration and Foreign Courts

A 2002 law allows private sector organizations to establish arbitration centers to resolve commercial disputes, including those involving foreign investors. In 2009, El Salvador modified its arbitration law to allow parties to appeal a ruling to the Salvadoran courts. Investors have complained that the modification dilutes the efficacy of arbitration as an alternative method of resolving disputes. Arbitrations takes place at the Arbitration and Mediation Center, a branch of the Chamber of Commerce and Industry of El Salvador. Website: http://www.mediacionyarbitraje.com.sv/ 

El Salvador is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the Inter-American Convention on International Commercial Arbitration (Panama Convention). Local courts recognize and enforce foreign arbitral awards and judgments, but the process can be lengthy and difficult.

Bankruptcy Regulations

The Commercial Code, the Commercial Code of Procedures, and the Banking Law contain sections that deal with the process for declaring bankruptcy. There is no separate bankruptcy law or court. According to data collected by the 2020 World Bank’s Doing Business report, resolving insolvency in El Salvador takes 3.5 years on average and costs 12 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal. The average recovery rate is 32.4 percent. Globally, El Salvador ranks 92 out of 190 on Ease of Resolving Insolvency. Website: http://www.doingbusiness.org/content/dam/doingBusiness/country/e/el-salvador/SLV.pdf

6. Financial Sector

Capital Markets and Portfolio Investment

The Superintendent of the Financial System ( https://www.ssf.gob.sv/ ) supervises individual and consolidated activities of banks and non-bank financial intermediaries, financial conglomerates, stock market participants, insurance companies, and pension fund administrators. Foreign investors may obtain credit in the local financial market under the same conditions as local investors. Interest rates are determined by market forces, with the interest rate for credit cards and loans capped at 1.6 times the weighted average effective rate established by the Central Bank. The maximum interest rate varies according to the loan amount and type of loan (consumption, credit cards, mortgages, home repair/remodeling, business, and microcredits).

In January 2019, El Salvador eliminated a Financial Transactions Tax (FTT), which was enacted in 2014 and greatly opposed by banks.

The 1994 Securities Market Law established the present framework for the Salvadoran securities exchange. Stocks, government and private bonds, and other financial instruments are traded on the exchange, which is regulated by the Superintendent of the Financial System.

Foreigners may buy stocks, bonds, and other instruments sold on the exchange and may have their own securities listed, once approved by the Superintendent. Companies interested in listing must first register with the National Registry Center’s Registry of Commerce. In 2020, the exchange traded $5.8 billon, with average daily volumes between $10 million and $24 million. Government-regulated private pension funds, Salvadoran insurance companies, and local banks are the largest buyers on the Salvadoran securities exchange. For more information, visit: https://www.bolsadevalores.com.sv/ 

Money and Banking System

All but two of the major banks operating in El Salvador are regional banks owned by foreign financial institutions. Given the high level of informality, measuring the penetration of financial services is difficult; however, it remains relatively low between 30 percent- according to the Salvadoran Banking Association (ABANSA) – and 35 percent- reported by the Superintendence of the Financial System (SSF). The banking system is sound and generally well-managed and supervised. El Salvador’s Central Bank is responsible for regulating the banking system, monitoring compliance of liquidity reserve requirements, and managing the payment systems. No bank has lost its correspondent banking relationship in recent years. There are no correspondent banking relationships known to be in jeopardy.

The banking system’s total assets as of December 2020 were $20.4 billion. Under Salvadoran banking law, there is no difference in regulations between foreign and domestic banks and foreign banks can offer all the same services as domestic banks.

The Cooperative Banks and Savings and Credit Associations Law regulates the organization, operation, and activities of financial institutions such as cooperative banks, credit unions, savings and credit associations, , and other microfinance institutions. The Money Laundering Law requires financial institutions to report suspicious transactions to the Attorney General. Despite having regulatory scheme in place to supervise the filing of reports by cooperative banks and savings and credit associations, these entities rarely file suspicious activity reports.

The Insurance Companies Law regulates the operation of both local and foreign insurance firms. Foreign firms, including U.S., Colombian, Dominican, Honduran, Panamanian, Mexican, and Spanish companies, have invested in Salvadoran insurers.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions on transferring investment-related funds out of the country. Foreign businesses can freely remit or reinvest profits, repatriate capital, and bring in capital for additional investment. The 1999 Investment Law allows unrestricted remittance of royalties and fees from the use of foreign patents, trademarks, technical assistance, and other services. Tax reforms introduced in 2011, however, levy a five percent tax on national or foreign shareholders’ profits. Moreover, shareholders domiciled in a state, country or territory that is considered a tax haven or has low or no taxes, are subject to a tax of twenty-five percent.

The Monetary Integration Law dollarized El Salvador in 2001. The U.S. dollar accounts for nearly all currency in circulation and can be used in all transactions. Salvadoran banks, in accordance with the law, must keep all accounts in U.S. dollars. Dollarization is supported by remittances – almost all from workers in the United States – that totaled $5.91 billion in 2020.

Remittance Policies

There are no restrictions placed on investment remittances. The Caribbean Financial Action Task Force’s Ninth Follow-Up report on El Salvador ( https://www.cfatf-gafic.org/index.php/member-countries/el-salvador ) noted that El Salvador has strengthened its remittances regimen, prohibiting anonymous accounts and limiting suspicious transactions. In 2015, the Legislature approved reforms to the Law of Supervision and Regulation of the Financial System so that any entity sending or receiving systematic or substantial amounts of money by any means, at the national and international level, falls under the jurisdiction of the Superintendence of the Financial System.

Sovereign Wealth Funds

El Salvador does not have a sovereign wealth fund.

7. State-Owned Enterprises

El Salvador has successfully liberalized many sectors, though it maintains state-owned enterprises (SOEs) in energy production, water supply and sanitation, ports and airports, and the national lottery (see chart below).

SOE 2021 Budgeted Revenue Number of Employees
National Lottery $ 50,974,850 147
State-run Electricity Company (CEL) $ 250,180,895 831
Water Authority (ANDA) $ 231,991,560 4,291
Port & Airport Administrator (CEPA) $ 117,556,539 2,537

Although the GOES privatized energy distribution in 1999, it maintains significant energy production facilities through state-owned Rio Lempa Executive Hydroelectric Commission (CEL), a significant producer of hydroelectric and geothermal energy. The primary water service provider is the National Water and Sewer Administration (ANDA), which provides services to 97 percent of urban areas and 78 percent of rural areas in El Salvador. As an umbrella institution, ANDA defines policies, regulates, and provides services. The Autonomous Executive Port Commission (CEPA) operates both the seaports and the airports. CEL, ANDA, and CEPA Board Chairs hold Minister-level rank and report directly to the President.

The Law on Public Administration Procurement and Contracting (LACAP) covers all procurement of goods and services by all Salvadoran public institutions, including the municipalities. Exceptions to LACAP include: procurement and contracting financed with funds coming from other countries (bilateral agreements) or international bodies; agreements between state institutions; and the contracting of personal services by public institutions under the provisions of the Law on Salaries, Contracts and Day Work. Additionally, LACAP allows government agencies to use the auction system of the Salvadoran Goods and Services Market (BOLPROS) for procurement. Although BOLPROS is intended for use in purchasing standardized goods (e.g., office supplies, cleaning products, and basic grains), the GOES uses BOLPROS to procure a variety of goods and services, including high-value technology equipment and sensitive security equipment. As of September 2020, public procurement using BOLPROS totaled $86.7 million. The United Nations Office for Project Services (UNOPS) and United Nations Development Program (UNDP) also support government agencies in the procurement of a wide range of infrastructure projects. The GOES has created a dedicated procurement website to publish tenders by government institutions ( https://www.comprasal.gob.sv/comprasal_web/ ).

In August 2020, President Bukele signed an executive order allowing the submission of bids for contractual services via email and eliminating bidders’ obligation to register online with the public procurement system (Comprasal), as well as lifting the responsibility of procurement officers to keep a record of companies and individuals who receive tender documents. Civil society organizations challenged the order, claiming it violates transparency standards and facilitates the manipulation of procurement information. The order is pending review in the Supreme Court of Justice.

Alba Petroleos is a joint venture between a consortium of mayors from the FMLN party and a subsidiary of Venezuela’s state-owned oil company PDVSA. As majority PDVSA owned, Alba Petroleos has been subject to Office of Foreign Assets Control (OFAC) sanctions since January 2019. Alba Petroleos operates a diminishing number of gasoline service stations and businesses in other industries, including energy production, food production, medicines, micro-lending, supermarkets, and bus transportation. Alba Petroleos has been surrounded by allegations of mismanagement, corruption and money laundering. Critics charged that the conglomerate received preferential treatment during FMLN governments and that its commercial practices, including financial reporting, are non-transparent. In May 2019, the Attorney General’s Office initiated an investigation against Alba Petroleos and its affiliates for money laundering. Alba Petroleos’ assets are frozen by court order and some of its gasoline service stations are being managed by the National Council for Asset Administration (CONAB).

Privatization Program

El Salvador is not engaged in a privatization program and has not announced plans to privatize.

10. Political and Security Environment

El Salvador’s 12-year civil war ended in 1992. Since then, there has been no political violence aimed at foreign investors.

In September 2020, the State Department adjusted the U.S. travel advisory for El Salvador from Level 2 (Exercise Increased Caution) to Level 3 (Reconsider Travel), due to COVID-19 Level 4 (Very High) Travel Health Notice issued by the Centers for Disease Control and Prevention (CDC).   The travel advisory also warns U.S citizens of high rates of crime and violence. . Most serious crimes in El Salvador are never solved. El Salvador lacks sufficient resources to properly investigate and prosecute cases and to deter crime.  For more information, visit: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/ElSalvador.html

El Salvador has thousands of known gang members from several gangs including Mara Salvatrucha (MS-13) and 18th Street (M18). Gang members engage in violence or use deadly force if resisted. These “maras” concentrate on extortion, violent street crime, car-jacking, narcotics and arms trafficking, and murder for hire. Extortion is a common crime in El Salvador. U.S. citizens who visit El Salvador for extended periods are at higher risk for extortion demands. Bus companies and distributors often must pay extortion fees to operate within gang territories, and these costs are passed on to customers. The World Economic Forum’s 2019 Global Competitiveness Index reported that costs due to organized crime for businesses in El Salvador are the highest among 141 countries.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $27,022.64 2019 $27,023 https://data.worldank.org/country/el-salvador 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $22,183.96 2019 $3,380 BEA data available at
https://apps.bea.gov/international/
factsheet/factsheet.cfm?Area=209 
Host country’s FDI in the United States ($M USD, stock positions) 2019 N.A. 2019 $26.0 BEA data available at
http://bea.gov/international/direct_
investment_multinational_companies_
comprehensive_data.htm 
Total inbound stock of FDI as % host GDP 2019 37% 2019 126%

* Central Bank, El Salvador. In 2018, the Central Bank released GDP estimates using the new national accounts system from 2008 and using 2005 as the base year.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (2019)*
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 10,113 100% Total Outward 4.4 100%
Panama 3,304 32.7% Guatemala 2.57 64.3%
United States 2,184 21.6% Honduras 1.32 33%
Spain 1,087 10.7% Costa Rica 0.48 12%
Colombia 819 8.1% Nicaragua 0.07 1.8%
Mexico 764 7.6%
“0” reflects amounts rounded to +/- USD 500,000.

*Coordinated Direct Investment Survey, International Monetary Fund 

Table 4: Sources of Portfolio Investment
Data not available.

Equatorial Guinea

Executive Summary

The Republic of Equatorial Guinea is endowed with oil and gas resources that attracted billions of dollars in direct U.S. investment instrumental to extracting those resources. Discovery of oil in the 1990s resulted in rapid economic growth by the late 2000s. Growth has slowed as several operational oil fields have matured and are now in decline. Equatorial Guinea is among the world’s lowest ranking countries in various global indices, including those for corruption, transparency, and ease of doing business. Some companies have reported that these ratings underscore the challenging and opaque environment in which both local and foreign businesses must operate, with corruption, perceptions of a biased judiciary and a burdensome, inefficient bureaucracy undermining the general investment climate in the country.

The government of the Republic of Equatorial Guinea is seeking investment in several underdeveloped sectors: agribusiness; fishing; energy and mining; petrochemicals, plastics, and composites; travel and tourism; and finance. The Equatoguinean domestic market is small, with an estimated population of 1.2 million, although the country is a member of the Central African Monetary and Economic Union (CEMAC) sub-region, comprising more than 50 million people. The zone has a central bank and a common currency – the CFA franc, which is pegged to the euro. Equatorial Guinea graduated from “Least Developed Country” (LCD) status in 2017 and recently reactivated its efforts to accede to the World Trade Organization. Equatorial Guinea became a full member of the Organization of the Petroleum Exporting Countries (OPEC) in 2017 and is a member of the Gas Exporting Countries Forum (GECF).

Equatorial Guinea’s economy has suffered from the effects of the COVID–19 pandemic. The drop in global demand and oil prices occasioned by the crisis, coupled with the drop in household consumption and the slowdown in business activities due to measures to contain the spread of the disease, exacerbated the country’s already serious growth problems. Real GDP shrank 6.1% in 2020, compared with 5.6% in 2019. It was the eighth consecutive year of recession due to growth problems in both the oil (–7.2 %) and nonoil sectors (–4.7%). On the demand side, investment contracted by 35%. Although output fell, prices rose. Inflation was 3% in 2020, up from 1.2% in 2019, the result of a pandemic-related decline in the terms of trade, reduced supply of essential goods, and a worsening monetary situation. As a result, the Bank of Central African States gave up trying to reduce liquidity in the banking system and proposed a series of measures to support the economies in the Economic and Monetary Community of Central Africa (CEMAC) by cutting the policy interest rate and the marginal lending facility rate from 3.5% to 3.25%, and from 6% to 5%, respectively.

The country’s gross domestic product (GDP) shrank nearly 50% between 2014 and 2019, from USD 21.7 billion to USD 11 billion. The economy is expected to grow 2.6% in 2021, a projection based on the successful completion of a large gas project and the recovery of the world economy by the second half of the year. The country is expected to again return to recession in 2022, with a real GDP decline of -4.4%. The inflation rate is expected to settle at 2.9% over the next two years, remaining within the CEMAC limit of 3%. The budget is expected to be in a deficit of 2.4% of GDP in 2021 and 1.5% of GDP in 2022. The current account balance is expected to remain in deficit at 6% of GDP in 2021 and 5.6% the following year. The country’s main risk factor, beyond the persistence of the pandemic, remains the lack of diversification of its oil-based economy, to which is added the structural weakness of inadequate human capital. Indeed, the country has a capacity deficit, particularly in terms of public finance management and governance, that hinders effective implementation of its economic and social transformation policy.

On December 18, 2019, the Executive Board of the International Monetary Fund (IMF) approved a USD 282.8 million, three-year Extended Fund Facility (EFF) for Equatorial Guinea. The arrangement was intended to support Equatoguinean authorities’ three-year economic program, which aims at further reducing macroeconomic imbalances and addressing financial sector vulnerabilities; improving social protection and human capital development; promoting economic diversification; and fostering good governance, increasing transparency, and fighting corruption—all with the overarching aim of achieving sustainable and inclusive economic growth. Equatorial Guinea’s Fund-supported program was also intended to serve as a mechanism to spur additional external resources as well as contribute to rebuilding the CEMAC regional reserves. The new Minister of Finance, Economy and Planning, Valentin Ela Maye Mba, is tasked with improving the country’s economy and fiscal situation, including working with international financial institutions. The new three-year plan was supposed to increase revenue through greater tax compliance among individuals and greater public payment for utilities, such as water and electricity. Government leaders have publicly stated that good governance is important, and there were several bills proposed or passed in 2020 and 2021 to help, including the Fiscal Incentive Law to increase tax compliance by registering the tax obligations of individuals; and the Anti-Corruption Law, which has been under discussion for more than a year. Foreign businesses continue to express challenges and concerns about new regional banking and foreign exchange regulations implemented by the Bank of Central African States (BEAC) given the lack of liquidity in the local banking sector.

Despite various challenges, U.S. businesses have mainly had success in the hydrocarbons sector. Some U.S. businesses have profited in other sectors, such as technology and computer services. Various international companies continued to enter the market in response to new licensing rounds in the hydrocarbons and mining sectors. U.S. businesses may find investment opportunities in other sectors such as telecommunications, infrastructure, agriculture, mining, security, and transportation.

Since the onset of COVID-19, Equatorial Guinea has been proactive in safeguarding opportunities for foreign investors and continuing to drive capital into its hydrocarbon resources. Investors have reported that past commercial disputes have involved delayed payment, or non-payment, by the Government of the Republic of Equatorial Guinea to foreign firms for delivered goods and services. Certain companies reportedly exited the country with millions in unpaid bills.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 174 of 180 https://www.transparency.org/en/
countries/equatorial-guinea 
World Bank’s Doing Business Report 2020 178 of 190 https://www.doingbusiness.org/en/data/
exploreeconomies/equatorial-guinea
 
Global Innovation Index 2020 NA https://www.globalinnovationindex.org/
analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $908 https://apps.bea.gov/international/factsheet/factsheet.cfm 
World Bank GNI per capita 2019 $6,460 https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD?locations=GQ
 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of the Republic of Equatorial Guinea is still actively soliciting foreign investments. The government considered 2019 to be the “Year of Energy,” with new licensing rounds for hydrocarbons fields and various events to encourage investment. This was supposed to continue into the 2020 “Year of Investment,” focusing on hydrocarbons, mining exploration, and petrochemicals, which was disrupted by the pandemic. In 2017, the Government started the donor facilitation initiative with the World Bank, as part of a strategy towards membership in the World Trade Organization. The government also passed a law to establish a “Single Window” for investors and simplify the process to register a business, which launched in Malabo in January 2019 but was generally moribund pending identification of priority investment areas from the April 2019 third national economic conference, the final report for which has yet to be published. The government continued to partner with the World Bank on reviewing improvements to the process. A second office was expected to open in Bata in 2020 but was put on hold due to COVID-19

Statutorily, the Minister of Economy, Finance, and Planning approves investment permits. A new state entity, Holdings Equatorial Guinea 2020, was created to help guide diversification efforts. This entity was expected to serve as a hub for foreign investors. For now, however, investors still work with the relevant government ministries to negotiate contracts. The government, including at the highest levels, has regular meetings and conferences with business leaders and investors, though we are unaware of any formal business roundtable. For example, in November 2018, the World Bank and the Singapore Cooperation Programs led a conference in Equatorial Guinea on improving the business climate.

The country’s Minister of Mines and Hydrocarbons, Gabriel Mbaga Obiang Lima, has been leading a campaign to increase investment. In response to the COVID-19 pandemic and its effects on oil prices and African economies, the Minister of Mines and Hydrocarbons granted oil and gas companies a two-year extension on their exploration programs. The Ministry of Mines and Hydrocarbons will also encourage flexibility on the work programs of producing companies to ensure growth and stability in the market. The measure reflects broader efforts to drive global investment into Equatorial Guinea in line with its 2020 Year of Investment campaign. The extensions may particularly aid U.S. companies, which represent the majority of investment in Equatorial Guinea’s energy sector and are currently in the early stages of exploration and seismic interpretation of several new areas in existing offshore blocks. The Year of Investment, which was to include several in-country conferences and a global investment roadshow, was adapted to COVID-19 restrictions by using webinars and video conferencing to connect with investors. In February 2021, a consortium led by Noble Energy/Chevron, Marathon Oil, and EGLNG achieved the first gas flow from the successful execution of the Alen Gas Monetization project, a $475-million investment representing the first phase of Equatorial Guinea’s Gas Mega Hub plan. The Ministry of Mines and Hydrocarbons is currently promoting several capital-intensive projects – including the construction of modular oil refineries, a gold refinery, liquefied petroleum gas strategic tanks, a urea plant, and the expansion of a compressed natural gas project – which are open for investment. In December 2020, the Ministry announced a forecast of $1.1 billion in foreign direct investment in oil and gas activities in 2021.

The government also took several steps to support small and medium enterprises suffering during the pandemic, such as delaying and lowering tax payments, temporarily reducing the cost of electricity, and providing some small grants for micro-enterprises.

The Equatoguinean authorities have been willing to receive and protect all Foreign Direct Investment, including through changes in the country’s legal framework in recent years.

Currently there is no law or practice that discriminates against investors based on their origin, sex, age, race, political creed, or religion. The Law on the Investment Regime of the country establishes in Article 12 that the State commits itself to fair and equitable treatment for all investors. Decree No. 72/2018, dated April 18, 2018, and amended Article 2 of Decree No. 127/2004, dated September 14, 2004, eliminates the requirement of having an Equatoguinean partner to invest in the country’s non-oil sector.

Law 7/1992 and Law 54/1994 provide for the creation of an Investment Promotion Center, which must advise the government on investment policies, promote investments and support investors with information and in the resolution of conflicts. These Laws also provide for the creation of a National Investment Commission. Neither the Center nor the Commission is currently operational. Given the need for these types of organizations, in 2015, through Decree No. 134/2015, the Government mandated the Ministry of Commerce and Business Promotion to create and start up an agency to promote, integrate and coordinate the national policy of attraction of investors. In April 2021, this task was still in process and expected to start operating in 2023.

In November 2018, the Government organized a high-level seminar on the business climate in Equatorial Guinea with participation of the public and private sectors and development partners. For three days, they reflected on the position of Equatorial Guinea in each of the parameters of the Ease of Doing Business Ranking and the International Competitiveness Index of the World Economic Forum. As a result of the recommendations of this seminar, the government issued Decree 109/2019, creating a committee in charge of improving the national business environment, bringing together representatives of the government, private sector, and civil society to debate and propose reforms. The World Bank has subsequently partnered with the government to create and implement a plan to improve the business climate.

Even though the country does not currently have an investment promotion agency, the Ministry of Commerce has prioritized the implementation of a national agency for investment promotion within its Enhanced Integrated Framework program with World Trade Organization. The ministry has plans to establish a Foreign Trade Single Window to complement the existing one for domestic businesses.

Limits on Foreign Control and Right to Private Ownership and Establishment

The government is generally supportive of foreign direct investment. The Foreign Investment Law (Decree 72/2018 of April 2018) modified the provisions of Decree 127/2004 stipulating that shareholder capital firms and companies operating in the petroleum sector must have Equatoguinean shareholders. The government requires that Equatoguinean partners hold at least 35 percent of share capital of foreign companies or companies created by foreigners in the hydrocarbons sector only. Equatoguinean partners must also account for one third of the representatives on the Board of Directors. Apart from the hydrocarbons sector, investments must not be part of public-private partnerships with a government entity. The Minister of Mines and Hydrocarbons generally approves any major deal in the hydrocarbons sector. Decisions regarding larger investment deals may rise to the presidential level. U.S. investors may reach out to the Equatoguinean Embassy in the United States for guidance regarding connection to the appropriate ministry for outreach efforts.

The Hydrocarbons Law and the National Content Regulation establish various requirements for international oil and gas companies that wish to operate in Equatorial Guinea. These include a minority partner stake for either the state oil company (GE Petrol) or the state gas company (Sonagas). In addition, there are national content requirements, many established in 2014 by the then-Ministry of Mines, Industry, and Energy, which apply to both producers and service companies, including that 70% of staff must be Equatoguinean, 50-100% of services (depending on category) must be procured from national company partners, and a percentage of the company’s revenue must be allocated to corporate social responsibility projects approved by the Ministry of Mines and Hydrocarbons (the Ministry was divided into two in 2017, including a separate Ministry of Industry and Energy). Ministerial Order 1/2020 (April 2020) established that companies can employ foreign laborers in the oil and gas sector for a maximum period of three years, though companies may apply for extensions in exceptional cases, with compliance overseen by the Ministry’s Director General of National Content. Minister of Mines Gabriel Mbaga Obiang Lima was quoted as saying, “With the release of this new order, the Ministry of Mines and Hydrocarbons intends to enhance the capacity of local service companies while guaranteeing the creation of local jobs for our trained and educated youth.” While Equatorial Guinea sought foreign direct investment in several of its capital-intensive energy and petrochemicals projects through its 2020 Year of Investment campaign, the country simultaneously prioritized the procurement of local goods and services and the stimulation of local jobs. The legislation follows the completion of capacity building and training programs, particularly at the gas and oil industry-supported National Technological Institute for Hydrocarbons in Mongomo. Given the generally low quality of education in the country, international companies complain about the difficulty of recruiting qualified locals.

Equatorial Guinea belongs to the Organization for the Harmonization of Business Laws in Africa (OHADA) and falls under the OHADA Uniform Act on the law of commercial companies and economic interest groups of January 30, 2014.

Law 4/2009 on the Land Ownership Regime in Equatorial Guinea establishes that foreigners cannot own land but rather purchase a lease with a maximum duration of 99 years.

The foreign investor is required to justify the origin of the funds used for the creation of a company in Equatorial Guinea.

In 2019, the government began its second attempt to join the Extractive Industries Transparency Initiative (EITI), submitting an incomplete application and meeting with civil society and other interested organizations. By 2020, the government established two EITI commission offices in Malabo and Bata — the largest cities — and published gas and oil contracts on its EITI website.

Other Investment Policy Reviews

In the past three years, the Government of the Republic of Equatorial Guinea has not conducted an investment policy review through any institutions, such as the Organization for Economic Cooperation and Development, the World Trade Organization, or the United Nations Conference on Trade and Development. In October 2019, the World Bank presented its Diagnostic Trade Integration Study (DTIS) that analyzed various sectors of the Equatoguinean economy and prospects for increased economic development and trade.

Business Facilitation

According to the World Bank’s Doing Business Report 2020, starting a business in Equatorial Guinea requires 16 procedures and usually takes 33 days, the same as in 2019. Equatorial Guinea was ranked 183 of 190 in the World Bank’s Doing Business Report 2020 for ease of “starting a business.” In 2017, the Government of the Republic of Equatorial Guinea passed Decree No. 67/2017, published in September 2017, to establish a “Single Window” or “single window” to simplify the process to register a business and speed the process to seven business days. The “single window” was launched in January 2019, after the Government of the Republic of Equatorial Guinea equipped facilities for processing applications, and trained staff. There is a webpage with information, https://www.ventanillaempresarialge.com/en/welcome/ , but businesses cannot yet register online. Generally, business must register with various agencies at the national level and some local offices. The Single Window does not eliminate steps, but it does consolidate visits to five offices into one. The below chart illustrates the steps that an entrepreneur can complete at the Single Window:

BEFORE NOW
Public Notary Single Window, Ministry of Commerce
Trade register Single Window, Ministry of Commerce
Ministry of Finance, the Economy, and Planning Single Window, Ministry of Commerce
Ministry of Commerce – General Direction of Commerce Single Window, Ministry of Commerce
Ministry of Commerce – Department of Business Promotion Single Window, Ministry of Commerce
Ministry of Labor Ministry of Labor
Social Security Administration (INSESO) Social Security Administration (INSESO)
Chamber of Commerce Chamber of Commerce
City Hall City Hall
Sectoral ministries according to the activity of the company Sectoral ministries according to the activity of the company

The country does not have a business facilitation mechanism for equitable treatment of women and underrepresented minorities in the economy. There are laws that make it illegal to discriminate against women. There is an ongoing effort from the government to include people with disabilities in public administration, including with internship programs and contracts.

By Presidential Decree No 45/2020 from April 24, 2020, the government reduced the paid-in minimum capital requirement for Limited Liability Companies to operate in the country from 1,000,000 XAF to 100,000 XAF. In 2019, the Government established a committee to monitor the country’s performance on the main indicators of ease of doing business, as well as to propose reforms to improve the national business climate. The committee — comprised of several CEOs, the private sector, business organizations and civil society — developed a roadmap with actions to be implemented to facilitate the establishment of companies in the country. While not possible to register online, the government is exploring the option for a business to register by phone.

In February 2020, registration of trade certificates and businesses were included in the Single Window. Currently, would-be investors can access government websites for information on setting up businesses in the country. This includes websites for:

  • Single Window [I https://www.ventanillaempresarialge.com/en/welcome/]
  • Ministry of Finance, the Economy and Planning [https://minhacienda-gob.com /]

Currently, work is being done to include records from the Single Window in the Ministry of Labor and in the National Institute of Social Security. A Ministerial Order is under discussion to include data of the Ministry of Labor in the Single Window.

The National Institute for Business Promotion and Development launched an entrepreneurship training program with financing available. The program teaches entrepreneurs – with a focus on microbusinesses — how to develop business plans around their ideas, with the best project selected for investment. The United Nations Development Program (UNDP) is one of the donors, with an emphasis on supporting female entrepreneurship.

Outward Investment

Although Equatoguinean citizens may legally invest outside the country, the government of the Republic of Equatorial Guinea does not promote foreign investment. The government and media do not praise or showcase Equatoguineans with business interests abroad. While there are no known restrictions on foreign investment, some individuals and companies have faced delays when transferring money overseas or converting local currency into foreign exchange, exacerbated by new CEMAC rules on foreign currency reserves enacted in 2019.

With technical assistance from UNDP, Equatorial Guinea is currently implementing the WTO Enhanced Integrated Framework program. This multilateral partnership is dedicated to assisting least developed countries (LDCs) use trade as an engine for growth, sustainable development, and poverty reduction. EG’s Action Plan through the Ministry of Commerce prioritizes promoting national products in the subregional and international markets. To encourage agricultural production, the Ministry plans to establish a national food certification institute within the Chamber of Commerce, pending funding from the government. The project was delayed by the pandemic.

After pausing all timber exports and firing the Minister of Agriculture, Timber, Livestock, and the Environment in the fall of 2020, the government lifted the export ban in October via Decree 93/2020. This authorized export of round wood, an industry dominated by Chinese companies. The previous decree had authorized only exports of transformed wood, with the goal of promoting the wood transformation industry in the local economy.

3. Legal Regime

Transparency of the Regulatory System

The Government of the Republic of Equatorial Guinea publicly publishes labor laws; officials, however, do not consistently apply laws or regulations. While foreign companies are expected to follow every detail of the labor law or face penalties, there is reportedly less strict enforcement of local companies. U.S. businesses have complained that bureaucratic procedures are neither streamlined nor transparent and can be extremely slow for those without the proper political or familial connections. Many regulations are created within ministries, while others are the result of laws passed by the legislature. Although most regulations are created at the national level, some decisions may be taken at the municipal level (such as those for construction permits).

Proposed laws and regulations are not published in draft form for public comment, but there have been reports of informal sharing with representatives of specific industries for comment. Regulations and laws are generally not published online but are available in hardcopy for a fee.

Private industry representatives report that accounting, legal, and regulatory procedures are generally neither transparent nor consistent with international norms.

According to the 2020 Fiscal Transparency Report, Equatorial Guinea does not meet the minimum requirements of fiscal transparency but has made substantive improvements. More information is available at: https://www.state.gov/2020-fiscal-transparency-report/.

The government recently made some progress on transparency of its public finances and debt obligations. Although not available to the public several months until after the start of the fiscal year, the 2018 budget included information on debt obligations for the first time in several years, including both public and private debt obligations. The 2019 budget also included debt obligations. The government has been working on fiscal transparency as part of its International Monetary Fund (IMF) program and another program with the African Development Bank that began in 2019. The Ministry of Finance, the Economy, and Planning announced plans to move customs to an electronic system to improve transparency and prevent corruption. The Automated Customs System (Sistema Aduanero Automatizado or SIDUNEAWorld) was implemented on April 30, 2020, upon the Ministry’s announcement. By late May 2020, it had already registered 49 shipping manifests via http://siduneage.com:8080/asycuda/index.jsf and continues to work with the World Bank on implementation.

Regulations are generally not reviewed on the basis of scientific or data-driven assessments.

The government is set to implement a national agency to centralize public contracts. In 2019, the World Bank conducted a diagnostic study of public contracting in EG, the results of which were presented to the Ministry of Finance. The presentation led to an agreement with the World Bank to provide technical assistance to draft EG’s law on public procurement. The law will widen the spectrum for potential contractors through public tender offers, representing a significant step toward fiscal transparency.

In October 2020, the Ministry of Finance published a tax payment manual and launched an information office to provide taxpayers with comprehensive information on taxes and tax filling processes. To further transparency, the Ministry implemented a physical and virtual library allowing anyone to access tax-related laws and regulations in person or through the Ministry of Finance’s website.

In April 2020, the Ministry of Finance issued a communiqué on restructuring internal arrears, with an audit to evaluate the government’s obligations to construction companies. The African Legal Support Facility financed the process of regulating those arrears, carried out by McKinsey law firm.

International Regulatory Considerations

Equatorial Guinea is a member of the Central African Monetary and Economic Union (CEMAC), which includes a regional central bank (the Bank of Central African States, or BEAC) and various regulations including lower tariffs on intra-regional trade.

Equatorial Guinea is not a signatory to the Trade Facilitation Agreement (TFA). The country is not a member of the World Trade Organization (WTO) but has been an observer since 2002. In 2007, EG submitted its application for membership to the WTO’s general council, which established a working group in February 2008 to review the application. To date, Equatorial Guinea’s accession process to the WTO is pending the Memorandum on the Foreign Trade Regime (MFTR). In 2020, the Ministry of Commerce confirmed that full membership to the WTO remains a priority for the government. The Ministry is implementing a Strategic Action Plan for EG’s accession, including hiring an international consultant to prepare a memorandum on the country’s trade regime, which was under review by the legislature in early 2021.

The Constitution establishes the separation of powers, though the same law grants the Head of State the ability to appoint and remove members of the judicial branch. According to the new National Development Strategy, the judicial system requires a profound reform. Any Supreme Court decision on commercial matters can be appealed in the Organization for the Harmonization of Business Law in Africa (OHADA) Commercial Court, based in Abidjan, Ivory Coast.

Legal System and Judicial Independence

Equatorial Guinea’s legal system is a mix of civil and customary law. Law No. 7/1992 states that disputes that cannot be resolved through direct negotiation by the involved parties shall be referred to Equatoguinean courts. Either party can also submit the dispute to international arbitration. Foreign investors are asked to declare their desired international arbitration venue in their initial application to invest in the country. Arbitration must take place in a neutral location and Spanish will be the official language of the arbitration.

Equatorial Guinea was ranked 105 of 190 in the World Bank’s Doing Business Report 2020 for “enforcing contracts.”

Labor law is meant to protect workers, including a requirement for written contracts and regulation of child labor. Labor courts adjudicate matters related to employment. Several companies have complained that cases are rarely decided on the merits, with most judgements favoring labor, and penalties are excessive. Appeals generally proceed to the supreme or constitutional court. The court system and staff are generally considered under-resourced and unprepared, according to companies and public statements by President Teodoro Obiang Nguema Mbasogo. Both the Labor Law and the Penal Code were set to be updated in 2020, with drafts submitted to the Legislature, which was suspended amid the COVID-19 pandemic.

The judicial system is not independent of the executive branch as the president is officially the head of the court system, with the power to appoint or remove judges at will.

Laws and Regulations on Foreign Direct Investment

Most investment is focused in the extractive industries and infrastructure development. Laws No. 7/1992 and 2/1994 and Decrees No. 54/1994 and 127/2004 regulate foreign investment. Certain industries have additional regulations. The enforcement of laws and judicial decisions has not been reliable nor consistent, according to investors. The executive branch heavily influences the judicial branch, as the president is also the chief magistrate of the Republic of Equatorial Guinea. While the government has made efforts to streamline foreign investment procedures and simplify business registration processes, these processes have not all been implemented. Decree No. 72/2018 of April 2018 revised No. 127/2014 of September 2014, eliminating the mandatory 35% national participation in foreign companies, except in the hydrocarbons sector. The implementation of the “Single Window” for business registration in January 2019 was intended to simplify the registration process and reduce the time necessary to complete the process to seven business days, according to the government. The centralized Single Window also clarified the rates to be paid and the procedures to follow. The Ministries of Commerce and Finance, the Economy, and Planning were planning to evaluate the system in 2020 to determine its effectiveness, though this was disrupted by the pandemic. There is a webpage with information ( https://www.ventanillaempresarialge.com/en/welcome/ ) but businesses cannot yet register online. Investors must work with the relevant government ministries to negotiate contracts.

The government published Decree 45/2020 in April 2020, reducing the minimum capital needed to register a limited-liability company from 1 million XAF (USD 1713) to 100,000 XAF (USD 171).

Competition and Antitrust Laws

Equatorial Guinea does not have an agency that actively enforces any competition laws. Equatorial Guinea became a member of the Organization for the Harmonization of Business Laws in Africa (OHADA) in 1999, and any OHADA competition laws should apply in Equatorial Guinea. OHADA legislation is a civil legal system that aims to provide a common business and legal framework across all 17 member states, while enhancing the legal certainty and predictability of international transactions in the region. One important law affecting international project financing, the 2010 “Uniform Act Organizing Securities,” created a uniform, modern security law for OHADA nations. It allowed the possibility of appointing a security agent, acting in its own name on behalf of lenders, and reinforced lenders’ rights by enabling them to use new, efficient security enforcement mechanisms, such as out-of-court appropriation (“pacte commissoire”).

Other new and revised laws for the OHADA region followed, including:

  • Uniform Act related to general commercial law act, revised in December 2010
  • Uniform Act related to commercial companies and economic interest groups, revised in January 2014 and effective May 2014
  • Uniform Act organizing collective proceedings for clearing debts, revised in September 2015 and effective December 2015
  • Uniform Act on the harmonization of accounting, adopted in January 2017 and effective January 2018.

A new “Uniform Act on Mediation,” adopted in 2017, provides an enhanced legal framework for all aspects of mediation in OHADA’s 17 member states. This new alternative dispute resolution mechanism aims to achieve more rapid and easier enforcement of agreements in the OHADA zone. Although the sophistication and reliability of OHADA’s legal regime in certain specific business law areas offers a degree of comfort to investors in the region, other aspects of transactions remain subject to the national laws of the relevant countries. For example, the determination of tax registration fees remains the strict prerogative of individual nations. Thus, the amount of tax registration fees varies from one member state to another, even in the same cross-border transaction. This encourages forum shopping and contradicts OHADA’s goals of harmonizing business regulations.

The government can expropriate a property for public use when the general interest prevails over the individual. The process consists of notifying the owners of the future public utility, as well as the amount of the compensation. If the government does not follow due process, the property owner can sue, once they have exhausted administrative remedies, through the Supreme Court of Justice.

Expropriation and Compensation

Law No. 7/1992 states that the government will not expropriate foreign investments except when acting in the public interest with fair, just, and proper compensation. The Government of the Republic of Equatorial Guinea does not generally nationalize or expropriate foreign investments, although a Spanish investor had his property confiscated in 2013. The Government of the Republic of Equatorial Guinea has an extensive record, however, of expropriating locally owned property, frequently offering little or no compensation. The government has also withdrawn blocks for hydrocarbons exploration when companies failed to invest within an allotted period, though this generally appears to follow the terms of published tenders.

Dispute Settlement

ICSID Convention and New York Convention

Equatorial Guinea is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention — also known as the Washington Convention), although Law No. 7/1992 states that international arbitration may be based on ICSID. Equatorial Guinea is party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. OHADA’s Uniform Act of Collective Procedures for the Realization of Liabilities should be applied but is not enforced in practice.

In the government-approved roadmap to improve the business climate, Equatorial Guinea must accede to the ICSID.

For members of OHADA, disputes are resolved in the Court of Abidjan using the OHADA Uniform Arbitration Law. The country does not have a bilateral investment treaty nor a free trade agreement with the United States. There are no public statistics on penalties and judgments, but the judiciary is reportedly working on a website where this information will be published. For now, the judiciary does not publish sentencing statistics.

Investor-State Dispute Settlement

Equatorial Guinea is not a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

In October 2018, Equatorial Guinea announced the resolution of litigation begun in 2014 over Orange Group’s ownership stake in the incumbent fixed line and mobile operator Guinea Ecuatorial de Telecomunicaciones Sociedad Anonima (Getesa). Agence Ecofin cited a statement from the Embassy of Equatorial Guinea in France, confirming that on September 26, 2018, the government signed an agreement with Orange Middle East & Africa under which it paid EUR 50 million (USD 57.5 million) to the French-based telecoms giant in return for relinquishing Getesa shares. The final payment followed Equatorial Guinea’s initial share payment to Orange of EUR 45 million in October 2016, thereby settling the balance of an agreed EUR 95 million-redemption price for Orange’s 40% stake. TeleGeography’s GlobalComms Database says that Equatorial Guinea’s government lost a Paris Court of Appeal case against a fine imposed in July 2014 by the International Court of Arbitration for reneging on a 2011 agreement to buy Orange’s Getesa stake in the event of a new entrant launching (a clause it failed to honor after the 2012 launch of majority state-owned cellular company GECOMSA). In October 2018, the government agreed to pay EUR 150 million, including interest, to Orange.

A Spanish businessperson signed a joint venture agreement with President Obiang in 2009 to build 36,000 homes in Equatorial Guinea. President Obiang allegedly pulled support for the project at the last minute, leaving the Spanish citizen ruined and bankrupted. In March 2012, the Spanish citizen submitted a claim before the ICSID, which ruled in favor of Equatorial Guinea in 2015. In August 2017, Madrid’s provincial court ordered a magistrate to revise the claim, acknowledging the Spanish competency to rule the case because of the bilateral investment treaty between the countries. The case was ongoing at the start of 2020, but it is unclear if it will continue as the claimant died of COVID-19 in April 2020.

In 2021, the Embassy received information about a U.S. company that has done a few projects in Equatorial Guinea in the past three years. The company reported that the government made an initial payment, but the second payment was more than a year overdue. Government officials reported they were working to resolve the issue.

International Commercial Arbitration and Foreign Courts

The Organization for the Harmonization of Corporate Law in Africa (OHADA) Uniform Act on arbitration rules would apply at the Court headquarters in Abidjan, but it may be unapplicable in any one of the seventeen Member States of the Organization. The Court has already held hearings in several OHADA member states in recent years. In March 2019, the Common Court of Justice and Arbitration of the OHADA included an Equatoguinean lawyer on the list of arbitrators in its Arbitration Center of the Common Court of Justice and Arbitration. He is the first Equatoguinean added to the OHADA list.

Law No. 7/1992 states that disputes that cannot be resolved through direct negotiation by the involved parties shall be referred to Equatoguinean courts. Either party can also submit the dispute for international arbitration. In their initial application to invest in the country, foreigners must declare their desired international arbitration venue. Arbitration must take place in a neutral location with Spanish as the official language.

Firms have alleged that court actions are sometimes discriminatory, not transparent, tending to favor local parties rather than foreigners or foreign companies.

In 2015, the government closed a microfinance institution founded by a member of an opposition party. He reportedly appealed to the CEMAC court, which recommended arbitration. We have no information on the outcome.

Bankruptcy Regulations

The Government of the Republic of Equatorial Guinea adopted the business laws of the Organization for the Harmonization of Business Laws of Africa (OHADA), including that pertaining to bankruptcy.

The Republic of Equatorial Guinea ranks 168 on the World Banks’s 2020 Doing Business Report for “Resolving Insolvency.” The Republic of Equatorial Guinea received the World Bank’s “no practice mark” due to the lack of cases over the past five years involving judicial reorganization, judicial liquidation, or debt enforcement. This suggests that creditors are unlikely to recover their money through a formal legal process.

6. Financial Sector

Capital Markets and Portfolio Investment

The banking sector provides limited financing to businesses. The government claims two microfinance institutions operating in country, with a government-backed microcredit program for small- and medium-sized enterprises (SMEs). The country does not have its own stock market. According to investors, capital markets are non-existent. Credit is available but interest rates are high, ranging from 12 to 18 percent for mortgages and about 15 percent for personal loans. Business loans generally require significant collateral, limiting opportunities for entrepreneurs, and may have rates of 20 percent or greater. It is unclear if foreigners could obtain credit on the local market. The Single Window office assumes investors have already secured all financing.

Equatorial Guinea is a member of CEMAC, which has a stock market common to all member states. The Central Africa Banking Commission (COBAC) regulates the region’s banking system. The BEAC and the COBAC regulate transfer limits. Commercial banks follow BEAC requirements. To attract investment and promote economic diversification, the government offers facilities for granting loans, including through the National Institute of Promotion and Development (INPYDE), which has an investment fund for entrepreneurs.

The National Bank of EG (BANGE), in which the government has a 51% stake, plans to launch the country’s first brokerage business to facilitate foreign investment, negotiating equity and even debt for major companies operating in Equatorial Guinea. BANGE falls under the Central African Financial Market Surveilling Committee and includes such customers as supermarket chains Martinez Hermanos and EGTC. Additionally, BANGE inaugurated the BANGE Business School in 2020 to train students to work in the banking sector and facilitate underwriting, syndication, and funding. In November 2020, BANGE announced it first capital increase through an initial public officering directly through its offices. In April 2021, the institution announced the second capital increase of $75 million, which was open to individual investor (nationals and foreigners).

Money and Banking System

BANGE has the most branches of any bank in EG and estimated that 60% of the population used formal financial services. BANGE estimates that its clients are 26% of the population.

Banking revenues have been deteriorating over the last five years as the government gradually reduced or stopped infrastructure projects due to the economic recession. The government established the Partial Guarantee Fund to insure non-performing loans through the National Institute for Businesses Promotion (INPYDE). Demand for loans was supported by specific budget allocations each fiscal year, mostly from BANGE. In 2020, INPYDE negotiated an agreement to include other banks and to enlarge the Guarantee Fund.

While banks have branches throughout the country, they are concentrated in urban centers. There is little information available about the assets and health of the banking system. BANGE leads with 29 branches throughout the country. CCEI/CCIW Bank de Guinea Ecuatorial, a subsidiary of First Bank Afriland (Cameroon), has four branches in the largest cities. BGFI Bank Guinée Equatoriale operates as a subsidiary of BGFI Holding Corporation (Gabon). Pan-African EcoBank (Togo) and Societe Générale (France) also operate in Equatorial Guinea. If a bank does not have a branch in the location where an individual wants to do business, they would not have access to their funds there. ATMs are in limited locations.

The Government of the Republic of Equatorial Guinea is a member of the Economic and Monetary Community of Central African States (CEMAC) and shares a regional Central Bank with other CEMAC members. Members have ceded regulatory authority over their banks to CEMAC, but also are entitled to national BEAC branches. Ebibeyin, Bata and Malabo each have a branch. The government of the Republic of Equatorial Guinea is also a member of the Banking Commission of Central African States (COBAC) within CEMAC.

Foreigners must provide proof of residency to establish a bank account.

The country’s economy is an almost entirely cash based, with credit cards available but not widely used by the general population, confined to foreigner or wealthy citizens using at international hotels, international airlines, and major supermarkets. In April 2020, partly in response to the COVID-19 pandemic’s social distancing measures, the government encouraged banks to increase electronic payment mechanisms. The Ministry of Finance, the Economy, and Planning also continued to expand electronic payments for government employees. In May 2020, the Government of the Republic of Equatorial Guinea endorsed the guiding principles of the United Nations’ “Better than Cash” Alliance, a partnership of governments, companies, and international organizations to accelerate the transition from cash to digital payments as part of the United Nation’s Sustainable Development Goals. The Alliance has 75 member countries committed to digitizing payments to boost efficiency, transparency, and women’s economic participation and financial inclusion.

The banking sector is affected by relatively lengthy bureaucratic procedures and a lack of computerized record keeping. Customers have reported that currency is not always available on demand, and delays for transfers or exchanges of local currency into foreign denominations have increased since the BEAC instituted new banking and foreign currency regulations in 2019.

The National Economic and Financial Committee publishes a semi-annual report on the evolution of banks in the country. The CEMAC establishes the requirements for any bank that wants to operate in a member country, which COBAC can grant. COBAC also publishes information on the banking system of each member country. There are no restrictions, but there are requirements that applicants must meet to open an account, whether or not they are a resident. The country is currently starting the use of mobile banking; financial services are mainly limited to banking and microfinance.

The government’s failure to repay loans has increased interest rates and reduced access to credit for the private sector, especially households. Banks in EG have the lowest ratio of loans to savings within the subregion. During the economic expansion (2009-2014), the government developed a line of credit with CCEI Bank to finance infrastructure development projects with construction companies. Loan defaults rose rapidly as the government failed to meet its legal obligations with CCEI Bank, prompting the government to nationalize the bank in January 2021 by acquiring Afriland First Group’s shares.

Foreign Exchange and Remittances

Foreign Exchange

Decree No. 54/1994 provides the right to freely transfer convertible currency abroad at the end of each fiscal year, but in practice many businesses report that limited financial services create barriers to successfully executing international transfers. On April 1, 2019, the Bank of Central African States (BEAC) published a regulation to enforce an existing requirement to maintain bank accounts in Central African francs (CFA) rather than foreign currency, with a six-month grace period until October 1, 2019. Account holders are theoretically able to convert funds to foreign exchange through an administrative process, but it is unclear if this applies to all accounts in the region. Following pushback from the extractive industry, which accounts for over 80% of EG government revenues, CEMAC exempted gas and oil companies from the regulation through December 31, 2021. Many other businesses and individuals have reported lengthy delays to convert currency and make international bank transfers under the new rules. The BEAC announced that regulations were intended to usher in reforms that redefine BEAC’s role, and the role of the Bank’s control bodies, to ensure compliance with IMF guidance and currency stabilization, including a 30-day waiting period to withdraw foreign currency. Other reforms included: reinforcement of the regulatory framework for manual exchanges; assuring the flexibility of certain operational arrangements as instructed by the BEAC governor; adapting foreign exchange regulations to new methods of payment and transfer institutions; and simplifying procedures to increase compliance. In September 2020, the BEAC instituted an online “e-transfer” application to ensure credit establishments comply with the new regulation. The online application automates the entire process of transfer requests and monitors in real time the progress of each request through an e-tracking site. Foreign currency is not widely available in the Central African Franc zone but can be obtained in the Republic of Equatorial Guinea in small quantities.

Equatorial Guinea does not engage in currency manipulation as the CFA franc currently has a fixed exchange rate to the euro: 100 CFA francs = 1 former French (nouveau) franc = 0.152449 euro or 1 euro = 655.957 CFA francs exactly. The exchange rate fluctuates with the value of the euro.

Remittance Policies

On April 1, 2019, the CEMAC Central Bank published a regulation to enforce an existing requirement to maintain bank accounts in CFA rather than foreign exchange, with a six-month moratorium until October 1, 2019. Account holders are theoretically able to convert funds to foreign exchange through an administrative process. It is unclear if this applies to all accounts in the region. Companies in the hydrocarbons and mining sectors received an exemption on implementation through 2021.

Sovereign Wealth Funds

The Government of the Republic of Equatorial Guinea established a sovereign wealth fund, the Fund for Future Generations, in 2002. The fund receives 0.5% of all oil revenues and is governed and managed by the Bank of Central African States (BEAC). The Sovereign Wealth Fund Institute (SWFI) estimates assets under management of USD 165.5 million ( https://www.swfinstitute.org/profile/598cdaa50124e9fd2d05b002 ). There is no publicly available information on its allocations.

7. State-Owned Enterprises

The Republic of Guinea Equatorial has at least eight state-owned enterprises (SOEs) in the energy, housing, fishing, aerospace and defense, and information and communication sectors. Sonagas is the national natural gas company and GEPetrol is the national oil company. The energy SOEs report to the Ministry of Mines and Hydrocarbons and hold monopolies in their respective sectors. SEGESA is the national electricity company. GECOMSA and GETESA are the national telecommunication service providers. SONAPESCA focusses on the promotion of fishing and reports to the Minister of Fisheries and Water Resources. ENPIGE is the SOE that oversees the government’s affordable housing program. Ceiba Intercontinental is the main airline and is currently near bankruptcy, facing internal structural crisis, after the termination of a joint venture with Ethiopian Airlines in 2020. The budget includes allocations to and earnings from SOEs. Large SOEs lacked publicly available audits. According to some companies, there is little evidence of oversight of SOEs. A requirement of the IMF’s 2018 staff monitored program, however, is that the government contract an internationally reputable firm to audit the accounts of the state-owned oil (GEPetrol) and gas (Sonagas) companies, which the government hired at the start of 2019. (The audits were still ongoing in mid-2020, with no report of completion.) All oil and gas projects must include a partnership with state-owned companies GEPetrol or Sonagas.

Equatorial Guinea’s oil and gas sector scored 22 of 100 points in the 2017 Resource Governance Index (RGI), ranking 85th among 89 assessments. Its overall failing performance can be attributed to the enabling environment component, which scores 17 of 100 points and ranks 79th among 89 assessments, along with an equally low score for revenue management. For more information, see https://resourcegovernance.org/ .

Privatization Program

The Ministry of Finance, the Economy, and Planning discussed plans to involve the private sector in the management of state-owned assets, including through privatization. The initiative was a recommendation from the Third National Economic Conference (April-May 2019), which included discussion of options to improve management of state assets. The government envisages three paths: (i) restructuring autonomous agencies and state-owned enterprises; (ii) concession of assets to the private sector; and (iii) sale of public assets to private operators (privatization). The authorities also plan to open to competition sectors where public enterprises operate, with the aim of limiting monopolistic practices and passing on efficiency gains to the rest of the economy. The Ministry will present a substantive list of state assets to be privatized, as well as a list of entities that will be restructured or placed under a concession regime with the private sector for the approval of the Council of Ministers (structural benchmark, end of June 2020). Once the Council of Ministers approves this plan, the authorities will present an action program for privatization (planned for the second half of 2020). To generate revenue, they plan to prioritize privatization, with the proceeds going to pay down validated domestic arrears and rebuild EG’s foreign currency reserves at the BEAC. Sales and concessions will be carried out through open, international tenders. The sale of the listed assets may be delayed so that their prices are not negatively affected by the current global slowdown. Information is likely to be announced on the Ministry’s website:    https://minhacienda-gob.com/.

10. Political and Security Environment

There is not a history of civil unrest in Equatorial Guinea. Some report this is due to a severe limitation of political opposition and civil society, including freedom of assembly and expression. There have been, however, examples of politically motivated violence. An opposition party member and civil society activist was arrested at his home in February 2019 following his advocacy of labor rights at the national university. He was then charged of plotting to kill the president and tried for defamation and threats against the President on November 21, 2019. His sentence was never announced, and he was released on February 14, 2020, after almost a year in prison – longer than the maximum penalty for the charge against him.

President Teodoro Obiang Nguema Mbasogo has been in office since taking power in a 1979 coup. Equatorial Guinea does not have an established record of democratic transfer of power. In the week leading up to President Obiang’s re-election on April 24, 2016, there were reports that government security forces forcibly entered the headquarters of political opposition party Citizens for Innovation (CI) and seriously injured several opposition party members. Opposition activists arrested before the election were subsequently released, although some remained in jail for over a year. Opposition members continue to report arrest, torture, and harassment, despite President Obiang securing another seven years in office.

In 2017, Equatoguinean authorities detained a large group of over one hundred CI opposition party members in the cities of Bata, Akonibe, and Malabo during the campaign period for municipal and legislative elections; thirty-one of them were sentenced to 41 years in prison in February 2018. They were subsequently released by a Presidential pardon in October 2018. A well-known Equatoguinean cartoonist and political activist was also detained in Malabo for six months after being falsely accused by the police of counterfeiting and money laundering. He was released from prison on March 8, 2018, after being acquitted. A foiled coup plot led to massive arrests throughout the country from December 2017 to March 2018. The ruling Democratic Party of Equatorial Guinea (PDGE) announced on November 3, 2018, that it had expelled 42 of its members for alleged involvement in the coup. A total of 132 individuals were tried in the mainland city of Bata between March and May 2019, of which 112 were convicted.

Government officials and members of the private sector have noted an increase in crime, including drug use and violent robberies, as the country’s recession continues. Piracy in the Gulf of Guinea also increased from 2018 to 2021, including within Equatorial Guinea’s territorial waters. Security forces often used excessive force when implementing government restrictions designed to combat COVID-19 in 2020.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) N/A N/A 2019 $11,027 https://data.worldbank.org/country/equatorial-guinea 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $908 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $-2 BEA data available at
https://apps.bea.gov/international/factsheet/
factsheet.cfm?Area=438&UUID=67f90527-
597d-4b6b-9336-8914deb4cd1d 
Total inbound stock of FDI as % host GDP N/A N/A 2019 33.4 UNCTAD data available at
https://unctad.org/topic/investment/
world-investment-report 
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward Amount 100% Total Outward Amount 100%
N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries Amount 100% All Countries Amount 100% All Countries Amount 100%
N/A N/A N/A

Eritrea

Executive Summary

With the exception of the mining sector, Eritrea’s investment climate is not conducive to US investment. Alleged political repression, along with technological isolation, limit investment.   Most commercial enterprises are state controlled or run by the sole political party, the Peoples Front for Democracy and Justice (PFDJ).  The Government of the State of Eritrea (GSE) is the largest employer in the country, and most citizens are required to participate in the country’s national service program, which often results in indefinite terms of service at very low wages in a wide range of public sector positions.  The national currency, the Eritrean Nakfa, is not convertible and there are restrictions on the repatriation of profits out of the country.  The national budget is not public.  The judiciary is not independent or transparent.  There is limited freedom of the press, international journalists are often barred from entry, and the government maintains control of the media.  Most profitable investments in Eritrea come about through direct negotiation with the government rather than market-based private investment.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 160 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 189 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 -$2 million http://www.bea.gov/international/factsheet/
World Bank GNI per capita 2011 $600 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Eritrean government professes a desire for more and more diversified FDI.  However, governmental control of the economy and the lack of robust business and investment legal code makes private investment difficult and financially risky.

The official 1994 Investment Proclamation No. 59/1994 states that all sectors (excluding domestic retail, domestic wholesale, import, and commission agency companies without a bilateral agreement of reciprocity) are open to any investors.  In practice, this law has been suspended and the ruling Popular Front for Democracy and Justice determines those sectors in which – and defines the terms under which – private investment is accepted.

The Investment Center, established in 1998, operates directly under the Office of the President; it does not publish any information related to its activities. In the past, the Center conducted public outreach to encourage members of the Eritrean diaspora to invest in Eritrea.  The Center has not conducted a large public event since 2012; senior Center officials have stated that the time for investments is not appropriate because investment developments must follow political developments.

There is no business ombudsman in Eritrea or other mechanisms to prioritize retention or maintain dialogue with existing investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

In practice, there is no fundamental “right” for either foreign or domestic private entities to establish or run business enterprises free from government interference.  All sectors of the economy are tightly controlled by the GSE, most large enterprises are either entirely or partially owned by the government or the PFDJ, and the government can order a business to close without explanation or legal recourse.

There are both statutory and de facto limits on foreign ownership and control of enterprises.  All foreign-owned mines must give a 10% stake to the Eritrean National Mining Corporation (ENAMCO), and ENAMCO has the option to buy another 30% equity in the project.  Regulations in other fields are not well established.

With some exceptions, such as mining, investment is de facto prohibited in most sectors of the economy.  The government has encouraged investment in the mining sector, and mining-specific regulations were adopted in 2011.  There are few other large foreign investments in the country.  The few foreign enterprises operating in Eritrea do so under non-public agreements negotiated directly between the companies or countries and a small group of officials from the GSE and the ruling political party.

There is no transparent GSE screening mechanism for approving inbound foreign investment.

Other Investment Policy Reviews

The GSE has undergone no recent third-party investment policy review.

Business Facilitation

The government has made no known efforts to facilitate business in Eritrea.  The government does not have a business registration website.  Businesses are required to register with six government offices (the Business License Office, the Ministry of Information, the Inland Revenue Department, the Ministry of Trade and Industry, the Ministry of Labor and Social Welfare, and the local municipality), and the registration process usually takes 84 days, according to the World Bank’s Doing Business report.

Outward Investment

Given the low level of capital accumulation in the economy, Eritrea is not a likely provider of foreign capital.  As part of its efforts to direct capital towards development, the GSE’s laws strictly control capital flows, currency exchange, and restricts domestic investors from making large investments abroad.  For example, monthly bank withdrawals are limited to 5,000 Nakfa, and dollars are generally unavailable for withdrawal.

3. Legal Regime

Transparency of the Regulatory System

The GSE is not transparent.  The World Bank scores Eritrea a zero on its six-point scale for the “Global Indicators of Regulatory Governance.”  Legal and regulatory systems are not transparent.  Ministries are empowered to (and do) issue new regulations with no public debate.  There is no publicly accessible location (online or otherwise) to find key proclamations, laws, or regulatory actions.  There is no public oversight of government actions nor legal recourse against government actions taken.

The seeming arbitrariness of government regulation and action is a drag on the economy.  Businesses are shuttered on occasion without explanation, leaving other businesses to wonder (and often spread rumors) as to what happened.

Public finances and debt obligations are not made public.

International Regulatory Considerations

Eritrea is a founding member of the Common Market for Eastern and Southern Africa (COMESA).  It also belongs to the Community of Sahel-Saharan States and the Intergovernmental Authority on Development (though it has not participated in the latter for several years.)  COMESA decisions are binding on all member states, but as they are made by consensus this does not cause conflict.

Eritrea is one of only 10 UN member states that has no affiliation with the WTO.

Legal System and Judicial Independence

The Eritrean legal system is based on the Ethiopian system that was in place at the time of independence.  It is primarily a civil law system, though these laws are deeply influenced by traditional law.

Eritrea has a written commercial code, derived from the Ethiopian commercial code in effect at the time of independence along with several proclamations to update the code.  A full rewrite was done as part of a 2015 overhaul of the major legal codes, but these were never implemented.  Any international company doing business in Eritrea will need the assistance of a local attorney versed in the complexities of the Eritrean legal system.

The judicial system is not fully independent of the executive.  Judges are National Service employees, and thus work for the executive branch.  Many enforcement decisions, and especially those that relate to the commercial or labor codes, are adjudicated solely through the national court system and are appealable.

Laws and Regulations on Foreign Direct Investment

Eritrea’s legal system plays only a minor role in foreign direct investment. All large-scale foreign direct investment is part of a political process and is managed by non-public agreements negotiated directly with a small group of officials in the government and the ruling party.

Eritrea does not have a  website for foreign investors to learn about relevant laws, rules, procedures and reporting requirements.

There have been no new major laws, regulations, or judicial decisions announced in the past year.

Competition and Anti-Trust Laws

There are no indications that the GSE makes any effort to promote market competition. All large-scale economic activity is controlled directly by the GSE or by jointly controlled international companies operating under agreements negotiated directly with the GSE/PFDJ.

Expropriation and Compensation

There is no transparent process that would allow an individual or company to appeal any GSE expropriation of property.

The most recent public case of expropriation was in 2019, when the government expropriated 22 health clinics from the Catholic Church, citing a law prohibiting religious organizations from providing social services.  The Catholic Church said there was no due process or ability to appeal the decision.

Dispute Settlement

ICSID Convention and New York Convention

Eritrea is not a member of the International Centre for Settlement of Investment Disputes (ICSID) Convention or the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

Eritrea is not a signatory to a treaty or investment agreement in which binding international arbitration is recognized. Eritrea has no BIT with an investment chapter with the United States.

Due to a lack of government transparency it is impossible to determine the number of investment disputes involving U.S. persons or foreign investors. Because of the minimal level of foreign investment, the number of disputes is presumably also very small.

Local Eritrean courts do not recognize or enforce foreign arbitral awards issued against the GSE.  There is no known history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Some disputes between private parties are settled in traditional village courts. There is no independent, domestic arbitration body in Eritrea.

The local courts do not recognize or enforce foreign arbitral awards, nor do they recognize or enforce judgements of foreign courts.

There are no known investment disputes involving SOEs.

Bankruptcy Regulations

Bankruptcy is addressed in the Eritrean Civil Law and the proclamations amending it; however due to lack of transparency in the court system, it is impossible to determine what rights, if any, creditors, shareholders and holders of other financial contracts have in practice.  No information is available on how bankruptcy is handled in practice.

6. Financial Sector

Capital Markets and Portfolio Investment

There is no functioning public market for capital in Eritrea, nor is there an established stock market.

The GSE fully controls the banking and financial sectors; there are no transparent mechanisms to facilitate the free flow of financial resources into portfolio investments.  There is no transparency in decisions regarding credit allocation.  Transfers of foreign currency are heavily restricted due, in part, to government concerns about foreign terrorist financing.

The GSE does not respect the International Monetary Fund’s (IMP) Article VIII, regarding restrictions on payments and transfers for international transactions.

Money and Banking System

Due to restrictions on the use and hoarding of cash, most Eritreans now have bank accounts and use banking services.  However, there are excessive regulation on banking accounts (including low monthly limits on withdrawals and restrictions on sending foreign currency abroad) and obsolete technology at the banks.  There are no automated teller machines in Eritrea and there is no infrastructure to allow the use of credit or debit cards.

It is unclear what the estimated total assets of the country’s largest banks are.  The Bank of Eritrea is the country’s central bank.  Foreign banks are not allowed to open branches or establish operations in Eritrea.  Foreigners are able to establish bank accounts, but are subject to the same monthly Nakfa withdrawal limits as Eritreans.

Eritrea does not currently have any correspondent banking relationships.  Per a 1994 regulation, locally-based entities are forbidden from maintaining foreign bank accounts.

Foreign Exchange and Remittances

Foreign Exchange

Organizations in Eritrea have often found it difficult to move foreign currency into or out of Eritrea, even to pay essential bills abroad.  All fund transfers into and out of Eritrea must go through the National Bank of Eritrea.  Some international organizations have resorted to bringing money by courier.  Local funds are not freely convertible to any world currency.  The exchange rate is determined by the government, and the rate does not fluctuate.

Remittance Policies

As the major large investments in Eritrea are non-transparent collaborations with the GSE, the companies running them may be able to remit investment income in ways not available to the general public.  Small- and medium-sized enterprises often have difficulties moving investment income abroad due to strict withdrawal limitations (for cash) and the requirement that all electronic fund transfers be executed through the National Bank of Eritrea, which can arbitrarily deny fund transfers.

Sovereign Wealth Funds

Eritrea has no sovereign wealth fund.

7. State-Owned Enterprises

The few large enterprises that operate in the economy are owned and operated by the GSE, the PFDJ, or are jointly operated with the GSE under an agreement with a foreign country or company.  There is no official list of state-owned enterprises (SOEs), but they dominate all sectors, especially agribusiness, construction, import/export, and financing.  The mining sector is dominated by joint ventures between foreign companies and the state-owned ENAMCO.

SOEs operating in the domestic market receive non-market-based advantages from the GSE, such as the right to import and export through the PFDJ-controlled import/export entity, and preferential access to goods imported by other SOEs and government offices.

Privatization Program

The government has often expressed its interest in privatizing the economy but has made no efforts yet to do so and is generally believed to be suspicious of private enterprise.

10. Political and Security Environment

There is no history of politically motivated violence or civil disturbance.

In 2015, there were public reports that a Canadian-operated mine in Eritrea was damaged by explosions caused by either bombs or mortars. The mine continued to operate and there were conflicting accounts of who was responsible for the explosion(s).  This one incident does not seem to have had a continuing impact on the investment environment.

Due to Eritrea’s single-party political system, it is difficult to know how politicized or secure the country is, as information on public opinion and security matters does not flow freely.  However, the level of politicization and security does not seem to have changed in recent years.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) N/A N/A 2018 $2,006 www.imf.org/
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $-2 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $0 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A 2019 56.6% UNCTAD data available at

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

 

* Source for Host Country Data: Eritrea does not provide economic data.

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

Table 4: Sources of Portfolio Investment
Data not available.

Estonia

Executive Summary

Estonia is a safe and dynamic country for investment, with a business climate very similar to the United States. As a member of the EU, the Government of Estonia (GOE) maintains liberal policies in order to attract investments and export-oriented companies. Creating favorable conditions for foreign direct investment (FDI) and openness to foreign trade has been the foundation of Estonia’s economic strategy. The overall freedom to conduct business in Estonia is well protected under a transparent regulatory environment.

Estonia is among the leading countries in Eastern and Central Europe regarding FDI per capita. At the end of 2020, Estonia had attracted in total USD 32 billion (stock) of investment, of which 30 percent was made into the financial sector, 18 percent into real estate, 13 percent into science and technology, and 11 percent into manufacturing. United States FDI stock in Estonia is USD 417 million, and Estonian FDI stock in United States totals USD 322 million.

Estonia’s government has not yet set limitations on foreign ownership, and foreign investors are treated on an equal footing with local investors.  However, the government is currently developing a framework to screen incoming FDI, which could have some impact on foreign investments. There are no investment incentives available to foreign investors.

Foreign investors have not faced significant challenges with corruption, though Estonia has had some local cases.

The Estonian income tax system, with its flat rate of 20 percent, is considered one of the simplest tax regimes in the world. Deferral of corporate taxation payment shifts the time of taxation from the moment of earning the profits to that of their distribution. Undistributed profits are not subject to income taxation, regardless of whether these are reinvested or merely retained.

Estonia offers opportunities for businesses in a number of economic sectors like information and communication technology (ICT), green energy, wood processing, and biotechnology. Estonia has strong trade ties with Finland, Sweden, and Germany.

Estonia suffers a shortage of labor, both skilled and unskilled.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 17 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2020 18 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 25 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in Partner Country ($M USD, stock positions) 2020 $417 https://statistika.eestipank.ee/#/en/p/146/r/2293/2122
World Bank GNI per capita 2019 $23,260 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Estonia is currently open for FDI and foreign investors are treated on an equal footing with local investors, though the government is developing a screening mechanism to adhere to the EU Foreign Investment Screening Regulation (https://eur-lex.europa.eu/eli/reg/2019/452/oj) that entered into force on April 10, 2019. This new regulation is applicable from October 11, 2020 and creates an information-sharing mechanism between Member States and allows Member States and the European Commission to comment on foreign investments foreseen in other Member States.

The Estonian Investment Agency (EIA), a part of Enterprise Estonia, is a government agency promoting foreign investments in Estonia and assisting international companies in finding business opportunities in Estonia. EIA offers comprehensive, one-stop investment consultancy services, free of charge. The agency’s goal is to increase awareness of business opportunities in Estonia and promote the image of Estonia as an attractive country for investments. More info: http://www.investinestonia.com/en/estonian-investment-agency/about-the-agency

Limits on Foreign Control and Right to Private Ownership and Establishment

Estonia’s government has not set limitations on foreign ownership. Licenses are required for foreign investors to enter the following sectors: mining, energy, gas and water supply, railroad and transport, waterways, ports, dams and other water-related structures and telecommunications and communication networks. The Estonian Financial Supervision Authority issues licenses for foreign interests seeking to invest in or establish a bank. Additionally, the Estonian Competition Authority reviews transactions for anti-competition concerns. Government review and licensing have proven to be routine and non-discriminatory.

As a member of the EU, the Government of Estonia (GOE) maintains liberal policies in order to attract investment and export-oriented companies. Creating favorable conditions for FDI and openness to foreign trade has been the foundation of Estonia’s economic strategy. Existing requirements are not intended to restrict foreign ownership but rather to regulate it and establish clear ownership responsibilities.

Other Investment Policy Reviews

Since becoming a member of the EU, Estonia is included in WTO Trade Policy Reviews (TPRs) of the EU/EC. The fourteenth review of the trade policies and practices of the European Union took place in February 2020. Full report available here: WTO | Trade policy review -European Union (formerly EC) 2020.

Business Facilitation

The World Bank’s Ease of Doing Business report ranks Estonia in 18th place out of 190 countries on the ease of Starting a Business. Economic freedom, ease of doing business, per capita investments, low national debt, euro zone membership, and low corruption scores – all these factors play a role in fostering a good climate for business facilitation.

In Estonia there are two ways to register your business:

  • Electronic registration via the e-Commercial Register’s Company registration portal (rik.ee) (takes between 5 minutes and 1 business day).
  • Through a notary (takes 2-3 business days)

More info on registering the business entity and link to the Register: https://www.eesti.ee/en/doing-business/establishing-a-company/comparison-of-each-form-of-business/

On July 1, 2014, an amended Taxation Act establishing the employment register entered into force, requiring all natural and legal employers to register the persons employed by them with the Estonian Tax and Customs Board.  The company must register itself as a value-added taxpayer if the taxable turnover of the company, excluding imports of goods, exceeds EUR 40,000 as calculated from the beginning of the calendar year.

There are certain areas of activity (like construction, electrical works, fire safety, financial services, security services, etc.) in which business operation requires an additional registration in the Register of Economic Activities (MTR), but this can be done after registration of the company in the Commercial Register: https://mtr.mkm.ee/

Outward Investment

Estonia does not restrict domestic investors from investing abroad nor does it promote outward investment. Estonia companies have invested abroad about USD 10 billion, mostly into EU countries. The main sectors for outward investments are services, manufacturing, real estate and financial.

3. Legal Regime

Transparency of the Regulatory System

The Government of Estonia has set transparent policies and effective laws to foster competition and establish “clear rules of the game.” Despite these measures, due to the small size of Estonia’s commercial community, instances of favoritism are not uncommon.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. Financial statements should be prepared in accordance with either:

  • accounting principles generally accepted in Estonia; or
  • International Financial Reporting Standards (IFRS) as adopted by the EU.

Listed companies and financial institutions are required to prepare financial statements in accordance with IFRS as adopted by the EU.

The Estonian Generally Accepted Accounting Principles (GAAP) are written by the Estonian Accounting Standards Board (EASB).  Estonian GAAP, effective since 2013, is based on IFRS for Small and Medium-sized Entities (IFRS for SMEs) with limited differences from IFRS for SMEs with regard to accounting policies as well as disclosure requirements. More info: https://investinestonia.com/business-in-estonia/establishing-company/accounting-requirements/

The Minister of Justice has responsibility for promoting regulatory reform. The Legislative Quality Division of the Ministry of Justice provides an oversight and coordination function for Regulatory Impact Analysis (RIA) and evaluations with regards to primary legislation. For government strategies, EU negotiations and subordinate regulations, oversight responsibilities lie within the Government Office.

The government of Estonia has placed a strong focus on accessibility and transparency of regulatory policy by making use of online tools. There is an up-to-date database of all primary and subordinate regulations (https://www.riigiteataja.ee/en/) in an easily searchable format. An online information system tracks all legislative developments and makes available RIAs and documents of legislative intent (http://eelnoud.valitsus.ee/main). Estonia also established the website www.osale.ee, an interactive website of all ongoing consultations where every member of the public can submit comments and review comments made by others. Regulations are reviewed on the basis of scientific and data-driven assessments.

Estonia, an OECD member country, has committed at the highest political level to an explicit whole-of-government policy for regulatory quality and has established sufficient regulatory oversight. Estonia scores the same as the United States on the World Bank`s Global Indicators of Regulatory Governance on whether governments publish or consult with public about proposed regulations: http://rulemaking.worldbank.org/en/data/explorecountries/estonia  Estonia’s widely-praised “e-governance” solutions and other bureaucratic procedures are generally far more streamlined and transparent than those of other countries in the region and are among the easiest to use globally. In addition, Estonia’s budget and debt obligations are widely and easily accessible to the general public on the Ministry of Finance website.

International Regulatory Considerations

Estonia is a member of the EU.  An EU regulation is a legal act of the European Union that becomes immediately enforceable as law in all member states simultaneously. Regulations can be distinguished from directives which, at least in principle, need to be transposed into national law. Regulations can be adopted by means of a variety of legislative procedures depending on their subject matter. European Standards are under the responsibility of the European Standardization Organizations (CEN, CENELEC, ETSI) and can be used to support EU legislation and policies.

Estonia has been a member of WTO since November 13, 1999. Estonia is a signatory to the Trade Facilitation Agreement (TFA) since 2015.

Legal System and Judicial Independence

Estonia’s judiciary is independent and insulated from government influence. The legal system in Estonia is based on the Continental European civil law model and has been influenced by the German legal system. In contrast to common law countries, Estonia has detailed codifications.

Estonian law is divided into private and public law. Generally, private law consists of civil law and commercial law. Public law consists of international law, constitutional law, administrative law, criminal law, financial law, and procedural law.

Estonian arbitral tribunals can decide in cases of civil matters that have not previously been settled in court. More on Estonian court system: https://www.riigikohus.ee/en.  Arbitration is usually employed because it is less time consuming and cheaper than court settlements. The following disputes can be settled in arbitral tribunals:

  • Labor disputes;
  • Lease disputes;
  • Consumer complaints arguments;
  • Insurance conflicts;
  • Public procurement disputes;
  • Commercial and industrial disputes.

Recognition of court rulings of EU Member States is regulated by EU legislation. More: http://www.europarl.europa.eu/RegData/etudes/STUD/2015/509988/IPOL_STU(2015)509988_EN.pdf

Laws and Regulations on Foreign Direct Investment

Estonia is part of the Continental European legal system (civil law system). The most important sources of law are legal instruments such as the Constitution, European Union law, international agreements and Acts and Regulations. Major laws affecting incoming foreign investment include the Commercial Code, Taxation Act, Income Tax Act, Value Added Tax Act, Social Tax Act, and Unemployment Insurance Payment Act. More information is available at https://www.riigiteataja.ee/en/.  An overview of the investment-related regulations can be found here: http://www.investinestonia.com/en/investment-guide/legal-framework

Competition and Anti-Trust Laws

The Estonian Competition Authority reviews transactions for anti-competition concerns. Government review and licensing have proven to be routine and non-discriminatory.

More info on specific competition cases: https://www.konkurentsiamet.ee/en

Expropriation and Compensation

Private property rights are observed in Estonia. The government has the right to expropriate for public interest related to policing the borders, public ports and airports, public streets and roads, supply to public water catchments, etc. Compensation is offered based on market value. Cases of expropriation are extremely rare in Estonia, and the Embassy is not aware of any expropriation cases involving discrimination against foreign owners.

Dispute Settlement

ICSID Convention and New York Convention

Estonia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1992 and a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1993, meaning local courts are obliged to enforce international arbitration awards that meet certain criteria.

Investor-State Dispute Settlement

The Embassy is not aware of any claims under Estonia’s Bilateral Investment Treaty (BIT) with the United States. Investment disputes concerning U.S. or other foreign investors in Estonia are rare.

International Commercial Arbitration and Foreign Courts

The Arbitration Court of the Estonian Chamber of Commerce and Industry (https://www.koda.ee/en/about-chamber/court-arbitration) is a permanent arbitration court which settles disputes arising from contractual and other civil law relationships, including foreign trade and other international economic relations. More info: http://www.lawyersestonia.com/arbitration-in-estonia

Local courts recognize and enforce foreign arbitral awards. The Embassy is not aware of any investment disputes involving SOEs.

Bankruptcy Regulations

Bankruptcy is not criminalized in Estonia.  Bankruptcy procedures in Estonia fall under the regulations of Bankruptcy Act that came into force in February 1997. The Estonian Bankruptcy Act focuses on the protection of the debtors and creditors’ rights. According to the Act, bankruptcy proceedings in Estonia can be compulsory, in which case a court will decide to commence the procedures for debt collection, or voluntarily by company reorganization. More info on bankruptcy procedures: http://www.lawyersestonia.com/bankruptcy-procedures-in-estonia

Detailed information about creditor’s rights: https://www.riigiteataja.ee/en/eli/ee/Riigikogu/act/504072016002/consolide

More info from World Bank’s Doing Business Report on Estonian ranking for ease of “resolving insolvency:” https://www.doingbusiness.org/en/data/exploreeconomies/estonia#DB_ri

6. Financial Sector

Capital Markets and Portfolio Investment

Estonia is a member of the Euro zone. Estonia’s financial sector is modern and efficient. Credit is allocated on market terms and foreign investors are able to obtain credit on the local market. The private sector has access to an expanding range of credit instruments similar in variety to those offered by banks in Estonia’s Nordic neighbors, Finland, and Sweden.

Legal, regulatory, and accounting systems are transparent and consistent with international norms.

The Security Market Law complies with EU requirements and enables EU securities brokerage firms to deal in the market without establishing a local subsidiary. The NASDAQ OMX stock exchanges in Tallinn, Riga, and Vilnius form the Baltic Market, which facilitates cross-border trading and attracting more investments to the region. This includes sharing the same trading system and harmonizing rules and market practices, all with the aim of reducing the costs of cross-border trading in the Baltic region.

Certain investment services and products may be limited to U.S. persons in Estonia due to financial institutions’ response to the U.S. Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

Estonian financial services market overview:  https://www.fi.ee/en?id=12737

IMF report on Estonia: https://www.imf.org/en/Publications/CR/Issues/2020/01/21/Republic-of-Estonia-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-48963

Money and Banking System

Estonia’s banking system has consolidated rapidly. The banking sector is dominated by two major commercial banks, Swedbank and SEB, both owned by Swedish banking groups. These two banks control approximately 65 percent of the financial services market. The third largest bank is Luminor Bank. There are no state-owned commercial banks or other credit institutions.

More information on banks’ assets is available at: http://statistika.eestipank.ee/#/en/p/FINANTSSEKTOR/147/645

The Scandinavian-dominated Estonian banking system is modern and efficient. Local and international banks in Estonia provide both domestic and international services (including internet and mobile banking) at competitive rates, as well as a full range of financial, insurance, accounting, and legal services. Estonia has a highly advanced internet banking system: currently 98 percent of banking transactions are conducted via the internet.

The Bank of Estonia (Eesti Pank) is Estonia’s independent central bank. As Estonia is part of the Euro zone, the core tasks of the Bank are to help to define the monetary policy of the European Community and to implement the monetary policy of the European Central Bank, including the circulation of cash in Estonia. Eesti Pank is also responsible for holding and managing Estonian official foreign exchange reserves as well as supervising overall financial stability and maintaining reliable and well-functioning payment systems. Neither the Central Bank nor the government hold shares in the banking sector.

EU legislation requires Estonia to make its AML regime compliant with EU directives. Estonia has passed legislation that makes its AML regime compliant with EU legislation. After large-scale money laundering cases through Estonian branches of Nordic banks came to light in Estonia, regulatory and government officials are taking steps to improve the AML oversight regime. The recent changes included transformation of supervisory structures and roles as well as amendment of laws governing them. Due to strict anti-money laundering (AML) regulations and bank compliance practices, it can be difficult for non-residents to open a bank account.

More info on opening a bank account for non-resident investors:

https://transferwise.com/gb/blog/opening-a-bank-account-in-estonia

https://www.lhv.ee/en/non-residents

Foreign Exchange and Remittances

Foreign Exchange Policies

Estonia has been a member of the euro currency area since 2011. There are no restrictions on currency transfers or conversion.

Remittance Policies

There are no restrictions, limitations or delays involved in converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, or lease payments) into other currencies at market rates. There is no limit on dividend distributions as long as they correspond to a company’s official earnings records. If a foreign company ceases to operate in Estonia, all its assets may be repatriated without restriction. These policies are long-standing; there is no indication that they will be altered in the future. Foreign exchange is readily available for any purpose.

Sovereign Wealth Funds

There are no sovereign wealth funds or state-owned investment funds in Estonia.

7. State-Owned Enterprises

In Estonia SOEs are primarily engaged in the provision of services of strategic importance.

In early 2020, the Republic of Estonia held an interest in 29 companies of which 27 were solely owned by the state. The largest SOE`s are Eesti Energia (electricity production), Elering (electricity TSO), Estonian Railways, Tallinn Airport, and the Port of Tallinn.

The full list of SOEs is available at: https://www.eesti.ee/eng/contacts/riigi_osalusega_ariuhingud_1/riigi_osalusega_ariuhingud_2

SOEs have assets worth over 7 billion euros, and they employ about 13,400 people. Sales of the SOEs in 2018 was 1.8 billion euros.

Public enterprises operate on the same legal basis as private enterprises. Until recently SOEs had politically appointed boards, but today board members are appointed by an independent committee. SOEs are governed by different ministries.

Competition and public procurement of SOEs is subject to EU law. All SOEs have audited accounts. Large SOEs’ audits are publicly available on their websites. The activities of SOEs are also audited by the National Audit Office of Estonia, which conducts assessments and provides recommendations directly to the Parliament.

Privatization Program

Estonia’s privatization program is largely complete. Only a small number of enterprises remain wholly state-owned. There have been recent discussions on the political level about the possible listing of additional SOEs, such as Port of Tallinn and part of Eesti Energia.

10. Political and Security Environment

Civil unrest generally is not a problem in Estonia, and there have been no incidents of terrorism. Public gatherings and demonstrations may occur on occasion in response to political issues, but these have proceeded, with very few exceptions, without incidence of violence in the past.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $31,022    2020 $31,030 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or International Statistical Source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country ($M USD, stock positions) 2020 $417 2020 N/A www.bea.gov
Host Country’s FDI in the United States ($M USD, stock positions) 2020 $322 2020 N/A www.bea.gov
Total Inbound Stock of FDI as % host GDP 2019 88% 2019 88.35% https://unctad.org/topic/investment/world-investment-report

* Source for Host Country Data: Bank of Estonia https://www.eestipank.ee/en/statistics

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $27,940 100% Total Outward $10,013 100%
Sweden $6,618 24% Lithuania $2,860 29%
Finland $6,597 24% Latvia $2,336 23%
Netherlands $1,742 6% Cyprus $1,264 13%
Luxembourg $1,379 5% Finland $831 8%
Lithuania $1,180 4% Ukraine $311 3%
“0” reflects amounts rounded to +/- USD 500,000.

Source: CDIS Table 1: Direct Investment Positions (Inward and Outward) – IMF Data

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $20,109 100% All Countries $5,933 100% All Countries $14,176 100%
International Organizations $6,932 34% Luxembourg $1,434 24% International Organizations $6,932 49%
Sweden $2,788 14% Ireland $1,413 24% Sweden $2,299 16%
Luxembourg $2,294 11% U.S. $769 13% Luxembourg $860 6%
Ireland $1,476 7% Sweden $489 8% Germany $609 4%
U.S. $973 5% Finland $450 8% France $495 3%

Source: Coordinated Portfolio Investment Survey – Portfolio Investment Assets – IMF Data

Eswatini

Executive Summary

Eswatini is a small kingdom situated in one of the most dynamic and developed regions in Southern Africa. As a small nation of one million, Eswatini is working to position itself as an exporter that is open for business. Located between South Africa and Mozambique, Eswatini boasts of membership in two of the largest free trade regions on the continent: the Southern Africa Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA). An economic-minded cabinet installed in 2018 has pursued the challenge of reinvigorating Eswatini’s economy and improving the business climate. Eswatini is an AGOA eligible country; in March, 2021, the GoKE issued a comprehensive strategy to maximize the opportunities presented under the program. The Eswatini Investment Promotion Authority (EIPA) advocates for foreign investors and facilitates regulatory approval. Recent positive developments include the start-up of a 15000 sqm factory that began production this year of food products for the local and export markets.

The Swati government has prioritized the energy sector, particularly renewable energy, and developed a Grid Code and Renewable Energy and Independent Power Producer (RE&IPP) Policy to create a transparent regulatory regime and attract investment. Eswatini generally imports 80 percent of its power from the Southern African Power Pool. With both South Africa and Mozambique experiencing electricity shortages, Eswatini is working to increase its own energy generation using renewable sources. To that end, the country has launched a small handful of new photovoltaic projects, and has commissioned a 10 MW solar plant to reduce exports from South Africa. The Eswatini Energy Regulator in 2019 and 2020 issued Requests for Qualification for two independent power producers to supply electricity from solar and biomass. King Mswati III in February 2021 announced the development of a 300 MW thermal power plant at Lubhuku. Energy demand in Eswatini is estimated to be about 300MW. Information, Communications and Technology (ICT) is also an emerging sector, which Eswatini has tried to support through initiatives such as e-governance and the Royal Science and Technology Park. The digital migration program of the Southern African Development Community (SADC) presents ICT opportunities in the country such as cloud based storage systems.

With the emergence of Covid-19 the need for ICT business and infrastructure opportunities have found their way to the top of the priority list as ICT has become the core of the new normal.

Eswatini is seeking to redefine itself through the economic recovery strategy as an export-oriented, private sector led, economy.

Incentives to invest in Eswatini include repatriation of profits, fully serviced industrial sites, purpose-built factory shells at competitive rates, and duty exemptions on raw materials for manufacture of goods to be exported outside the Southern African Customs Union (SACU). Financial incentives for all investors include tax allowances and deductions for new enterprises, including a 10-year exemption from withholding tax on dividends and a low corporate tax rate of 10 percent for approved investment projects. New investors also enjoy duty-free import of machinery and equipment. In February 2018, the GKoE enacted the Special Economic Zones (SEZ) Act in an effort to attract foreign direct investment. SEZ investors may benefit from a 20-year exemption from all corporate taxation (followed by taxation at 5 percent); full refunds of customs duties, value-added tax, and other taxes payable on goods purchased for use as raw material, equipment, machinery, and manufacturing; unrestricted repatriation of profits; and full exemption from foreign exchange controls for all operations conducted within the SEZ.

Royal family involvement in the mining sector has discouraged potential investors in that sector. Eswatini’s land tenure system, where the majority of rural land is “held in trust for the Swati nation,” has discouraged long-term investment in commercial real estate and agriculture.

Eswatini has historically been a services economy with companies from South Africa being among the major employers, however due to developments in the Africa Continental Free Trade Area (AfCFTA), it is likely that strategic manufacturing for export will again take the lead in the near future as there is new enthusiasm towards foreign market opportunities.

Recent legislative reforms such as the enactment of the new Public Order Act and Sexual Offenses and Domestic Violence Act have meaningfully improved the country’s legal framework. After requalifying as an AGOA beneficiary in January 2018, Eswatini turned its attention to trying to qualify for Millennium Challenge Corporation (MCC) support. To advance these efforts, the country has launched an effort to improve its relatively poor rankings on MCC indicators such as political rights, civil liberties, and business start-up.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 117 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 121 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 Eswatini not included https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) N/A N/A https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 $3,670 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of the Kingdom of Eswatini (GKoE) regards foreign direct investment (FDI) as one of the five pillars of its Sustainable Development and Inclusive Growth (SDIG) Program, and a means to drive the country’s economic growth, obtain access to foreign markets for its exports, and improve international competitiveness. While the government has strongly encouraged foreign investment over the past 15 years, it only recently adopted a formal strategy for achieving measurable progress. Eswatini does not have a unified policy on investment. Instead, individual ministries have their own investment facilitation policies, which include policies on Small and Medium Enterprises (SME), agriculture, energy, transportation, mining, education, and telecommunications. The Finance Minister in his annual state of budget address stated that the government aspires to have a one stop shop for business startups to streamline government processes to less than two weeks.

The Swati constitution states, generally, that non-citizens and/or companies with a majority of non-citizen shareholders may not own land unless they were vested in their ownership rights before the constitution entered into force in 2006. On the other hand, the constitution’s general prohibition “may not be used to undermine or frustrate an existing or new legitimate business undertaking of which land is a significant factor or base.” Furthermore, non-citizens and non-citizen majority-owned companies may hold long-term (up to 99 years) leases on Title and Swati Nation Land. Besides land ownership laws, there are no laws that discriminate against foreign investors. In 2019, the government listed some of its title deed land to make it available for long-term leasing for commercial purposes.

In practice, most successful foreign investors work with local partners to navigate Eswatini’s complex bureaucracy. Most of the country’s land is Swati Nation Land held by the king and cannot be purchased by foreign investors. Foreign investors that require significant land for their enterprise must engage the Land Management Board to negotiate long-term leases.

The Eswatini Investment Promotion Authority (EIPA) is the state-owned enterprise (SOE) charged with designing and implementing strategies for attracting desired foreign investors.

Eswatini’s Investment Policy and policies that support the business environment are online at https://investeswatini.org.sz/legal-and-regulatory-framework/ . EIPA services include: – Attract and promote local and foreign direct investments

  • Attract and promote local and foreign direct investments
  • Identify and disseminate trade and investment opportunities
  • Provide investor facilitation and aftercare services
  • Promote internal and external trade
  • Undertake research and policy analysis
  • Facilitate company registration and business licenses/permits
  • Facilitate work permits and visas for investors
  • Provide a one stop shop information and support facility for businesses
  • Export product development
  • Facilitation of participation in external trade fairs
  • BuyerSeller Missions

The GKoE continues its attempts to improve the ease of doing business in the country through the Investor Roadmap Unit (IRU). The IRU engages with businesses and government to review and report on the progress and implementation of the investor roadmap reforms.

EIPA has an aftercare division for purposes of investment retention, which is a direct avenue for investors to communicate concerns they may have. Most investors who stay beyond the initial period during which the GKoE offers investment incentives have opted to remain long-term.

Limits on Foreign Control and Right to Private Ownership and Establishment

Both foreign and domestic private entities have a right to establish businesses and acquire and dispose of interest in business enterprises. Foreign investors own several of Eswatini’s largest private businesses, either fully or with minority participation by Swati institutions.

There are no general limits on foreign ownership and control of companies, which can be 100 percent foreign owned and controlled. The only exceptions on foreign ownership and control are in the mining sector and in relation to land ownership. The Mines and Minerals Act of 2011 requires that the King (in trust for the Swati Nation) be granted a 25-percent equity stake in all mining ventures, with another 25 percent equity stake granted to the GKoE. There are also sector-specific trade exclusions that prohibit foreign control, which include business dealings in firearms, radioactive material, explosives, hazardous waste, and the printing of currency.

Foreign investments are screened only through standard background and credit checks. Under the Money Laundering and Financing of Terrorism (Prevention) Act of 2011, investors must submit certain documents including proof of residence and source of income for deposits. EIPA also conducts general screening of FDI monies through credit bureau checks and Interpol. This screening is not a barrier to investing in Eswatini. There are no discriminatory mechanisms applied against U.S. foreign direct investors.

Other Investment Policy Reviews

There have been no Investment policy reviews for Eswatini in the last 3 years. Through its membership in the Southern African Customs Union, its ratification of the African Continental Free Trade Agreement and its participation in the work of the WTO, Eswatini continues to pursue the importance of trade to development In 2015, the WTO performed a Trade Policy Review of the Southern African Customs Union, which includes Namibia, Botswana, Eswatini, South Africa, and Lesotho. In 2016, the Trade facilitation agreement was ratified; Eswatini’s portion of that review is available online: https://www.wto.org/english/news_e/archive_e/country_arc_e.htm?country1=SWZ 

Business Facilitation

Eswatini does not have a single overarching business facilitation policy. Policies that address business facilitation are spread across the spectrum of relevant ministries. The Investor Road Map Unit (IRMU) is the public entity responsible for the review and monitoring of business environment reforms. EIPA facilitates foreign and domestic investment opportunities and has a fairly modern, up-to-date website: https://investeswatini.org.sz  / . Certain GKoE application forms are available online at the EIPA website. Recent developments in the business facilitation space include the online registration of companies via the link www.online.gov.sz . As of 2020, the final steps (payment of statutory fees and registration fee) are now available online. According to the Doing Business Report, the process of registering a company in Eswatini takes approximately 10 days. In practice, the process can take much longer for foreign investors.

The main organization representing the private sector is Business Eswatini ( www.business-eswatini.co.sz ), which represents more than 80 percent of large businesses in Eswatini, works on a wide range of issues of interest to the private sector, and seeks to build partnerships with the government to promote commercial development. Through Business Eswatini, the private sector is represented in a number of national working committees, including the National Trade Negotiations Team (NTNT).

Outward Investment

3. Legal Regime

Transparency of the Regulatory System

In general, the laws of the country are transparent, including laws to foster competition. The Swaziland Competition Act came into force in 2007, and the Competition Commission Regulations came into effect in 2011. The Swaziland Competition Commission (SCC) is a statutory body charged with the administration and enforcement of the Competition Act of 2007. The legal and regulatory environment is underdeveloped, but currently growing as the GKoE has recently established additional regulatory bodies in the financial, energy, communications, and construction procurement sectors. These bodies generally attempt to emulate the regulatory practices of South Africa or the UK.

Eswatini’s rule-making and regulatory authority lies with the central government and may be delegated by the relevant line ministry to a department, parastatal, or board. The primary custodian of policy and regulation is the minister responsible for the relevant law. All laws, regulations, and policies are applied at a national level. There are no regulatory processes managed by nongovernmental organizations or private sector associations. Regulatory enforcement actions can be reviewed through the court system, and court rulings are publicly available.

Adherence to the International Financial Reporting Standard (IFRS) is required for listed companies, financial institutions, and government-owned companies. It remains optional for small and medium enterprises.

Proposed laws and regulations are published in the government Gazette and have a public comment period of thirty days prior to a bill’s presentation to parliament. Ministries sometimes consult with selected members of the public and private sectors through stakeholder meetings. Most draft regulations are not available online, but can be acquired in hard copy through the government printing office for a fee. Regulations are generally developed and reviewed through various stakeholder consultations. The use of science and data to inform regulatory reform is not widespread.

Foreign investors coming into the country can join Business Eswatini on equal footing with Eswatini nationals. Business Eswatini often serves as the link between the private sector and the government. There are no informal regulatory processes that apply to foreign investors.

Eswatini public finance and debt obligations are published online through the budget estimates book as well as the Central Bank of Eswatini’s annual report.

International Regulatory Considerations

Eswatini is part of four distinct economic blocks: the Common Monetary Area (CMA), the Southern African Customs Union (SACU), the Southern African Development Community (SADC), and the Common Market for Eastern and Southern Africa (COMESA). The standards of membership in these blocks are primarily based on British law and have been domesticated accordingly into each context.

Eswatini is a member of the WTO and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Eswatini signed and ratified the Trade Facilitation Agreement (TFA) in 2016 and has begun implementing its requisites. The TFA entered into force in February 2017 and requires prompt and transparent publication of trade-related information. Eswatini developed a trade portal in partnership with the World Bank to make reliable trade-related information accessible to the private sector. The GKoE approved the portal, which now is at the data collection stage and has a full time Secretariat.

Legal System and Judicial Independence

Eswatini has a dual legal system consisting of a set of courts that follow Roman-Dutch law and a set of national courts that follow Swati law and custom. The former consists of a Court of Appeals (Supreme Court) and a High Court, in addition to magistrate’s courts in each of the four districts of Eswatini. The traditional courts deal with minor offenses and violations of traditional Swati law and custom. Sentences in traditional courts are subject to appeal and review at the Court of Appeals and High Court. The western-style court system enforces contracts and property rights.

The country has various written commercial and contractual laws. Commercial and contractual disputes are handled in the magistrate court or High Court depending on the amount in controversy. There are currently no specialized commercial courts; however, the government is in the process of establishing a Small Claims Bench. Specialized Industrial Courts hear industrial relations matters.

The constitution and law provide for an independent judiciary, and the courts are generally independent of executive control or influence in nonpolitical criminal and civil cases not involving the royal family or government officials. The current judicial process is procedurally competent, fair, and reliable, although the capacity of the judiciary to handle cases in a timely manner is extremely limited, creating significant case backlogs.

Enforcement of laws and regulations is appealable up to the Supreme Court.

Laws and Regulations on Foreign Direct Investment

The Swaziland Investment Promotion Act of 1998 established EIPA and provides for the freedom of investment, protection of investment, and non-discrimination on the part of the government with respect to investors. The Competition Act of 2007 proscribes anti-competitive trade practices and specifies requirements for mergers and acquisitions, and protection of consumer welfare. The new economic recovery strategy (Revised National Development Strategy) has emphasized the need to promote further reforms in order to facilitate investment.

In February 2018, the GKoE enacted the Special Economic Zones (SEZ) Act in an effort to attract foreign direct investment. The benefits for an SEZ investor include: a 20-year exemption from all corporate taxation, followed by taxation at the rate of 5 percent; full refunds of customs duties, value-added tax, and all other taxes payable in respect of goods purchased for use as raw material, equipment, machinery, and manufacturing; unrestricted repatriation of profits; and full exemption from foreign exchange controls for all operations conducted within the SEZ.

Competition and Anti-Trust Laws

The Swaziland Competition Commission (SCC) was established in 2007 to encourage competition in Eswatini’s economy by controlling anti-competitive trade practices, mergers, and acquisitions; protecting consumer welfare; and providing an institutional mechanism for implementing these objectives. The Swaziland Competition Act ( http://www.compco.co.sz/documents/Competition%20Act%202007%20scanned18%20Februry%202010.pdf ) and Competition Commission Regulations ( http://www.compco.co.sz/documents/Competition%20Commission%20Regulations%20Notice%202010.pdf ) are available online. All entities must submit their merger and acquisition plans to the SCC for prior approval. The SCC has the power to not only investigate and regulate, but also to issue administrative decisions relating to mergers, competition, and anti-trust. There have been no rulings against foreign investors since the establishment of the Swaziland Competition Commission.

Expropriation and Compensation

The law prohibits expropriation and nationalization. The Swati constitution narrowly limits the GKoE’s powers to deprive a landowner of “property or any interest in or right over property,” except where “necessary,” conducted pursuant to a court order, and compensated by the “prompt payment of fair and adequate compensation.” Anyone whose property interests are threatened by expropriation is also expressly granted due process rights under the constitution. There have been no recent cases of foreign-owned businesses being expropriated, and, when disputes have arisen in the past, there has been due process through Swati institutions and/or international tribunals.

Dispute Settlement

ICSID Convention and New York Convention

Eswatini is a member state of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). It is not a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. There is no specific legislation providing for enforcement of awards under international conventions, but the Swati legal system has effectively enforced court decisions and international arbitration awards in the past.

Investor-State Dispute Settlement

Eswatini is a member state of the International Centre for the Settlement of Investment Disputes (ICSID Convention) and the Multilateral Investment Guarantee Agency (MIGA). Eswatini, as a member of SACU, signed a Trade, Investment and Development Cooperative Agreement in 2008 with the United States. There have been no claims under this agreement.

There have been at least two major investment disputes involving foreign investors in the past ten years, but none involving U.S. citizens.

The Eswatini government accepts binding international arbitration of investment disputes between foreign investors and the state. All government agreements with international investors/parties include venue and choice of law provisions. Local courts recognize and enforce foreign arbitral awards issued against the government, but do not have jurisdiction against the king, who is constitutionally protected.

Eswatini has not had any reported incidents of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The only alternative dispute resolution (ADR) mechanism available to settle disputes between two private parties is in the labor sector. The Conciliation, Mediation and Arbitration Commission (CMAC), which is governed by the Industrial Relations Act of 2000, resolves employer-employee disputes. Eswatini does not have a domestic arbitration body to deal with investment or commercial disputes.

Local courts recognize and enforce foreign arbitral awards and judgments of foreign courts.

SOEs are rarely involved in investment disputes. In the last 10 years, there has been only one such dispute involving an SOE (telecommunications), and it was a trade restraint matter in which the SOE lost the case. There have not been any complaints about the court processes, and court records are available online for public scrutiny at: https://www.swazilii.org/ .

Bankruptcy Regulations

The Insolvency Act of 1955 is the law that governs bankruptcy in Eswatini. The insolvent debtor or his agent petitions the court for the acceptance of the surrender of the debtor’s estate for the benefit of his creditors. Creditors need to petition with the court and provide documents supporting their claim. Bankruptcy is only criminalized if the debtor, trustee, or sole owner does not comply with the requirements of the creditor. For example, if he/she fails to submit documents or declare assets, or if he/she obstructs or hinders a liquidator appointed under the Act in the performance of his functions, then he/she could be found guilty of an offense.

The most widely used credit bureau in Eswatini is Transunion.

In the World Bank’s 2020 Doing Business Report, Eswatini ranks 121 out of 190 economies for ease of resolving insolvency.

6. Financial Sector

Capital Markets and Portfolio Investment

Eswatini’s capital markets are closely tied to those of South Africa and operate under conditions generally similar to the conditions in that market. In 2010, the GKoE passed the Securities Act to strengthen the regulation of portfolio investments. The Act was primarily intended to facilitate and develop an orderly, fair, and efficient capital market in the country.

Eswatini has a small stock exchange with only a handful of companies currently trading. In 2010, the Financial Services Regulatory Authority (FSRA) was established. This institution governs non-bank financial institutions including capital markets, insurance firms, retirement funds, building societies, micro-finance institutions, and savings and credit cooperatives. The royal wealth fund and national pension fund invest in the private equity market, but otherwise there are few professional investors.

Existing policies neither inhibit nor facilitate the free flow of financial resources. The Central Bank respects International Monetary Fund (IMF) Article VIII. Credit is allocated on market terms. Foreign investors are able to get credit and equity from the local market. A variety of credit instruments are available to the private sector including Central Bank of Eswatini loan guarantees for the export markets and for small businesses.

Money and Banking System

The majority of the Swati adult population utilizes the banking system. Despite a slow rate of economic growth, the Swati banking sector remains stable and financially sound. Asset quality improved as the ratio of non-performing loans (NPLs) to gross loans, moved from 8.2 percent in 2017 to 7.7 percent in 2018.

The estimated total assets for the country’s banks is estimated at E19.4 billion (USD 1.4 billion) as of June 2018, up from E17.9 billion (USD 1.3 billion) in March 2017. Eswatini has a central bank system. Eswatini’s banks are primarily subsidiaries of South African banks. Standard Bank is the largest bank by capital assets and employs about 400 workers.

Eswatini’s financial sector is liberalized and allows foreign banks or branches to operate under the supervision of the Central Bank’s laws and regulations ( http://www.centralbank.org.sz/financialregulation/banksupervision/index.php ). Foreigners may establish a bank account in Eswatini if they have residency in one of the CMA countries (Eswatini, South Africa, Lesotho, Namibia).

There have been no bank closures or banks in jeopardy in the last three years. Hostile takeovers are uncommon.

Foreign Exchange and Remittances

Foreign Exchange

There are no limitations on the inflow or outflow of funds for remittances. Dividends derived from current trading profits are freely transferable on submission of appropriate documentation to the Central Bank, subject to provision for the non-resident shareholder tax of 15 percent. Local credit facilities may not be utilized for paying dividends. Eswatini is part of the Common Monetary Area (CMA), which also includes South Africa, Namibia, and Lesotho. All capital transfers into Eswatini from outside the CMA require prior approval of the Central Bank to avoid problems in the subsequent repatriation of interest, dividends, profits, and other income accrued. Otherwise, there are no restrictions placed on the transfers.

Eswatini mainly deals with three international currencies: the U.S. Dollar, the Euro, and the British Pound. The Swati Lilangeni is pegged 1:1 to the South African Rand, which is accepted as legal tender throughout Eswatini. To obtain foreign currency other than Rand, one must apply through an authorized dealer, and a resident who acquires foreign currency must sell it to an authorized dealer for the local currency within ninety days. No person is permitted to hold or deal in foreign currency other than authorized dealers, namely, First National Bank (FNB), Nedbank, Standard Bank, or Swazi Bank.

Because the Lilangeni is pegged to the Rand, its value is determined by the monetary policy of the CMA, which is heavily influenced by the South African Reserve Bank.

Remittance Policies

There have been no recent changes to investment remittance policies. There are no specified time limitations on remittances. Once documentation is complete (e.g., latest company financial statements) and relevant taxes paid, SWIFT transfers require an average of one week, and other electronic transfers can take less than a week (SWIPPS offers real-time transactions).

SWIPSS, Eswatini’s Real Time Gross Settlement System, is an advanced interbank electronic payment system that facilitates the efficient, safe, secure and real-time transmission of high-value funds in the banking sector. Direct access to SWIPSS is limited to only the four commercial banks, and these banks act as intermediaries for other financial institutions.

As part of the government policy to attract foreign investment, dividends derived from current trading profits are freely transferable on submission of documentation (including latest annual financial statements of the company concerned) subject to provision for non-resident shareholders tax. The Eswatini government does not issue dollar-denominated bonds. Otherwise, there are no limitations on the inflow and outflow of funds for remittances of profits or revenue.

Sovereign Wealth Funds

In 1968, the late King Sobhuza II created a Royal Charter that governs the Sovereign Wealth Fund (SWF) in Eswatini, Tibiyo TakaNgwane. This fund is not subject to government or parliamentary oversight and does not provide information on assets or financial performance to the public. Tibiyo TakaNgwane publishes an annual report with financials, but it is not required by law to do so as it is not registered under the Companies Act of 1912. The annual reports are not made public or submitted to any other state organ for debate or review. The SWF obtains independent audits at the discretion of its Board of Directors.

Tibiyo TakaNgwane states in its objectives that it supports the government in fostering economic independence and self-sufficiency. It widely invests in the economy and holds shares in most major industries, e.g., sugar, real estate, beverages, dairy, hotels, and transportation. For its social responsibility practices, it provides some scholarships to students. The SWF and the government co-invest to exercise majority control in many instances. Tibiyo TakaNgwane invests entirely in the local economy and local subsidiaries of foreign companies. It has shares in a number of private companies. Sometimes foreign companies can form partnerships with Tibiyo, especially if the foreign company wants to raise capital and can manage the project on its own.

7. State-Owned Enterprises

Eswatini has over 30 SOEs, which are active in agribusiness, information and communication, energy, automotive and ground transportation, health, housing, travel and tourism, building education, business development, finance, environment, and publishing, media, and entertainment .

The Swati government defines SOEs as private enterprises, separated into two categories. Category A represents SOEs that are wholly owned by government. Category B represents SOEs in which government has a minority interest, or which monitor other financial institutions or a local government authority. These categories are further broken down into profit-making SOEs with a social responsibility focus, those that are profit-making and developmental, those that are regulatory, and those that are regulatory but developmental. SOEs purchase and supply goods and services to and from the private sector including foreign firms. Those in which government is a minority shareholder are subject to the same tax burden and tax rebate policies as the private sector. The Public Enterprise Act governs SOEs. The Boards of the respective SOEs review their budgets before tabling them to the relevant line ministry, which, in turn, tables them to Parliament for scrutiny by the Public Accounts Committee. The Ministry of Finance’s Public Enterprise Unit (PEU) maintains a published list of SOEs, available on request from the PEU. SOEs do not receive non-market-based advantages from government.

Eswatini SOEs generally conform to the OECD Guidelines on Corporate Governance for SOEs. Senior managers of SOEs report to the board and, in turn, the board reports to a line minister. The minister then works with the Standing Committee on Public Enterprise (SCOPE), which is composed of cabinet ministers. SOEs are governed by the Public Enterprises Act, which requires audits of the SOEs and public annual reports. Government is not involved in the day-to-day management of SOEs. Boards of SOEs exercise their independence and responsibility. The Public Enterprise Unit provides regular monitoring of SOEs. The line minister of the SOE appoints the board and, in some cases, the appointments are politically motivated. In some cases, the king appoints his own representative as well. Generally, court processes are nondiscriminatory in relation to SOEs.

A published list of SOEs can be found on: http://www.gov.sz/index.php/component/content/article/141-test/1995-swaziland-enterprise-parastatals?Itemid=799 

Eswatini SOEs operate primarily in the domestic market.

Privatization Program

The International Monetary Fund (IMF) has long advised the Eswatini government to privatize SOEs, particularly in the telecommunications sector and the electricity sector. In response, the government has passed several laws, and privatization efforts have begun to advance. Recent years have seen the launch of several private telecommunications companies such as Swazi Mobile, which has lowered prices and improved mobile and data offerings in the country.

Sectors and timelines have not been prioritized for future privatization, although it is likely that some SOEs following the public launch of the Revised National Development Strategy.

The government is working to reduce the country’s dependence on foreign electricity by promoting renewable energy production. Eswatini imports the bulk of its electricity from South Africa and Mozambique, reaching 100 percent importation during a recent drought, since domestic production comes predominantly from hydropower. With assistance from USAID’s Southern Africa Energy Program (SAEP), the government has developed a National Grid Code and a Renewable Energy and Independent Power Producer (RE&IPP) Policy to provide a framework for the sector and incentivize investors. SAEP is provided technical assistance on a 10-megawatt photovoltaic project that was integrated into the grid in February 2021.

10. Political and Security Environment

There are few incidents of politically motivated violence. In 2017, the Swati government enacted a new Public Order Act and amendments to the Suppression of Terrorism Act that have dramatically reduced restrictions on assembly, association, and expression. Through April 2021, the GKoE has not imposed restrictions on legal freedoms. There are no examples from the past ten years of damage to projects or installations. Overall, Eswatini has a long record of political stability with sporadic nonviolent protest; however, poor living and working conditions, widespread poverty, income inequality, and a large and growing youth population continue as serious challenges.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $3.9 Billion 2019 $4.472 Billion www.worldbank.org/en/country 

Table 3: Sources and Destination of FDI
No detailed information is available on the IMF’s Coordinated Portfolio Investment Survey (CPIS) website and no information is available on outward direct investment from Eswatini.

Table 4: Sources of Portfolio Investment
No detailed information is available on the IMF’s Coordinated Portfolio Investment Survey (CPIS) website and no information is available on outward direct investment from Eswatini.

Ethiopia

Executive Summary

Ethiopia’s economy has been challenged by the COVID-19 pandemic, a severe locust infestation, localized unrest in several parts of the country, political tensions, and a devastating conflict in the Tigray region. The IMF forecasts economic growth to slow to two percentage points in Ethiopian fiscal year 2020/21 (starting July 8, 2020). Given the pandemic, potentially destabilizing national elections on June 5, 2021, and the conflict in Tigray, the timeline for a recovery is uncertain. However, the government has made progress on its ambitious economic reform agenda. In the last year alone, the Ethiopian government revised its sixty-year old commercial code, enacted a new investment regulation, began steps to sell two telecom spectrum licenses to foreign operators, and developed a financial sector liberalization roadmap. Still, Ethiopia’s rank in the World Bank’s Ease of Doing Business Index was 159 out of 190 economies in 2020, a metric indicative of the myriad challenges facing any investor in the country. Ethiopia is the second most populous country in Africa after Nigeria, with a population of over 110 million, approximately two-thirds of whom are under age 30. Low-cost labor, a national airline with well over 100 passenger connections, and growing consumer markets are key elements attracting foreign investment.

In September 2019, the Government of Ethiopia (GOE) unveiled its “Homegrown Economic Reform Plan” as a codified roadmap to implement sweeping macro, structural, and sectoral reforms, with a focus on enhancing the role of the private sector in the economy and attracting more foreign direct investment. The ambitious three-year plan prioritizes growth in five sectors: mining, ICT, agriculture, tourism, and manufacturing. In December 2019, the IMF approved a three-year, 2.9 billion U.S. dollar program to support the reform agenda. The program seeks to reduce public sector borrowing, rein in inflation, and reform the exchange rate regime.

The challenges remain vast. Ethiopia’s imports in the last four years have experienced a slight decline, in large part due to a reduction in public investment programs and a dire foreign exchange shortage. Export performance remains weak, as the country struggles to develop exports beyond primary commodities (coffee, gold, and oil seeds). The overvalued exchange rate and illicit trade have also hampered official exports. 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, corruption, high land-transportation costs, and bureaucratic delays. Ethiopia is not a signatory of major intellectual property rights treaties.

All land in Ethiopia is administered by the government and private ownership does not exist. “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 regional 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—most notably the conflict in the Tigray region—could negatively impact the investment climate and lower future FDI inflow.

Table 1
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 94 of 180 https://www.transparency.org/country/ETH 
World Bank’s Doing Business Report “Ease of Doing Business” 2020 159 of 190 http://www.doingbusiness.org/rankings 
Global Innovation Index 2020 127 of 131 https://www.globalinnovationindex.org/gii-2018-report#
U.S. FDI in partner country (M USD, stock positions) 2020 $738 http://www.investethiopia.gov.et/
World Bank GNI per capita 2019 $850 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Ethiopia needs significant inflows of FDI to meet its ambitious growth goals. Over the past year, in an effort to attract more foreign investment, the government has passed a new investment law, acceded to the New York Convention on Arbitration, amended its six-decade old commercial code, and digitized commercial registration and business licensing processes. The government has also begun implementing the Public Private Partnership (PPP) proclamation, in an attempt to allow for private investment in the power generation and road construction sectors.

The Ethiopian Investment Commission (EIC) has the mandate to promote and facilitate foreign investments in Ethiopia. To accomplish this task, the EIC is charged with 1) promoting the country’s investment opportunities to attract and retain investment; 2) issuing investment permits, business licenses, and construction permits; 3) issuing commercial registration certificates and renewals; 4) negotiating and signing bilateral investment agreements; 5) issuing work permits; and 6) registering technology transfer agreements. In addition, the EIC has the mandate to advise the government on policies to improve the investment climate and hold regular and structured public-private dialogues with investors and their associations. At the local level, regional investment agencies facilitate regional investment. On the 2020 World Bank Ease of Doing Business Index Ethiopia ranks 159 out of 190 countries, which is the exact same ranking it held in both 2018 and 2019. To improve the investment climate, attract more FDI, and tackle unemployment challenges, the Prime Minister’s Office formed a committee to systematically examine each indicator on the Doing Business Index and identify factors that inhibit the private sector.

The American Chamber of Commerce (AmCham) works on voicing the concerns of U.S. businesses in Ethiopia. AmCham provides a mechanism for coordination among American companies and facilitates regular meetings with government officials to discuss issues that hinder operations in Ethiopia. The Addis Ababa Chamber of Commerce also organizes a monthly business forum that enables the business community to discuss issues related to the investment climate with government officials.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish, acquire, own, and dispose of most forms of business enterprises. The new Investment Proclamation and associated regulations outline the areas of investment reserved for government and local investors. There is no private ownership of land in Ethiopia. All land is technically owned by the state but can be leased for up to 99 years. Small-scale rural landholders have indefinite use rights, but cannot lease out holdings for extended periods, except in the Amhara Region. The 2011 Urban Land Lease Proclamation allows the government to determine the value of land in transfers of leasehold rights, in an attempt to curb speculation by investors.

A foreign investor intending to buy an existing private enterprise or shares in an existing enterprise needs to obtain prior approval from the EIC. While foreign investors have complained about inconsistent interpretation of the regulations governing investment registration (particularly relating to accounting for in-kind investments), they generally do not face undue screening of FDI, unfavorable tax treatment, denial of licenses, discriminatory import or export policies, or inequitable tariff and non-tariff barriers.

Other Investment Policy Reviews

Over the past three years, the government has not undertaken any third-party investment policy review by a multilateral or non-governmental organization. The government has worked closely with some international stakeholders, such as the International Finance Corporation, in its attempt to modernize and streamline its investment regulations.

Business Facilitation

The EIC has attempted to establish itself as a “one-stop shop” for foreign investors by acting as a centralized location where investors can obtain the visas, permits, and paperwork they need, thereby reducing the time and cost of investing and acquiring business licenses. The EIC has worked with international consultants to modernize its operations, and as part of its work plan has adopted a customer manager system to build lasting relationships and provide post-investment assistance to investors. Despite progress, the EIC readily admits that many bureaucratic barriers to investment remain. In particular, U.S. investors report that the EIC, as a federal organization, has little influence at regional and local levels. According to the 2020 World Bank’s Ease of Doing Business Report, on average, it takes 32 days to start a business in Ethiopia.

Currently, more than 95 percent of Ethiopia’s trade passes through the Port of Djibouti, with residual trade passing through the Somaliland Port of Berbera or Port Sudan. Ethiopia concluded an agreement in March of 2018 with the Somaliland Ports Authority and DP World to acquire a 19 percent stake in the joint venture developing the Port of Berbera. The agreement will help Ethiopia secure an additional logistical gateway for its increasing import and export trade. Following the July 2018 rapprochement with Eritrea, the Ethiopian government has the opportunity of accessing an alternative port at either Massawa or Assab. At present, however, land borders with Eritrea remain closed, and little progress is being made to operationalize alternative logistics corridors in Eritrea.

The Government of Ethiopia is working to improve business facilitation services by making the licensing and registration of businesses easier and faster. In February of 2021, the Ministry of Trade and Industry launched an eTrade platform ( etrade.gov.et ) for business registration licensing to enable individuals to register their companies and acquire business licenses online. The amended commercial registration and licensing law eliminates the requirement to publicize business registrations in local newspapers, allows business registration without a physical address, and reduces some other paperwork burdens associated with business registration. U.S. companies can obtain detailed information for the registration of their business in Ethiopia from an online investment guide to Ethiopia: ( https://www.theiguides.org/public-docs/guides/ethiopia ) and the EIC’s website: ( http://www.investethiopia.gov.et/index.php/investment-process/starting-a-business.html ). Though the government is taking positive steps to socially empower women (approximately half of cabinet members are women), there is no special treatment provided to women who wish to engage in business.

The full Doing Business Report is available here: http://www.doingbusiness.org/data/exploreeconomies/ethiopia 

Outward Investment

There is no officially recorded outward investment by domestic investors from Ethiopia as citizens/local investors are not allowed to hold foreign accounts.

3. Legal Regime

Transparency of the Regulatory System

Ethiopia’s regulatory system is generally considered fair, though there are instances in which burdensome regulatory or licensing requirements have prevented the local sale of U.S. exports, particularly health-related products. Investment decisions can involve multiple government ministries, lengthening the registration and investment process.

The Constitution is the highest law of the country. The parliament enacts proclamations, which are followed by regulations that are passed by the Council of Ministers and implementing directives that are passed by ministries or agencies. The government increasingly engages the public for feedback before passage of draft legislation through public meetings, and regulatory agencies request comments on proposed regulations from stakeholders. Ministries or regulatory agencies do neither impact assessments for proposed regulations nor ex-post reviews. Parties that are affected by an adopted regulation can request reconsideration or appeal to the relevant administrative agency or court. There is no requirement to periodically review regulations to determine whether they are still relevant or should be revised.

All proclamations and regulations in Ethiopia are published in official gazettes and most of them are available online: http://www.hopr.gov.et/web/guest/122  and https://chilot.me/federal-laws/2/ 

Legal matters related to the federal government are entertained by Federal Courts, while state matters go to state courts. To ensure consistency of legal interpretation and to promote predictability of the courts, the Federal Supreme Court Cassation Division is empowered to give binding legal interpretation on all federal and state matters. Though there are no publicly listed companies in Ethiopia, all banks and insurance companies are obliged to adhere to International Financial Reporting Standards (IFRS).

Regulations related to human health and environmental pollution are often enforced. In January of 2019, the Oromia Region’s Environment, Forest, and Climate Change Commission shut down three tanneries in the Oromia Region for what was said to be repeated environmental pollution offenses. The federal government also suspended the business license of MIDROC Gold Mining in May 2018 following weeks of protests by local communities who accused the company of causing health and environmental hazards in the Oromia Region. The Ethiopian Parliament in February of 2019 passed a bill entitled ‘Food and Medicine Administration Proclamation,’ which bans smoking in all indoor workplaces, public spaces, and means of public transport and prohibits alcohol promotion on broadcasting media.

On April 7, 2020, Ethiopia published the Administrative Procedure Proclamation (APP) in the federal gazette, the final step for a law to come into force. The APP’s main aim is to allow ordinary citizens who seek administrative redress to file suits in federal courts against government institutions. Potential redress includes financial restitution. The APP’s passage will require government institutions to set up offices that will handle such complaints. Complainants are required to follow an administrative appeal process, and only after exhausting administrative remedies will a person be allowed to file a suit in federal court. Four government institutions are exempt from the APP: the Federal Attorney General’s Office; the Ethiopian Federal Police; the Ethiopian National Defense Force and the intelligence agencies. The enactment of the APP is widely viewed as a positive step in increasing confidence in the public sector and addressing the need for governmental institutions to adhere to the rule of law.

Ethiopia is a member of UNCTAD’s international network of transparent investment procedures . Foreign and national investors can find detailed information from the investment commission’s website ( https://www.invest-ethiopia.com/ ) on administrative procedures applicable to investing in Ethiopia.

The government released its five-year public finance administration strategic plan (2018 – 2022) in March of 2018, mapping out reforms in government revenue and expenditure forecasting, government accounts management, internal auditing, public procurement administration, public debt management, and public financial transparency and accountability. In support of this initiative, the Ministry of Finance (MoF) issued a directive on Public Financial Transparency and Accountability in October of 2018. The directive mandates that all public institutions report their budgetary performance and financial accounts in platforms that are accessible to the wider public in a timely manner. It also makes the MoF responsible for disseminating a regular and detailed physical and financial performance evaluation of large publicly funded projects. The directive further outlines a clear timeline for the publication of each major piece of budgetary information, such as the pre-budget macroeconomic and fiscal framework, the enacted budget, quarterly execution reports, annual execution reports, and the annual audit report. The government makes public its annual budget as well as the external and domestic debt position of the county on the MoF’s website ( https://www.mofed.gov.et/en/resources/bulletin/ )

International Regulatory Considerations

In April of 2020 Ethiopia became a member of the African Continental Free Trade Area (AfCFTA). The AfCFTA aims to create a single, continental market for goods and services, with free movement of businesspersons and investments. Ethiopia is also a member of the Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 21 member countries and has introduced a 10 percent tariff reduction on goods imported from member states. Ethiopia has not yet joined the COMESA free trade area, however. Ethiopia resumed its WTO accession process in 2018, which it originally began in 2003, but which later stagnated.

Ethiopian standards have a national scope and applicability and some of them, particularly those related to human health and environmental protection, are mandatory. The Ethiopian Standards Agency is the national standards body of Ethiopia.

Legal System and Judicial Independence

Ethiopia has codified criminal and civil laws, including commercial and contractual law. According to the contractual law, a contract agreement is binding between contracting parties. Disputes between the parties can be taken to court. There are, however, no specialized courts for commercial law cases, though there are specialized benches at both the federal and state courts.

While there have been allegations of executive branch interference in judiciary cases with political implications, there is no evidence of widespread interference in purely commercial disputes. The country has a procedural code for both civil and criminal court. Enforcement actions are appealable and there are at least three appeal processes from the lower courts to the Supreme Court. The Criminal Procedure Code follows the inquisitorial system of adjudication.

Companies that operate businesses in Ethiopia assert that courts lack adequate experience and staffing, particularly with respect to commercial disputes. While property and contractual rights are recognized, judges often lack understanding of commercial matters, including bankruptcy and contractual disputes. In addition, cases often face extended scheduling delays. Contract enforcement remains weak, though Ethiopian courts will at times reject spurious litigation aimed at contesting legitimate tenders.

In March of 2021 the parliament approved an amendment to the sixty-two-year-old commercial code. The revised legislation modernizes and simplifies business regulations, develops regulations for new technologies not covered in the prior version of the code, and seeks to implement greater transparency and accountability in commercial activities.

Laws and Regulations on Foreign Direct Investment

The Investment Proclamation 1180/2020 and Regulation 474/2020 are Ethiopia’s main legal regime related to Foreign Direct Investment (FDI). These laws instituted the opening of new economic sectors to foreign investment, enumerated the requirements for FDI registration, and outlined the incentives that are available to investors.

The investment law allows foreign investors to invest in any investment area except those that are clearly reserved for domestic investors. A few specified investment areas are possible for foreign investors only as part of a joint venture with domestic investors or the government. The Investment Proclamation has introduced an Investment Council, chaired by the Prime Minister, to accelerate implementation of the new law and to address coordination challenges investors face at the federal and regional levels. Further, the new law expanded the mandate of the EIC by allowing it to provide approvals to foreign investors proposing to buy existing enterprises. The EIC now also delivers “one stop shop” services by consolidating investor services provided by other ministries and agencies. Still, the EIC delegates licensing of investments in some areas: air transport services (the Ethiopian Civil Aviation Authority), energy generation and transmission (the Ethiopian Energy Authority), and telecommunication services (the Ethiopian Communications Authority).

The EIC’s website ( https://www.invest-ethiopia.com/ ) provides information on the government’s policy and priorities, registration processes, and regulatory details. In addition, the Business Negarit website ( http://businessnegarit.com/a/resources1/ ) provides relevant laws, rules, procedures, and reporting requirements for investors.

Competition and Antitrust Laws

Ethiopia’s Trade Practice and Consumers Protection Authority (TPCPA), operating under the Ministry of Trade and Industry, is tasked with promoting a competitive business environment by regulating anti-competitive, unethical, and unfair trade practices to enhance economic efficiency and social welfare. It has an administrative tribunal with a jurisdiction on matters pertaining to market competition and consumer protection. The authority also annually entertains many cases associated with consumer protection and unfair trade practices.

The EIC reviews investment transactions for compliance with FDI requirements and restrictions as outlined by the Investment Proclamation. Nonetheless, companies have complained that SOEs receive favorable treatment in the government tender process.

Expropriation and Compensation

Per the 2020 Investment Proclamation, no investment by a domestic or foreign investor or enterprise can be expropriated or nationalized, wholly or partially, except when required by public interest in compliance with the law and provided adequate compensatory payment.

The former Derg military regime nationalized many properties in the 1970s. The current government’s position is that property seized lawfully by the Derg (by court order or government proclamation published in the official gazette) remains the property of the state. In most cases, property seized by oral order or other informal means is gradually being returned to the rightful owners or their heirs through a lengthy bureaucratic process. Claimants are required to pay for improvements made by the government during the time it controlled the property. The Public Enterprises Holding and Administration Agency stopped accepting requests from owners for return of expropriated properties in July of 2008.

According to local and foreign businesses operating in the Oromia Region, there have been a number of incidents threatening investors in that region. Various pretexts have been used to close legitimate operations. False charges have been filed with regional courts, property has been confiscated, and bank accounts have been frozen, all in the name of “returning the land” to the “rightful owners” or “creating job opportunities” for the youth. Regional officials, however, deny any systematic attack on investors and have repeatedly provided assurance that all legitimate investors will be protected. Meanwhile, some investors who have invested heavily in government and community relations and actively engaged local and regional officials have prospered. The experience of investors is uneven and clear trends are not evident.

Dispute Settlement

  • ICSID Convention and New York Convention

Since 1965, Ethiopia has been a non-signatory member state to the International Centre for Settlement of Investment Disputes (ICSID) Convention. In November 2020, Ethiopia acceded to the UN Convention on The Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention).

  • Investor-State Dispute Settlement

The constitution and the investment law both guarantee the right of any investor to lodge complaints related to their investment with the appropriate investment agency. If the investor has a grievance against a legal or regulatory decision, they can appeal to the investment board or to the respective regional agency, as appropriate. According to the new investment law, the investment dispute between the state and foreign investor can be resolved either through the courts or via arbitration, with the precondition of government agreement for resolution via the latter. Additionally, a dispute that arises between a foreign investor and the state may be settled based on the relevant bilateral investment treaty.

Due to an overloaded court system, dispute resolution can last for years. According to the 2020 World Bank’s Ease of Doing Business report, it takes on average 530 days to enforce contracts through the courts.

  • International Commercial Arbitration and Foreign Courts

Arbitration has become a widely used means of dispute settlement among the business community as the Ethiopian civil code recognizes Alternative Dispute Resolution (ADR) mechanisms as a means of dispute resolution. The Addis Ababa Chamber of Commerce has an Arbitration Center to assist with arbitration. Following Ethiopia’s accession to the New York Convention, local courts now must automatically recognize and enforce foreign arbitral awards from a New York Convention member state country. There are no publicly available statistics that indicate a bias in the courts towards state-owned enterprises (SOEs) as pertains to investment/commercial disputes.

Bankruptcy Regulations

The Ethiopian Commercial Code (Book V) outlines bankruptcy provisions and proceedings and establishes a court system that has jurisdiction over bankruptcy proceedings. The primary purpose of the law is to protect creditors, equity shareholders, and other contractors. Bankruptcy is not criminalized. In practice, there is limited application of bankruptcy procedures due to a lack of knowledge on the part of the private sector.

According to the 2020 World Bank Doing Business Report, Ethiopia stands at 149 in the ranking of 190 economies with respect to resolving insolvency. Ethiopia’s score on the strength of insolvency framework index is 5.0. (Note: The index ranges from zero to 16, with higher values indicating insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones.)

6. Financial Sector

Capital Markets and Portfolio Investment

Ethiopia has a limited and undeveloped financial sector, and investment is largely closed off to foreign firms. Liquidity at many banks is limited, and commercial banks often require 100 percent collateral, making access to credit one of the greatest hindrances to growth in the country. Ethiopia has the largest economy in Africa without a securities market, and sales/purchases of debt are heavily regulated.

The IMF, as part of its Extended Credit Facility and Extended Fund Facility, in December of 2019 approved a three-year, 2.9 billion U.S. dollar program to support Ethiopia’s economic reform agenda. The program seeks to reduce public sector borrowing, rein in inflation, reform the exchange rate regime, and ensure external debt sustainability.

The Ethiopian government has announced, as part of its overall economic reform effort, its intention to liberalize the financial sector. The government has already made good progress by allowing non-financial Ethiopian firms to participate in mobile money activities, introducing Treasury-bill auctions with market pricing, and reducing forced lending to the government on the part of the commercial banks. The government is also planning to create a stock market, with a draft proclamation currently under review by the parliament. Work to create the regulatory body necessary to adequately oversee bond and equity markets is also ongoing.

The National Bank of Ethiopia (NBE, the central bank) began offering, in December of 2019, a limited number of 28-day and 91-day Treasury bills at market-determined interest rates. Since then, more bond offerings of longer tenures have been included in the auctions. The move was part of an effort to expand the NBE’s monetary policy tools and finance the government in a more sustainable way. Previously, the NBE had only sold Treasury bills at below-market interest rates, and the only buyers were public sector enterprises, primarily the Public Social Security Agency and the Development Bank of Ethiopia.

Ethiopia issued its first Eurobond in December of 2014, raising 1 billion U.S. dollars at a rate of 6.625 percent. The 10-year bond was oversubscribed, indicating continued market interest in high-growth sub-Saharan African markets. According to the Ministry of Finance, the bond proceeds are being used to finance industrial parks, the sugar industry, and power transmission infrastructure. Due to its increasing external debt load and the terms of its IMF program, the Ethiopian government has committed to refrain from non-concessional financing for new projects and to shift ongoing projects to concessional financing when possible. As Ethiopia’s ability to service its external debts declined in the wake of the COVID-19 pandemic, Ethiopia participated in the World Bank’s Debt Service Suspension Initiative, which suspended external debt payments from May 2020 through June of 2021. Ethiopia is seeking further debt treatment under the G20 Common Framework for Debt Treatments Beyond the DSSI. Details concerning Ethiopia’s participation in the framework are currently being finalized.

Money and Banking System

Ethiopia has 19 commercial banks, two of which are state-owned banks, and 17 of which are privately owned banks. The Development Bank of Ethiopia, a state-owned bank, provides loans to investors in priority sectors, notably agriculture and manufacturing. By regional standards, the 17 private commercial banks are not large (either by total assets or total lending), and their service offerings are not sophisticated. Mobile money and digital finance, for instance, remain limited in Ethiopia. Foreign banks are not permitted to provide financial services in Ethiopia; however, since April 2007, Ethiopia has allowed some foreign banks to open liaison offices in Addis Ababa to facilitate credit to companies from their countries of origins. Chinese, German, Kenyan, Turkish, and South African banks have opened liaison offices in Ethiopia, but the market remains completely closed to foreign retail banks. Foreigners of Ethiopian origin are now allowed to both establish their own banks and hold shares in financial institutions.

Based on recently made available data, the state-owned Commercial Bank of Ethiopia mobilizes more than 60 percent of total bank deposits, bank loans, and foreign exchange. The NBE controls banks’ minimum deposit rate, which now stands at 7 percent, while loan interest rates are allowed to float. Real deposit interest rates have been negative in recent years, mainly due to double digit annual inflation. The Government of Ethiopia in November of 2019 rescinded the so-called “27% Rule,” which mandated forced, below inflation rate lending by the commercial banks to the NBE.

Foreign Exchange and Remittances

Foreign Exchange

All foreign currency transactions must be approved by the NBE. Ethiopia’s national currency (the Ethiopian birr) is not freely convertible. The GOE removed in September 2018 the limit on holding foreign currency accounts faced by non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin.

Foreign exchange reserves started to become depleted in 2012 and have remained at critically low levels since then. At present, gross reserves stand at about 4 billion U.S. dollars, covering approximately 2 months of imports. According to the IMF, heavy government infrastructure investment, along with debt servicing and a large trade imbalance, have all fueled the intense demand for foreign exchange. In addition, the decrease in foreign exchange reserves has been exacerbated by weaker-than-expected earnings from coffee exports and low international commodity prices for other important exports such as oil seeds. Businesses encounter delays of six months to two years in obtaining foreign exchange, and they must deposit the full equivalent in Ethiopian birr in their accounts to begin the process to obtain foreign exchange. Slowdowns in manufacturing due to foreign exchange shortages are common, and high-profile local businesses have closed their doors altogether due to the inability to import required goods in a timely fashion.

Due to the foreign exchange shortage, companies have experienced delays of up to two years in the repatriation of larger volumes of profits. Local sourcing of inputs and partnering with export-oriented partners are strategies employed by the private sector to address the foreign exchange shortage, but access to foreign exchange remains a problem that limits growth, interferes with maintenance and spare parts replacement, and inhibits imports of adequate raw materials.

The foreign exchange shortage distorts the economy in a number of other ways: it fuels the contraband trade through Somaliland because the Ethiopian birr is an unofficial currency there and can be used for the purchase of products from around the world. Exporters, who have priority access to foreign exchange, sometimes sell their allocations of hard currency to importers at inflated rates, creating a black-market for dollars that is roughly 30 to 40 percent over the official rate. Other exporters use their foreign exchange earnings to import consumer goods or industrial inputs with high margins, rather than re-investing profits in their core businesses. Meanwhile, the lack of access to foreign exchange impacts the ability of American citizens living in Ethiopia to pay their taxes, or for students to pay school fees abroad.

The Ethiopian birr has depreciated significantly against the U.S. dollar over the past ten years, primarily through a series of controlled steps, including a 20 percent devaluation in September 2010 and a 15 percent devaluation in October 2017. The NBE increased the devaluation rate of the Ethiopian birr starting in November of 2019, and it has continued to be devalued at a more rapid rate since that time, as per the terms of the IMF program. The official exchange rate was approximately 40.81 Ethiopian birr to the U.S. dollar as of March 2021, while the illegal parallel market exchange rate for the same time was approximately 52 Ethiopian birr to the U.S. dollar.

In late 2017, the NBE increased the minimum savings interest rate from five percent to seven percent and limited the outstanding loan growth rate in commercial banks to 16.5 percent, which limits their loan provision for businesses other than those in the export and manufacturing sectors. Moreover, commercial banks were instructed to transfer 30 percent of their foreign exchange earnings to the account of NBE so the regulator can use the foreign exchange to meet the strategic needs of the country, including payments to procure petroleum, wheat, pharmaceuticals, and sugar.

Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding 200,000 Ethiopian birr (roughly equivalent to U.S. reporting requirements for currency transfers exceeding 10,000 U.S. dollars). Ethiopia citizens are not allowed to hold or open an account in foreign exchange. Ethiopian residents entering the country from abroad should declare foreign currency in excess of 1,000 U.S. dollars, and non-residents in excess of 3,000 U.S. dollars. Residents are not allowed to hold foreign currency for more than 30 days after acquisition. A maximum of 1,000 Ethiopian birr in cash can be carried out of the country.

Remittance Policies

Ethiopia’s Investment Proclamation allows all registered foreign investors, whether or not they receive incentives, to remit profits and dividends, principal and interest on foreign loans, and fees related to technology transfer. Foreign investors may remit proceeds from the sale or liquidation of assets, from the transfer of shares or of partial ownership of an enterprise, and funds required for debt servicing or other international payments. The right of expatriate employees to remit their salaries is granted by NBE foreign exchange regulations. In practice, however, foreign companies and individuals have experienced difficulties obtaining foreign currency to remit dividends, profits, or salaries due to the critical shortage of foreign currency the country currently faces.

Sovereign Wealth Funds

Ethiopia has no sovereign wealth funds.

7. State-Owned Enterprises

State-owned enterprises (SOEs) dominate major sectors of the economy. There is a state monopoly or state dominance in telecommunications, power, banking, insurance, air transport, shipping, railway, industrial parks, and petroleum importing. State-owned enterprises have considerable advantages over private firms, including priority access to credit and customs clearances. While there are no conclusive reports of credit preference for these entities, there are indications that they receive incentives, such as priority foreign exchange allocation, preferences in government tenders, and marketing assistance. Ethiopia does not publish financial data for most state-owned enterprises, but Ethiopian Airlines and the Commercial Bank of Ethiopia have transparent accounts.

Ethiopia is not a member to the Organization for Economic Co-operation and Development (OECD) and does not adhere to the guidelines on corporate governance of SOEs. Corporate governance of SOEs is structured and monitored by a board of directors composed of senior government officials and politically affiliated individuals, but there is a lack of transparency in the structure of SOEs.

Privatization Program

In July of 2018 the government announced its intention to privatize a minority share of EthioTelecom, Ethiopian Shipping and Logistics Service Enterprise, and power generation projects, and to fully privatize sugar projects, railways, and industrial parks. The privatization program will be implemented through public tenders and will be open to local and foreign investors. The government has prioritized privatizations in the telecommunications and sugar sectors, and in those sectors has begun asset valuations of the enterprises, standardization of the financial reports, and establishment of modernized legal and regulatory frameworks. The GOE has also reached out to potential investors and has begun creating tender and bidding documents that will guide the privatizations. To broaden the role and participation of the private sector in the economy, and to implement the privatization program in an open and transparent manner, Ethiopia enacted a new privatization bill in June of 2020. The bill gives the Public Enterprise Holding and Administration Agency majority control over future privatization processes, with the Council of Ministers and the Ministry of Finance (MoF) as key stakeholders.

The government has sold more than 370 public enterprises since 1995, mainly small companies in the trade and service sectors, most of which were nationalized by the Derg military regime in the 1970s. Currently, twenty-three SOEs are under the Public Enterprises Holding and Administration Agency.

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 across Ethiopia. In September of 2020, the International Organization for Migration (IOM) released a report concluding that there were more than 1.8 million internally displaced persons (IDPs) in the country. IOM concluded that the primary cause of displacements was conflict, which resulted in the displacement of 1,233,557 persons. The second highest cause was drought, which displaced an additional 351,062 persons, followed by seasonal floods and flash flooding.

Most significantly, in early November of 2020, a conflict broke out between a regional political party in the Tigray Region and the federal government. The conflict quickly enlarged, with Eritrean troops present in parts of Tigray Region, Amhara Region forces controlling much of Western Tigray, and clashes between the Ethiopian and Sudanese governments over a long-disputed border area. The conflict in Tigray has led to countless deaths, widespread displacements, extensive destruction of infrastructure, allegations of widespread gross human rights violations and the use of gender violence as a weapon of war, a vast reduction in public services, and widespread hunger. As of the present, conflict continues in Tigray, and the aftereffects from the violence will likely reverberate for years.

Insecurity, often driven by ethnic tensions, persists in many other areas, notably in Gedeo Zone, West Guji, and other areas of southern and western Oromia; in eastern parts of Southern Nations, Nationalities, and People’s Region; and in the Hararges on the border of the Somali Region. In the four Wellega Zones in western Oromia, the Oromo Liberation Army-Shane and other unidentified armed groups continue to attack public and local government officials; this violence occasionally spills over into other parts of Oromia. Regional security forces and the Ethiopian National Defense Forces (ENDF) are actively combatting these groups. In early July of 2020, the assassination of a popular Oromo singer and activist, Hachualu Hundesa, resulted in widespread violence in the Oromia Region and Addis Ababa that saw over 150 dead and thousands arrested. In the wake of the violence the federal government shut down internet access in the country for a period of several weeks.  In far western Ethiopia, persistent ethnic violence in the Metekel Zone of Benishangul-Gumuz Region led the ENDF to establish a “command post” presence there in September of 2020 in an effort to stem communal attacks.  Despite the military’s presence, clashes worsened in early 2021, leaving hundreds dead and hundreds of thousands displaced.

Under PM Abiy’s administration, political space in Ethiopia has opened significantly. Constitutional rights, including freedoms of assembly and expression, are now generally supported at the level of the federal government, though the protection of these rights remains uneven, especially at regional and local levels. Part of Abiy’s opening of political space led to the release of political prisoners in 2018, though recently there have been some reports of short-term detentions of opposition political leaders. Opposition parties usually operate freely, although authorities have employed politically motivated procedural roadblocks to hinder opposition parties’ efforts to hold meetings or other party activities. The space for media and civil society groups has become significantly more free following reforms instituted by PM Abiy. Still, journalism in the country remains undeveloped, social media is often rife with unfounded rumors, and government officials occasionally react with heavy-handedness, especially to news they feel might spur social unrest, resulting in self-censorship. Civil society reforms have spurred an expansion of the sector, though many civil society groups continue to struggle with capacity and resource issues. The parliament has set June 5, 2021 as the date for the next national and regional parliamentary elections; they were originally scheduled for May of 2020 but were delayed as a result of the COVID-19 pandemic.

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.

In 2020, Ethiopia instituted two State of Emergencies (SOE).  The first SOE was declared between April 10 and September 5 as a measure against the spread of COVID-19.  The SOE enforced measures such as the discontinuation of meetings involving more than four people; closure of entertainment and sports centers; requirements that restaurants distance tables and seating; and limitations on the number of passengers in public transportation vehicles.  The second State of Emergency, which was limited in scope to Tigray Region, was declared on November 4 following the outbreak of conflict there.  This SOE provides the central government the power to suspend some political rights in a stated effort to maintain sovereignty and peace in Tigray.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD) 2019/20** $107.7B 2019 $95.9B www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (M USD, stock positions) 2020 $738 2019 N/A http://www.investethiopia.gov.et/
Host country’s FDI in the United States (M USD, stock positions) 2019 N/A 2019 N/A http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_data.htm
Total inbound stock of FDI as % host GDP 2019/20** 10% 2019 2.62% www.worldbank.org/en/country

*National Bank of Ethiopia and Ethiopian Investment Commission

**Ethiopian Fiscal Year 2019/2020, which begins on July 8, 2020.

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 $10,766 100% Total Outward*** N/A N/A
China $3,364 31.3% N/A N/A N/A
Saudi Arabia $1,421 13.2% N/A N/A N/A
Turkey $915 8.5% N/A N/A N/A
United States $738 7% N/A N/A N/A
India $538 5% 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 the IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS); we have instead used data from the Ethiopian Investment Commission.

*The yearly average exchange rate is used for each year from 1992 – 2020 in order to convert the amount of FDI from domestic currency into U.S. dollars.

*** 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.

Fiji

Executive Summary

The Republic of Fiji has traditionally been the economic, transportation, and academic hub of the South Pacific islands, with trade and investment potential in infrastructure development, energy, mining, health, and agriculture.  The impact, however, of the COVID-19 pandemic and restrictions on international travel in 2020 plunged the tourism-reliant country into its largest ever economic contraction.  The government’s latest forecast estimates the economy contracted by 19.0 percent in 2020.  Recovery of the economy is contingent on the resumption international travel in 2021 along with continued government borrowing to sustain public expenditures.

The government declared Fiji “COVID-19 contained” in 2020 with strict limits on international visitors and a mandatory 14-day quarantine period under strict supervision for all arrivals.  These COVID-19 Safe Economic Recovery Framework rules create significant hurdles for foreign investors who intend to travel to Fiji.

Since March 2020, tourist arrivals declined 83.6 percent.  Labor market conditions in 2020 deteriorated resulting in an estimated 115,00 out of the 360,000-person workforce losing their jobs.  The Reserve Bank of Fiji estimates that remittances from Fijians working abroad will overtake tourism as the largest foreign exchange earner in 2020, growing about six percent to more than USD 320 million (FJD 652 million).  Government revenues are estimated to decline by 50 percent, and total exports in 2020 are expected to fall by 23.9 percent.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 N/A http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 102 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 5,206.4 https://www.statsfiji.gov.fj/index.php/statistics/economic-statistics/balance-of-payments
World Bank GNI per capita 2019 5,800 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Due to COVID-19 health crisis, the government’s COVID Safe Economic Recovery Framework creates significant hurdles for foreign investors who intend to travel to Fiji.  One measure within the framework calls for an additional assessment by the government’s COVID-19 Risk Mitigation Taskforce of all new investment ventures.  The Fiji government continues to review its investment policies to improve efficiency of doing business in Fiji.  Investment Fiji is responsible for the promotion of foreign investment in the interest of national development (its previous powers as a regulator were removed in 2020).  In addition to registering and assisting with the implementation of foreign investment projects, Investment Fiji hosts information seminars for visiting foreign business delegations and participates at investment missions overseas.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Foreign Investment Act (FIA) and the 2009 Foreign Investment Regulation regulate foreign investment in Fiji.  All businesses with a foreign investment component in their ownership are required to register and obtain a Foreign Investment Registration Certificate (FIRC) from Investment Fiji.

Some investment activities are reserved for Fiji nationals or are subject to restrictions.  There is no minimum investment requirement.  There are 17 reserved activities exclusively for Fiji citizens, mainly in the services sector, and eight restricted activities.  Full listings of reserved and restricted areas can be found at:  http://www.investmentfiji.org.fj/pages.cfm/for-investors/doing-business-in-fiji/foreign-investment-act-foreign-investment-regulations.html.  Restricted activities in forestry, tobacco production, tourism (cultural heritage), real estate development, construction, earthmoving, and inter-island shipping or passenger service require minimum investments ranging from USD 250,000 – 2.5 million (FJD 500,00 – 5 million).  Investment in the fisheries sector also requires a 30 percent local equity in the project.  Investment Fiji helps vet foreign investment proposals to ensure that the projects are in the interest of national development and to support implementation of projects.

Other Investment Policy Reviews

Fiji has not undergone any third-party investment policy reviews in the past three years.  In 2016, Fiji completed its second WTO trade policy review (https://www.wto.org/english/tratop_e/tpr_e/tp430_e.htm) and ratified the Trade Facilitation Agreement (TFA) in 2017.  In 2015, UNCTAD undertook a voluntary peer review of Fiji’s competition law and policy, available at http://unctad.org/en/PublicationsLibrary/ditcclp2015d5_en.pdf.

Business Facilitation

The Fiji government’s bizFiji website (www.business-fiji.com) is an information portal for new and existing businesses, as well as foreign investors.  The portal provides information on the business registration process, how to obtain construction permits, and included application forms and links to all the required agencies, including the Registrar of Companies, Fiji Revenue and Customs Services (FRCS), Fiji National Provident Fund, National Occupational Health and Safety Services, and the Fiji National University.  The government’s reforms to improve the ease and reduce the cost of doing business include eliminating the business license requirement for low-risk businesses, reducing processing times for business licenses to 48 hours, and removing several requirements for existing businesses.  Since the launch of bizFiji in 2019, the government has worked to develop a single online clearance system to improve registration processes, but inefficiencies remain.

For foreign investors, the bizFiji website is also linked to the Investment Fiji website.  The registration form and procedures, and regulations for foreign investment is available at the Investment Fiji issue of the Foreign Investment Registration Certificate (FIRC).  Applications for a FIRC and payment of the requisite application fee of USD 1,336 (FJD 2,725) needs to be submitted to Investment Fiji.  Investors need to meet the requirements listed under the Foreign Investment Act (FIA) and the 2009 Foreign Investment Regulation as well as ensure that the investment activity does not fall under the reserved and restricted activities lists.  The registration process for investment applications takes at least five working days and sometimes longer if the paperwork is incomplete.

Investors are also required to obtain the necessary permits and licenses from other relevant authorities and should be prepared for delays.  There are no special services or preferences to facilitate investment and business operations by micro, small and medium sized enterprises, or by women.

Contact: Ministry of Commerce, Trade, Tourism and Transport, Level 2 and 3, Civic Tower, Victoria Parade, Suva; Telephone: (679) 330 5411; Website:  www.mcttt.gov.fj

Outward Investment

The Reserve Bank of Fiji (RBF) tightened exchange controls and any outward investment by individuals, companies, and non-bank financial institutions, including the Fiji National Provident Fund, require clearance from the RBF.

3. Legal Regime

Transparency of the Regulatory System

The lack of consultation with the private sector and other stakeholders on proposed laws and regulations remains an area of concern.  The business community has complained that the government enacts new regulations with little prior notice or publicity.  Foreign investors perceive a lack of transparency in government procurement and approval processes, and some considering investment in Fiji have encountered lengthy and costly bureaucratic delays, shuffling of permits among government ministries, inconsistent and changing procedures, lack of technical capacity, costly penalties due to the interpretation of tax regulations by the Fiji Revenue and Customs Service (FRCS), and slow decision-making.  The Biosecurity Authority of Fiji (BAF) regulates all food and animal products entering Fiji and has stringent and costly point-of-origin inspection and quarantine requirements for foreign goods.

Fiji’s constitution provides for public access to government information and for the correction or deletion of false or misleading information.  Although the constitution requires that a freedom of information law be enacted, there is no such law yet.  Proposed bills or regulations, including investment regulations, are made available and usually posted on the relevant ministry or regulatory authority’s website.  The parliamentary website (http://www.parliament.gov.fj/) is a centralized online location that publishes laws and regulations passed in parliament.  The government’s public finances and debt obligations are also made available annually in the budget documents.

International Regulatory Considerations

Fiji is a member of the Melanesian Spearhead Group (MSG) that allows for the duty-free trade of goods between Fiji, Papua New Guinea, Vanuatu and Solomon Islands.  Fiji has been a member of the WTO since January 1996.  According to Fiji’s trade profile on the WTO website, there are no records of disputes.  Fiji ratified the WTO’s Trade Facilitation Agreement in 2017.

Legal System and Judicial Independence

The legal system in Fiji developed from British law.  Fiji maintains a judiciary consisting of a Supreme Court, a Court of Appeal, a High Court, and magistrate courts.  The Supreme Court is the final court of appeal.

Both companies and individuals have recourse to legal treatment through the system of local and superior courts.  A foreign investor theoretically has the right of recourse to the courts and tribunals of Fiji with respect to the settlement of disputes, but government laws have been used to block foreign investors from legal recourse in investment takeovers, tax increases, or write-offs of interest to the government.

Laws and Regulations on Foreign Direct Investment

The Foreign Investment Act (FIA) and the 2009 Foreign Investment Regulation regulate foreign investment in Fiji.  All businesses with a foreign-investment component in their ownership are required to register and obtain a Foreign Investment Registration Certificate (FIRC).  Information on the registration procedures, regulations, and registration requirements for foreign investment is available at the Investment Fiji website:  http://www.investmentfiji.org.fj. Amendments to the FIA also require that foreign investors seek approval prior to any changes in the ownership structure of the business, with penalties incurred for non-compliance.

The Fiji government’s bizFiji website (www.business-fiji.com), an information portal for new and existing businesses, and foreign investors, includes links to the Investment Fiji website.  Since the launch of bizFiji in 2019, the government has worked to develop a single online clearance system to improve registration processes, but inefficiencies remain.

Competition and Antitrust Laws

The Fiji Competition and Commerce Commission (FCCC) regulates monopolies, promotes competition, and controls prices of selected hardware, basic food items, and utilities to ensure a fair, competitive, and equitable market.

Expropriation and Compensation

Expropriation has not historically been a common phenomenon in Fiji.  A foreign investor theoretically has the same right of recourse as a Fijian enterprise to the courts and other tribunals of Fiji to settle disputes.  In practice, the government has acted to assert its interests with laws affecting foreign investors.

In 2013, the government amended the Foreign Investment Decree with provisions to permit the forfeiture of foreign investments as well as significant fines for breaches of compliance with foreign investment registration conditions.

Dispute Settlement

ICSID Convention and New York Convention

Fiji acceded to the New York Convention in September 2010.  Fiji has been a member of the ICSID since September 1977.  However, there are no legislative or other measures adopted to make the convention effective.

Investor-State Dispute Settlement

The government has sometimes opted to penalize foreign investors by deportation in lieu of dispute settlement but there have been no new cases since 2016.

Past investment disputes have often focused on land issues, particularly in the mining, timber and tourism sectors.  Such disputes have been resolved through labor-management dialogue, government intervention, referral to compulsory arbitration, or through the courts.  In some instances, the investors have withdrawn from Fiji when a resolution could not be found.  Fiji is a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.

The World Bank Doing Business 2020 survey ranked Fiji 101 out of 190 on the efficiency of the judicial system to resolve a commercial dispute.  According to the survey, Fiji took 397 calendar days to complete procedures at a cost of 42.6 percent of the value of the claim.

International Commercial Arbitration and Foreign Courts

Fiji is a party to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States.  Fiji acceded to the New York Convention in September 2010.  Fiji also enacted the International Arbitration Act to improve the framework governing international commercial arbitration, adopting a version of the United Nations Commission on International Trade Law (UNICTRAL) model law on arbitration.  The Fiji Mediation Center (FMC) is an alternative dispute resolution mechanism, with local and international mediators accredited by the Center in collaboration with Singapore.  The FMC services include family, commercial, and small case mediation, and as of March 2019, has mediated over 190 cases, with 67 percent of the mediated cases settled, and 84 percent of cases settled within one working day.

Bankruptcy Regulations

Fiji’s Companies Act 2015 has provisions relating to solvency and negative solvency.  According to the 2020 World Bank Doing Business survey, prior to COVID-19, in terms of resolving insolvency, it took an estimated 1.8 years at a cost of ten percent of the estate to complete the process, with an estimated recovery rate of 46.5 percent of value.

6. Financial Sector

Capital Markets and Portfolio Investment

The capital market is regulated and supervised by the Reserve Bank of Fiji (RBF).  Twenty companies were listed on the Suva-based South Pacific Stock Exchange (SPSE).  At the end of September 2020, market capitalization was USD 1.7 billion (FJD 3.4 billion), an annual increase of 0.6 percent compared to September 2019.  To promote greater activity in the capital market, the government lowered corporate tax rates for listed companies to ten percent and exempted income earned from the trading of shares in the SPSE from income tax and capital gains tax.  The RBF issued the Companies (Wholesale Corporate Bonds) Regulations 2021 to develop the domestic corporate bond market by providing a simplified process for the issuance of corporate bonds to eligible wholesale investors only.

Foreign investors are permitted to obtain credit from authorized banks and other lending institutions without the approval of the RBF for loans up to USD 4.9 million (FJD 10 million), provided the debt-to-equity ratio of 3:1 is satisfied.

Money and Banking System

Fiji has a well-developed banking system supervised by the Reserve Bank of Fiji.  The RBF regulates the Fiji monetary and banking systems, manages the issuance of currency notes, administers exchange controls, and provides banking and other services to the government.  In addition, it provides lender-of-last-resort facilities and regulates trading bank liquidity.

There are six commercial banks with established operations in Fiji:  ANZ Bank, Bank of Baroda, Bank of South Pacific, Bred Bank, Home Finance Corporation (HFC), and Westpac Banking Corporation, with the HFC the only locally owned bank.  Non-banking financial institutions also provide financial assistance and borrowing facilities to the commercial community and to consumers.  These institutions include the Fiji Development Bank, Credit Corporation, Kontiki Finance, Merchant Finance, and insurance companies.  As of December 2020, total assets of commercial banks amounted to USD 5.2 billion (FJD 10.7 billion).  The RBF reported that liquidity reached USD 410.4 million (FJD 836.8 million) in December 2020 and that reserves were sufficient and did not pose a risk to bank solvency.  However, the RBF also noted that existing levels of non-performing loans could rise, with the ending of moratoriums offered by financial institutions to COVID-19 affected customers.  To open a bank account, foreign investors need to provide a copy of the Foreign Investment Registration Certificate (FIRC) issued by Investment Fiji.

Foreign Exchange and Remittances

Foreign Exchange

The Reserve Bank of Fiji (RBF) tightened foreign exchange controls to safeguard foreign reserves and prevent capital flight to mitigate the impact of COVID-19.  The Fiji dollar remains fully convertible.  The Fiji dollar is pegged to a basket of currencies of Fiji’s principal trading partners, chiefly Australia, New Zealand, the United States, the European Union, and Japan.

Although no limits were placed on non-residents borrowing locally for some specified investment activities, the RBF placed a credit ceiling on lending by commercial banks to non-resident controlled business entities.

Remittance Policies

The Reserve Bank of Fiji (RBF) tightened foreign exchange controls, requiring RBF approval for any investment profit remittances.  Prior clearance of withholding tax payments on profit and dividend remittances is required from the Fiji Revenue and Customs Service.  Tax compliance may restrict foreign investors’ repatriation of investment profits and capital.  A tax clearance certificate is required for remittances above USD9,808 (FJD 20,000) and audited accounts for amounts above USD 245,200 (FJD 500,000).  The processing time for remittance applications is approximately three working days, is contingent on all the required documentation submitted to the RBF.

Sovereign Wealth Funds

The Fiji government does not maintain a sovereign wealth fund or asset management bureau in Fiji.  The country’s pension fund scheme, the Fiji National Provident Fund, which manages and invests members’ retirement savings, accounts for a third of Fiji’s financial sector assets.  The fund invests in equities, bonds, commercial paper, mortgages, real estate and various offshore investments.

7. State-Owned Enterprises

State-owned enterprises (SOEs) in Fiji are concentrated in utilities and key services and industries including aerospace (Fiji Airways, Airports Fiji Limited); agribusiness (Fiji Pine Ltd); energy (Energy Fiji Limited); food processing (Fiji Sugar Corporation, Pacific Fishing Company); information and communication (Amalgamated Telecom Holdings); and media (Fiji Broadcasting Corporation Ltd).  There are ten Government Commercial Companies which operate commercially and are fully owned by the government, five Commercial Statutory Authorities (CSA) which have regulatory functions and charge nominal fees for their services, seven Majority Owned Companies, and two Minority Owned Companies with some government equity.  The SOEs that provide essential utilities, such as energy and water, also have social responsibility and non-commercial obligations. A list of SOEs is published in government’s annual budget documentation.

Aside from the CSAs, SOEs do not exercise delegated governmental powers.  SOEs benefit from economies of scale and may be favored in certain sectors.  The Fiji Broadcasting Company Ltd (FBCL) is exempt from the Media Decree, which governs private media organizations and exposes private media to criminal libel lawsuits.  In some sectors, the government has pursued a policy of opening up or deregulating various sectors of the economy.

Privatization Program

The government is pursuing public private partnership (PPP) models in energy, aviation infrastructure, and public housing, often seeking technical assistance from development partners including the International Finance Corporation to implement these arrangements and to encourage more private sector participation. The government is in negotiations with a foreign investor to further divest ownership in energy company Energy Fiji Limited (EFL), following its divestment of 20 percent of its shares in EFL to Fiji’s pension fund, the Fiji National Provident Fund (FNPF) in 2019.  Foreign investors are already partnering in public-private partnership arrangements in the health and maritime port sectors.  In 2018, the government signed the first public private partnership agreement in the medical sector with Fiji’s pension fund and an Australian company to develop, upgrade, and operate the Ba and Lautoka hospitals, the country’s two major hospitals in the western region.  The PPP arrangements are on hold to July 2021 due to COVID-19 related disruptions to travel restrictions and supply chain management.  The Ministry of Economy publishes these opportunities as Tenders or Expressions of Interest (http://www.economy.gov.fj/).

10. Political and Security Environment

As part of COVID-19 precautions, Fiji enforces a nationwide overnight curfew. The country held general elections in November 2018 and international observers deemed elections credible.   Although civil unrest is uncommon, the Public Order Act restricts freedoms of speech, assembly, and movement to preserve public order.  The Online Safety law may also restrict free speech in the digital space.  In 2020, there were reports that authorities used the POA’s wide provisions to restrict freedom of expression and of association, and defamation lawsuits filed against political opponents for posting comments critical of the government on social media.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2019 5,536.9 2019 5,496.3 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 108.1 2017 153 BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 N/A 2019 $0 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 94% 2019 94.6% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx

* Source for Host Country Data: Fiji Bureau of Statistics data available at https://www.statsfiji.gov.fj/index.php/statistics/economic-statistics/balance-of-payments   

Table 3: Sources and Destination of FDI

The data from IMF’s Coordinated Direct Investment Survey (CDIS) is consistent with host country data by Fiji’s national statistics office, the Fiji Bureau of Statistics.  No data was available on outward direct investment in the United States.

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment (2019) Outward Direct Investment
Total Inward 5,171 100% Total Outward N/A 100%
Australia 2,516 49%
Singapore 545 11%
Papua New Guinea 533 10%
France 376 7%
United Kingdom 247 5%
“0” reflects amounts rounded to +/- USD 500,000.

Source: https://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410

Table 4: Sources of Portfolio Investment

Data from the IMF’s Coordinated Portfolio Investment Survey (CPIS) site is consistent with Fiji’s Bureau of Statistics.

Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 5,171 100% All Countries 5,067 100% All Countries 104 100%
Australia 2,516 49% Australia 2,538 50% United Kingdom 39 37%
Singapore 545 11% Singapore 545 11% Canada 20 19.2%
Papua New Guinea 533 10% France 376 7% China PRC 16 15.4%
France 376 7% Papua New Guinea 533 7% Luxembourg 14 13.5%
United Kingdom 247 5% United Kingdom 208 4% United States 9 8.7%

Finland

Executive Summary

Finland is a Nordic country located north of the Baltic States bordering Russia, Sweden, and Norway, possessing a stable and modern economy, including a world-class investment climate. It is a member of the European Union and part of the euro area. The country has a highly skilled, educated, and multilingual labor force, with strong expertise in Information Communications Technology (ICT), shipbuilding, forestry, and renewable energy. Finland offers stability, functionality, high quality of living, and a highly developed digital infrastructure.

Key challenges for foreign investors include high personal and VAT tax rates, a rigid labor market and bureaucratic red tape in starting certain businesses and opening bank accounts, although in June 2016 the Government enacted a Competitiveness Pact that aims to reduce labor costs, increase hours worked, and introduce more flexibility into the wage bargaining system. An aging population and the shrinking working-age population are the most pressing issues that could limit growth opportunities for Finland.

During 2019, the total value of FDI grew by USD 15.1 billion to USD 85.5 billion, of which equity accounted for USD 69.63 billion and the value of debt capital for USD 15.9 billion. Sweden accounts for 28 percent of Finland’s FDI; Luxembourg – 15 percent; the Netherlands – 15 percent; Norway – 6 percent; and Denmark 5 percent. Approximately 82 percent of Finland’s FDI is from EU member states.

According to Ernst & Young’s Nordics Attractiveness Survey 2019, Finland secured a record high of 194 FDI projects; more projects than all the other Nordic countries combined in 2018. The 2019 survey was Finland’s seventh consecutive as the Nordic leader in new FDI projects – the largest category being Sweden-based businesses (53), followed by UK-based – 19; the United States – 18; Germany – 15; Norway – 13; and China – 13.

To attract investment over the years, the Government of Finland (GOF) cut the corporate tax rate in 2014 from 24.5 percent to 20 percent, simplified its residence permit procedures for foreign specialists, and created a one-stop-shop for foreign investors called Business Finland.

The U.S. Embassy in Helsinki, through the Foreign Commercial Service and Political/Economic Sections, is a strong partner for U.S. businesses that wish to connect to the Finnish market. Finland has vibrant telecommunication, energy, and biotech sectors, as well as Arctic expertise. With excellent transportation links to the Nordic-Baltic region and Russia, Finland is a developing transportation hub.

On January 1, 2018, Finpro, the Finnish trade promotion organization, and Tekes, the Finnish Funding Agency for Innovation, united to become Business Finland, which is now the single operator working to facilitate foreign direct investment in Finland. Business Finland is the Finnish government organization for innovation funding and trade, travel, and investment promotion. Business Finland’s 600 experts work in 40 offices abroad and in 16 offices in Finland.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 3 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 20 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 7 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 3,745 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 50,010 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Finnish government is open to foreign direct investment. There are no general regulatory limitations relating to acquisitions. A mixture of domestic and EU competition rules govern mergers and acquisitions. Finland does not preclude foreign investment, but some tax policies may make it unattractive to investors. Finnish tax authorities treat the movement of ownership of shares from a Finnish company to a foreign company as a taxable event, though Finland complies with EU directives that require it to allow such transactions based in other EU member states without taxing them.

Finland does not grant foreign-owned firms preferential treatment like tax holidays or other subsidies not available to all firms. Instead, Finland relies on policies that seek to offer both domestic and international firms better operating conditions, an educated labor force, and well-functioning infrastructure. Companies benefit from preferential trade arrangements through Finland’s membership in the EU and the World Trade Organization (WTO), in addition to the protection offered by Finland’s bilateral investment treaties with sixty-seven countries. The corporate income tax rate is 20 percent.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Regulation of the European Parliament and the Council on establishing a framework for the national security screening of high-risk foreign investments into the Union entered into force on April 10, 2019. At the moment, 17 Member States, including Finland, have national screening systems in place.

The law governing foreign investments is the Act on the Monitoring of Foreign Corporate Acquisitions in Finland (172/2012). The Ministry of Economic Affairs and Employment (TEM) monitors and confirms foreign corporate acquisitions. TEM decides whether an acquisition conflicts with “vital national interests” including securing national defense, as well as safeguarding public order and security. If TEM finds that a key national interest is jeopardized, it must refer the matter to the Council of State, which may refuse to approve the acquisition.

To meet the EU FDI screening regulation amendments to national legislation (the Act on the Screening of Foreign Corporate Acquisitions in Finland) entered into force in October 2020. National law continues to be premised on a positive attitude towards foreign investments, but authorities can exercise control over the ownership of companies considered essential in terms of the security of supply and national security and, if necessary, restrict foreign ownership in such companies. The Ministry of Economic Affairs and Employment will act as the national contact point for cooperation and exchange of information between EU Member States and the European Union, and matters relating to the implementation of the EU Regulation establishing a framework for the screening of foreign direct investments. The Act also includes new provisions on the setting of conditions that attach to decisions of the Ministry of Economic Affairs and Employment regarding the approval of corporate acquisitions, inadmissibility of matters, circumvention of the Act, and the disclosure of secret information to public authorities. In addition, it will be necessary to apply for an advance approval by the Ministry of Economic Affairs and Employment when making corporate acquisitions in the security sector in the future.

In the non-military sector, Finnish companies considered critical for securing vital functions of society are subject to screening.

For defense acquisitions, monitoring applies to all foreign owners, who must apply for prior approval. “Defense” includes all entities that supply or have supplied goods or services to the Finnish Ministry of Defense, the Finnish Defense Forces, the Finnish Border Guard, as well as entities dealing in dual-use goods. The substantive elements in evaluating the application are identical to those applied to other corporate acquisitions.

In regards to defense industry, monitoring covers all foreign owners. In other sectors, screening only applies to foreign owners residing or domiciled outside the EU or EFTA. There are no formal requirements for the layout of the application and notification submitted to the Ministry of Economic Affairs and Employment. However, the Ministry has drawn up instructions for preparing the application/notification. The application and notification must also be accompanied by a form containing the information required by the EU Regulation. Starting January 1, 2021, TEM charges a fee of EUR 5,000 for the processing of each application for confirming a foreign corporate acquisition. For more see: https://tem.fi/en/acquisition 

On February 26, 2019, the Finnish Parliament approved a law (HE 253/2018) that requires non-EU/ETA foreign individuals or entities to receive Defense Ministry permission before they purchase real estate in Finland. Even companies registered in Finland, but whose decision-making bodies are at least of one-tenth non-EU/ETA origin will have to seek a permit. The law, which took effect in early 2020, states that non-EU/ETA property purchasers can still buy residential housing and condominiums without restrictions. More info can be found here: https://www.defmin.fi/en/licences_and_services/authorisation_to_non-eu_and_non-eea_buyers_to_buy_real_estate#be2e4cd8 

Private ownership is common practice in Finland, and in most fields of business participation by foreign companies or individuals is unrestricted. When the government privatizes state-owned enterprises, both private and foreign participation is allowed except in enterprises operating in sectors related to national security.

Other Investment Policy Reviews

Finland has been a member of the WTO and the EU since 1995. The WTO conducted its Trade Policy Review of the European Union (including Finland) in May 2017: https://www.wto.org/english/tratop_e/tpr_e/tp457_e.htm .

Finland, in the past three years, has not undergone an investment policy review by the World Trade Organization (WTO), the United Nations Committee on Trade and Development (UNCTAD), or the Organization for Economic Cooperation and Development (OECD).

Business Facilitation

All businesses in Finland must be publicly registered at the Finnish Trade Register. Businesses must also notify the Register of any changes to registration information and most must submit their financial statements (annual accounts) to the register. The website is: https://www.prh.fi/en/kaupparekisteri.html . The Business Information System BIS (“YTJ” in Finnish, https://www.prh.fi/en/kaupparekisteri/rekisterointipalvelut/ytj.html ) is an online service enabling investors to start a business or organization, report changes, close down a business, or conduct searches.

Permits, licenses, and notifications required depend on whether the foreign entrepreneur originates from a Nordic country, the European Union, or elsewhere. The type of company also affects the permits required, which can include the registration of the right to residency, residence permits for an employee or self-employed person, and registration in the Finnish Population Information System. A foreigner may need a permit from the Finnish Patent and Registration Office to serve as a partner in a partnership or administrative body of a company. For more information: https://www.suomi.fi/company/responsibilities-and-obligations/permits-and-obligations . Improvements made in 2016 to the residence permit system for foreign specialists, defined as those with a specific field of expertise, a university degree, and who earn at least EUR 3,000 gross per month, should help attract experts to Finland. An online permit application ( https://enterfinland.fi/eServices ) available since November 2016 has made it easier for family members to acquire a residence permit. In December 2020, the Finnish Immigration Service reported that the average processing time for foreign specialist residency permits was two weeks. The practice of some trades in Finland requires only notification or registration with the authorities. Other trades, however, require a separate license; companies should confirm requirements with Finnish authorities. Entrepreneurs must take out pension insurance for their employees, and certain fields obligate additional insurance. All businesses have a statutory obligation to maintain financial accounts, and, with the exception of small companies, businesses must appoint an external auditor.

Finland ranks 20th according to the World Bank Group’s 2020 Doing Business Index; it ranked 31st on “Starting a Business” ( http://www.doingbusiness.org/data/exploreeconomies/finland ). According to a 2016 study (FDI Attractiveness Scoreboard) by the European Commission, Finland is the most attractive EU country for FDI in terms of the political, regulatory and legal environment.

Finland, together with Sweden, Denmark, and the Netherlands scored the highest ratings in EU’s Digital Economy and Society Index 2020 DESI, naming these countries the global leaders in digitalization. DESI summarizes relevant indicators on Europe’s digital performance and tracks the evolution of EU Member States in digital competitiveness.

Gender inequality is low in Finland, which ranks third in the 2020 World Economic Forum Global Gender Gap Index. Finland has the lowest gender pay gap in the OECD, thanks to decades of gender friendly policies. The employment gap between disadvantaged groups and prime-age men is among the ten lowest in the OECD, albeit higher than in all the other Nordics.

Outward Investment

Business Finland, part of the Team Finland network, helps Finnish SMEs go international, encourages foreign direct investment in Finland, and promotes tourism. Business Finland has a staff of around 600 persons and nearly 40 offices abroad. It operates16 regional offices in Finland and focuses on agricultural technology, clean technology, connectivity, e-commerce, education, ICT and digitalization, mining, and mobility as a service. While many of Business Finland’s programs are export-oriented, they also seek to offer business and network opportunities. More info here: https://www.businessfinland.fi/en/do-business-with-finland/home /. In 2018, the Ministry of Education and Culture launched the Team Finland Knowledge network to enhance international education and research cooperation and the export of Finnish educational expertise.

The government does not generally restrict domestic investors from investing abroad. The only exceptions are linked to matters of national security and national defense. The Defense Ministry is responsible for approving exports of arms for military use, while the National Police Board grants permission for the export of civilian weapons and the Foreign Ministry oversees exports of dual-use products. Export control seeks to promote responsible export of Finnish technology and to prevent the use of Finnish technology for the development of WMDs, for undesirable military ends, for uses against the interests of Finland, or for purposes that violate human rights.

3. Legal Regime

Transparency of the Regulatory System

The Securities Market Act (SMA) contains regulations on corporate disclosure procedures and requirements, responsibility for flagging share ownership, insider regulations and offenses, the issuing and marketing of securities, and trading. The clearing of securities trades is subject to licensing and is supervised by the Financial Supervision Authority. The SMA is at https://www.finlex.fi/en/laki/kaannokset/2012/en20120746_20130258.pdf .

See the Financial Supervisory Authority’s overview of regulations for listed companies here: https://www.finanssivalvonta.fi/en/capital-markets/issuers-and-investors/regulation-of-listed-companies/ . Finland is currently not a member of the UNCTAD Business Facilitation Program https://businessfacilitation.org/ .

The Act on the Openness of Public Documents establishes the openness of all records in the possession of officials of the state, municipalities, registered religious communities, and corporations that perform legally mandated public duties, such as pension funds and public utilities. Exceptions can only be made by law or by an executive order for reasons such as national security. For more information, see the Ministry of Justice’s page on Openness: https://oikeusministerio.fi/en/act-on-the-openness-of-government-activities . The Act on the Openness of Government Activities can be found here: https://www.finlex.fi/en/laki/kaannokset/1999/en19990621 .

Finland ranks third on The World Justice Project (WJP) Rule of Law Index (2020) regarding constraints on government powers, absence of corruption, open government, fundamental rights, order and security, regulatory enforcement, civil justice and criminal justice. For more, see: https://worldjusticeproject.org/our-work/research-and-data/wjp-rule-law-index-2020 . Finland ranks fourth on World Bank’s Global Indicators of Regulatory Governance: http://rulemaking.worldbank.org/en/data/explorecountries/finland .

Availability of official information in Finland is the best in the EU, according to a report by the Center for Data Information (2017). The newly established Digital and Population Data Services Agency (2020) is responsible for developing and maintaining the national open data portal https://www.avoindata.fi/en 

Finland joined the Open Government Partnership Initiative (OGP) in April 2013. The global OGP-initiative aims at promoting more transparent, effective, and accountable public administration. The goal is to develop dialogue between citizens and administration and to enhance citizen engagement. The OGP aims at concrete commitments from participating countries to promote transparency, to fight corruption, to citizen participation and to the use of new technologies. Finland’s 4th national Open Government Action Plan for 2019–2023 was published in September 2019.

The current Government Program (issued in December 2019) sets openness of public information, including open data, application programming interface APIs and open source software, as key goals of the administration.

The status of Finland’s public finances is available at Statistics Finland, Finland’s official statistics agency: https://www.stat.fi/til/jul_en.html 

The status of Finland’s national debt is available at the State Treasury: https://www.treasuryfinland.fi/statistics/statistics-on-central-government-debt/#2fcc85c1 

International Regulatory Considerations

Finland respects EU common rules and expects other Member States to do the same. The Government seeks to constructively combine national and joint European interests in Finland’s EU policy and seeks better and lighter regulation that incorporates flexibility for SMEs. The Government will not increase burdens detrimental to competitiveness during its national implementation of EU acts.

Finland, as a member of the WTO, is required under the Agreement on Technical Barriers to Trade (TBT Agreement) to report to the WTO all proposed technical regulations that could affect trade with other Member countries. In 2020, Finland submitted four notifications of technical regulations and conformity assessment procedures to the WTO and has submitted 103 notifications since 1995. Finland is a signatory to the WTO Trade Facilitation Agreement (TFA), which entered into force on February 22, 2017.

Finland follows European Union (EU) internal market practices, which define Finland’s trade relations both inside the EU and with non-EU countries. Restrictions apply to certain items such as products containing alcohol, pharmaceuticals, narcotics and dangerous drugs, explosives, etc. The import of beef cattle bred on hormones is forbidden. Other restrictions apply to farm products under the EU’s Common Agricultural Policy (CAP).

In March 1997 EU commitments required the establishment of a tax border between the autonomously governed, but territorially Finnish, Aland Islands and the rest of Finland. As a result, the trade of goods and services between the Aland Islands and the rest of Finland is treated as if it were trade with a non-EU area. The Aland Islands belong to the customs territory of the EU but not to the EU fiscal territory. The tax border separates the Aland Islands from the VAT and excise territory of the EU. VAT and excise are levied on goods imported across the tax border, but no customs duty is levied. In tax border trade, goods can be sold with a tax free invoice in accordance with the detailed taxation instructions of the Finnish Tax Administration.

Legal System and Judicial Independence

Finland has a civil law system. European Community (EC) law is directly applicable in Finland and takes precedence over national legislation. The Market Court is a special court for rulings in commercial law, competition, and public procurement cases, and may issue injunctions and penalties against the illegal restriction of competition. It also governs mergers and acquisitions and may overturn public procurement decisions and require compensatory payments. The Court has jurisdiction over disputes regarding whether goods or services have been marketed unfairly. The Court also hears industrial and civil IPR cases.

Amendments to the Finnish Competition Act (948/2011) entered into force on June 17, 2019, and on January 1, 2020. The amendments include, most notably, changes to the Finnish Competition and Consumer Authority FCCA’s dawn raid practices, information exchange practices between national authorities and the calculation of merger control deadlines, which are now calculated in working days, rather than calendar days.

Finland is a party of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1962. The provisions of the Convention have been included in the Arbitration Act (957/1992).

The Oikeus.fi website ( https://oikeus.fi/en/index.html ) contains information about the Finnish judicial system and links to the websites of the independent courts, the public legal aid and guardianship districts, the National Prosecution Authority, the National Enforcement Authority Finland, and the Criminal Sanctions Agency.

Laws and Regulations on Foreign Direct Investment

There is no primary or “one-stop-shop” website that provides all relevant laws, rules, procedures and reporting requirements for investors. A non-European Economic Area (EEA) resident (persons or companies) operating in Finland must obtain a license or a notification when starting a business in a regulated industry. A comprehensive list of regulated industries can be found at: https://www.suomi.fi/company/responsibilities-and-obligations/permits-and-obligations .

See also the Ministry of Employment and the Economy’s Regulated Trade guidelines: https://tem.fi/en/regulation-of-business-operations . The autonomously governed Aland Islands, however are an exception. Right of domicile is acquired at birth if it is possessed by either parent. Property ownership and the right to conduct business are limited to those with the right of domicile in the Aland Islands. The Aland Government can occasionally, grant exemptions from the requirement of right of domicile for those wishing to acquire real property or conduct a business in Aland. This does not prevent people from settling in, or trading with, the Aland Islands. Provided they are Finnish citizens, immigrants who have lived in Aland for five years and have adequate Swedish may apply for domicile and the Aland Government can grant exemptions.

The Competition Act allows the government to block mergers where the result would harm market competition. The Finnish Competition and Consumer Authority (FCCA) issued guidelines in 2011: https://www.kkv.fi/en/facts-and-advice/competition-affairs/merger-control/ .

EnterpriseFinland/Suomi.fi ( https://www.suomi.fi/company/ ) is a free online service offering information and services for starting, growing and developing a company. Users may also ask for advice through the My Enterprise Finland website: https://oma.yrityssuomi.fi/en . Finnish legislation is available in the free online databank Finlex in Finnish, where some English translations can also be found: https://www.finlex.fi/en/laki/kaannokset/ .

Competition and Antitrust Laws

The Finnish Competition and Consumer Authority FCCA protects competition by intervening in cases regarding restrictive practices, such as cartels and abuse of dominant position, and violations of the Competition Act and the Treaty on the Functioning of the European Union (TFEU). Investigations occur on the FCCA’s initiative and on the basis of complaints. Where necessary, the FCCA makes proposals to the Market Court regarding penalties. In international competition matters, the FCCA’s key stakeholders are the European Commission (DG Competition), the OECD Competition Committee, the Nordic competition authorities and the International Competition Network (ICN). FCCA rulings and decisions can be found in the archive in Finnish. More information at: https://www.kkv.fi/en/facts-and-advice/competition-affairs/ .

In September 2020, the Nordic Competition Authorities released a joint memorandum on digital platforms, setting out the Nordic perspective on issues of competition in digital markets in Europe. For more see: https://www.kkv.fi/globalassets/kkv-suomi/julkaisut/pm-yhteisraportit/nordic-report-2020-digital-platforms-and-the-potential-changes-to-competition-law-at-the-european-level.pdf

Expropriation and Compensation

Finnish law protects private property rights. Citizen property is protected by the Constitution which includes basic provisions in the event of expropriation. Private property is only expropriated for public purposes (eminent domain), in a non-discriminatory manner, with reasonable compensation, and in accordance with established international law. Expropriation is usually based on a permit given by the government or on a confirmed plan and is performed by the District Survey Office. An expropriation permit granted by the Government may be appealed against to the Supreme Administrative Court. Compensation is awarded at full market price, but may exclude the rise in value due only to planning decisions.

Besides normal expropriation according to the Expropriation Act, a municipality or the State has the right to expropriate land for planning purposes. Expropriation is mainly for acquiring land for common needs, such as street areas, parks and civic buildings. The method is rarely used: less than one percent of land acquired by the municipalities is expropriated. Credendo Group ranks Finland’s expropriation risk as low (1), on a scale from 1 to 7: https://www.credendo.com/country-risk/finland .

Dispute Settlement

ICSID Convention and New York Convention

In 1969, Finland became a member state to the World Bank-based International Center for Settlement of Investment Disputes (ICSID; Washington Convention). Finland is a signatory to the Convention of the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

The Finnish Arbitration Act (967/1992) is applied without distinction to both domestic and international arbitration. Sections 1 to 50 apply to arbitration in Finland and Sections 51 to 55 to arbitration agreements providing for arbitration abroad and the recognition and enforcement of foreign arbitral awards in Finland. Of 260 parties in 2020, the majority (238) were from Finland. There have been no reported investment disputes in Finland in recent years.

International Commercial Arbitration and Foreign Courts

Finland has a long tradition of institutional arbitration and its legal framework dates back to 1928. Today, arbitration procedures are governed by the 1992 Arbitration Act (as amended), which largely mirrors the UNCITRAL Model Law on International Commercial Arbitration of 1985 (with amendments, as adopted in 2006). The UNCITRAL Model law has not yet, however, been incorporated into Finnish Law.

Finland’s Act on Mediation in Civil Disputes and Certification of Settlements by Courts (394/2011) aims to facilitate alternative dispute resolution (ADR) and promote amicable settlements by encouraging mediation, and applies to settlements concluded in other EU member states: https://www.finlex.fi/en/laki/kaannokset/2011/en20110394.pdf . In June 2016, the Finland Arbitration Institute of the Chamber of Commerce (FAI) launched its Mediation Rules under which FAI will administer mediations: https://arbitration.fi/mediation/mediation_rules/ .

Any dispute in a civil or commercial matter, international or domestic, which can be settled by agreement may be referred to arbitration. Arbitration is frequently used to settle commercial disputes and is usually faster than court proceedings. An arbitration award is final and binding. FAI promotes the settlement of disputes through arbitration, commonly using the “FAI Arbitration/Expedited Arbitration Rules”, which were updated in 2020: https://arbitration.fi/arbitration/guidelines-and-instructions/ 

The Finland Arbitration Institute (FAI) appoints arbitrators both to domestic and international arbitration proceedings, and administers domestic and international arbitrations governed by its rules. It also appoints arbitrators in ad hoc cases when the arbitration agreement so provides, and acts as appointing authority under the UNCITRAL Arbitration Rules. The Finnish Arbitration Act (967/1992) states that foreign nationals can act as arbitrators. For more information see: https://arbitration.fi/arbitration/ 

Finland signed the UN Convention on Transparency in Treaty-based Investor-State Arbitration (“Mauritius Convention”) in March 2015. Under these rules, all documents and hearings are open to the public, interested parties may submit statements, and protection for confidential information has been strengthened.

Bankruptcy Regulations

The Finnish Bankruptcy Act was amended and the amendments took effect on July 1, 2019. The main objectives of these amendments were to simplify, digitize and speed-up bankruptcy proceedings. The amended Bankruptcy Act allows administrators to send notices and invitations to creditor addresses registered in the Trade Register. This will improve accessibility for foreign companies that have established a branch in Finland. Administrators of bankruptcy and restructuring proceedings must upload data and documentation to the bankruptcy and restructuring proceedings case management system (KOSTI). KOSTI is available only for creditors located in Finland due to the strong ID requirements.

The Reorganization of Enterprises Act (1993/47), https://www.finlex.fi/fi/laki/kaannokset/1993/en19930047 , establishes a legal framework for reorganization with the aim to provide an alternative to bankruptcy proceedings. The Act excludes credit and insurance institutions and certain other financial institutions. Recognition of restructuring or insolvency processes initiated outside of the EU requires an exequatur from a Finnish court.

The bankruptcy ombudsman, https://www.konkurssiasiamies.fi/en/index.html , supervises the administration of bankruptcy estates in Finland. The Act on the Supervision of the Administration of Bankruptcy Estates dictates related Finnish law: https://www.konkurssiasiamies.fi/material/attachments/konkurssiasiamies/konkurssiasiamiehentoimistonliitteet/6JZrLGPN1/Act_on_the_Supervision_of_the_Administration_of_Bankruptcy_Estates.pdf .

Finland can be considered creditor-friendly; enforcement of liabilities through bankruptcy proceedings as well as execution outside bankruptcy proceedings are both effective. Bankruptcy proceedings are creditor-driven, with no formal powers granted to the debtor and its shareholders. The rights of a secured creditor are also quite extensive.

According to data collected by the World Bank’s 2020 Doing Business Report, resolving insolvency takes 11 months on average and costs 3.5 percent of the debtor’s estate. The average recovery rate is 88 cents on the dollar. Globally, Finland ranked first of 190 countries on the ease of resolving insolvency in the Doing Business 2020 report : https://www.doingbusiness.org/content/dam/doingBusiness/country/f/finland/FIN.pdf

6. Financial Sector

Capital Markets and Portfolio Investment

Finland is open to foreign portfolio investment and has an effective regulatory system. According to the Bank of Finland, in end December 2020 Finland had USD 126 billion worth of official reserve assets, mainly in foreign currency reserves and securities. Credit is allocated on market terms and is made available to foreign investors in a non-discriminatory manner, and private sector companies have access to a variety of credit instruments. Legal, regulatory, and accounting systems are transparent and consistent with international norms.

The Helsinki Stock Exchange is part of OMX, referred to as NASDAQ OMX Helsinki (OMXH). NASDAQ OMX Helsinki is part of the NASDAQ OMX Nordic division, together with the Stockholm, Copenhagen, Iceland, and Baltic (Tallinn, Riga, and Vilnius) stock exchanges.

Finland accepts the obligations under IMF Article VIII, Sections 2(a), 3, and 4 of the Fund’s Articles of Agreement. It maintains an exchange system free of restrictions on payments and transfers for current international transactions, except for those measures imposed for security reasons in accordance with Regulations of the Council of the European Union.

Money and Banking System

Banking is open to foreign competition. At the end of 2019, there were 246 credit institutions operating in Finland and total assets of the domestic banking groups and branches of foreign banks operating in Finland amounted to USD 859 billion. For more information see: https://www.finanssiala.fi/en/publications/finnish-banking-in-2019/ 

Foreign nationals can in principle open bank accounts in the same manner as Finns. However, banks must identify customers and this may prove more difficult for foreign nationals. In addition to personal and address data, the bank often needs to know the person’s identifier code (i.e. social security number), and a number of banks require a work permit, a certificate of studies, or a letter of recommendation from a trustworthy bank, and details regarding the nature of transactions to be made with the account. All authorized deposit-taking banks are members of the Deposit Guarantee Fund, which guarantees customers’ deposits to a maximum of EUR 100,000 per depositor.

In 2019 the capital adequacy ratio of the Finnish banking sector was 21.3 percent, above the EU average. Measured in Core Tier 1 Capital, the ratio was 17.6 percent. The capital adequacy of the Finnish banking sector remains well above the EU average. The Finnish banking sector’s return on equity (ROE) was 4.9 percent, slightly below the average ROE for all EU banking sectors (5.4 percent). Standard & Poor’s in March 2021 reaffirmed Finland’s AA+ long term credit rating and stable outlook while Fitch kept Finland’s credit rating at AA+ in November 2020. Moody’s kept Finland’s credit rating unchanged at Aa1 in July 2020. The Finnish banking sector is dominated by four major banks (OP Pohjola, Nordea, Municipality Finance and Danske Bank), which together hold 81 percent of the market.

Nordea, which relocated its headquarters from Sweden to Finland in 2018, has the leading market position among household and corporate customers in Finland. The relocation increased the Finnish banking sector to over three times the size of Finland’s GDP. Nordea is Europe’s 21st largest bank (2020) in terms of balance sheet. Consequently, Finland’s banking sector is one of Europe’s largest relative to the size of the national economy.

Nordea became a member of the “we.trade” consortium in November 2017, a blockchain based trade platform for customers of the European wide consortium of banks signed up for the platform. “we.trade” makes domestic and cross-border commerce easier for European companies by harnessing the power of distributed ledger and block chain technology. Commercially launched in January 2019, the we.trade’s technology is currently licensed by 16 banks across 15 countries.

The Act on Virtual Currency providers (572/2019) entered into force in May, 2019. The Financial Supervisory Authority (FIN-FSA) acts as the registration authority for virtual currency providers. The primary objective of the Act is to introduce virtual currency providers into the scope of anti-money laundering regulation. Only virtual currency providers meeting statutory requirements are able to carry on their activities in Finland.

The Finnish Tax Administration released guidelines on the taxation of cryptocurrency in May 2018, updates were made in October 2019, and new guidelines were released in January 2020 : https://www.vero.fi/en/detailed-guidance/guidance/48411/taxation-of-virtual-currencies3/ 

Foreign Exchange and Remittances

Foreign Exchange

Finland adopted the Euro as its official currency in January 1999. Finland maintains an exchange system free of restrictions on the making of payments and transfers for international transactions, except for those measures imposed for security reasons.

Remittance Policies

There are no legal obstacles to direct foreign investment in Finnish securities or exchange controls regarding payments into and out of Finland. Banks must identify their customers and report suspected cases of money laundering or the financing of terrorism. Banks and credit institutions must also report single payments or transfers of EUR 15,000 or more. If the origin of funds is suspect, banks must immediately inform the National Bureau of Investigation. There are no restrictions on current transfers or repatriation of profits. Residents and non-residents may hold foreign exchange accounts. There is no limit on dividend distributions as long as they correspond to a company’s official earnings records.

Travelers carrying more than EUR 10,000 must make a declaration upon entering or leaving the EU. As a Financial Action Task Force (FATF) member, Finland observes most of FATF’s 40 recommendations. In its Mutual Evaluation Report of Finland, released April 16, 2019, FATF concluded that Finland’s measures to combat money laundering and terrorist financing are delivering good results, but that Finland needs to improve supervision to ensure that financial and non-financial institutions are properly implementing effective AML/CFT controls. To improve supervision, a money laundering supervision register of the State Administrative Agency (AVI) and a register of beneficial owners controlled by the Finnish Patent and Registration Office were set up on July 1, 2019. In addition, the responsibility of preparing amendments to the Act on Preventing Money Laundering and Terrorist Financing was transferred to the Ministry of Finance (in charge of national FATF coordination) on January 1, 2019. FATF’s Mutual Evaluation Report of Finland, April 2019: http://www.fatf-gafi.org/countries/d-i/finland/documents/mer-finland-2019.html .

In Finland, the Fifth Anti-Money Laundering Directive was implemented, among other things, by means of the Act on the Bank and Payment Accounts Control System, which entered into force on May 1, 2019. In accordance with the Act, Customs has established a bank and payment accounts register and issue a regulation on a data retrieval system, which entered into force on September 1, 2020. The Ministry of the Interior has set up a legislative project to implement the EU directive on access to financial information at national level. The directive contains rules to facilitate the use of information held in bank account registries by the authorities for the purpose of preventing, detecting, investigating or prosecuting certain offences.

Sovereign Wealth Funds

Solidium is a holding company that is fully owned by the State of Finland. Although it is not explicitly a sovereign wealth fund, Solidium’s mission is to manage and increase the long-term value of the listed shareholdings of the Finnish State. Solidium is a minority owner in 12 listed companies; the market value of Solidium’s equity holdings is approximately USD 10.46 billion (March 2021), https://www.solidium.fi/en/holdings/holdings/ 

7. State-Owned Enterprises

State Owned Enterprises (SOEs) in Finland are active in chemicals, petrochemicals, plastics and composites; energy and mining; environmental technologies; food processing and packaging; industrial equipment and supplies; marine technology; media and entertainment; metal manufacturing and products; services; and travel. The Ownership Steering Act (1368/2007) regulates the administration of state-owned companies: https://www.finlex.fi/en/laki/kaannokset/2007/en20071368 .

In general, SOEs are open to competition except where they have a monopoly position, namely in alcohol retail and gambling. The Ownership Steering Department in the Prime Minister’s Office has ownership steering responsibility for Finnish SOEs, and is responsible for Solidium, a holding company wholly owned by the State of Finland and a minority owner in nationally important listed companies.

The Government of Finland GOF, directly or through Solidium, is a significant owner in 16 companies listed on the Helsinki stock exchange. The market value of all State direct shareholdings was approximately USD 28 billion as of March 2021. More info can be found here: https://vnk.fi/en/government-ownership-steering/value-of-state-holdings . The GOF has majority ownership of shares in two listed companies (Finnair and Fortum) and owns shares in 33 commercial companies: https://vnk.fi/en/state-shareholdings-and-parliamentary-authorisations  (March 2021). The Finnish State development company Vake will be turned into a Climate Fund, focusing on combating climate change, driving digitalization and advancing low-carbon industry. More information can be found here: https://vake.fi/en/ 

Finnish state ownership steering complies with the OECD Principles of Corporate Governance.

The Parliamentary Advisory Council in the Prime Minister’s Office serves in an advisory capacity regarding SOE policy; it does not make recommendations regarding the actual business in which the individual companies are engaged. The government has proposed changing its ownership levels in several companies and increasing the number of companies steered by the Prime Minister’s Office. Parliament decides the companies in which the State may relinquish its sole ownership (100 percent), its control of ownership (50.1 percent) or minority ownership (33.4 percent of votes). For more see https://vnk.fi/en/government-ownership-steering/ownership-policy 

In April 2020, the Government issued a new resolution on ownership policy, which will guide state-owned companies for the duration of the government term (until spring 2023). The Government Resolution on ownership policy will continue to pursue a predictable, forward-looking ownership policy that safeguards the strategic interests of the state. State ownership will be assessed from the perspectives of overall benefit to the national economy, development of the operations and value of companies, and the efficient distribution of resources. The new Government Resolution on ownership policy strongly emphasizes the fight against climate change, the use of digitalization and issues of corporate social responsibility.

Finland opened domestic rail freight to competition in early 2007, and in July 2016, Fenniarail Oy, the first private rail operator on the Finnish market, began operations. In November 2020, Estonian based Openrail Finland’s rail freight operations started in Finland. Passenger rail transport services will be opened to competition in stages, starting with local rail services in southern Finland. Based on an agreement between Finnish State Railways (VR) and the Ministry of Transport and Communications, VR has exclusive rights to provide passenger transport rail services in Finland until the end of 2024. The exclusive right applies to all passenger rail transport in Finland, excluding the commuter train transport services, provided by the Helsinki Regional Transport Agency (HSL). HSL put its commuter train transport services out for tender in February 2020, VR won the tender and will continue provide passenger rail service for the next ten years. The value of southern Finland commuter train services is USD 67 million per year, with 200 000 daily passengers. Three wholly state-owned enterprises will be separated from Finnish State Railways (VR) to create a level playing field for all operators: a rolling stock company, a maintenance company, and a real estate company. Cross-border transportation between Finland and Russia was opened to competition in December 2016. Trains to and from Russia can be operated by any railroad with permission to operate in the EU. This was earlier VR’s exclusive domain. Fenniarail Oy has an agreement with VR regarding information exchange between authorities in Finland and Russia, approvals of rail wagons on the Finnish rail network and the safety of rail wagons. The agreement was signed in January 2017 for an initial trial period.

Privatization Program

Parliament makes all decisions identifying the companies in which the State may relinquish sole ownership (100 percent of the votes) or control (minimum of 50.1 percent of the votes), while the Government decides on the actual sale. The State has privatized companies by selling shares to Finnish and foreign institutional investors, through both public offerings and directly to employees. Sales of direct holdings of the State totaled USD 2.89 billion (2007 – 2021). Solidium’s share sales totaled some USD 7.17 billion ( 2007 – 2021). According to the present Government Program, the proceeds from the sale of state assets are primarily to be used for the repayment of central government debt. Up to 25%, but no more than USD 168 million of any annual revenues exceeding USD 448 million, may be used for projects designed to strengthen the economy and promote growth.

The Government issued a new resolution on state-ownership policy in May 2016, seeking to ensure that corporate assets held by the State are put to more efficient use to boost economic growth and employment.

More info about state ownership can be found here : https://vnk.fi/en/government-ownership-steering .

10. Political and Security Environment

While instances of political violence in Finland are rare, extremism exists, and anti-immigration and anti-Semitic incidents do occur. In 2019, 15 anti-Semitic acts of vandalism against the Israeli Embassy over an 18-month period prompted an official demarche. The neo-Nazi Nordic Resistance Movement (NRM) is banned in Finland, as is its Facebook page. There were a few anti-Semitic incidents on International Holocaust Remembrance Day at the beginning of 2020, but the banning of NRM and COVID-19 have led to a marked decline in anti-Semitic incidents over the past year.

It is illegal in Finland to share violent content such as footage of Christchurch massacre, but it is still being disseminated and no one has been prosecuted. In August 2017, a stabbing attack took place in central Turku, in southwest Finland in which two pedestrians were killed and eight injured. Finnish authorities considered the attack a terrorist act and its perpetrator was convicted on terrorism charges, making it the first incident of its kind in Finland since the end of World War II.

According to the Finnish Intelligence Service (SUPO) 2020 yearbook, released in March 2021, the danger of extreme right-wing terrorism has grown in Finland, and SUPO has identified far-right operators with the capacity and motivation to mount a terrorist attack. Some indications of concrete preparation have also emerged. The threat of radical Islamist terrorism has remained at the previous level.

The Fund for Peace (FFP) ranked Finland as the most stable country in the world again in 2020 based on political, social, and economic indicators including public services, income distribution, human rights, and the rule of law. Marsh’s Political Risk Map 2020, exploring the changing risk environment, highlighting the implications for firms operating globally, rates Finland as a broadly stable country, scoring 78.8 (out of 100) in its Short-Term Political Risk Index (STPRI). Finland scores particularly well in the ‘security and external threats’ and ‘social stability’ sub-components of the scores, but its ‘policy-making process’ and ‘policy continuity’ scores are somewhat suppressed by “the unwieldy nature of the five-party coalition that was formed after the April 2019 parliamentary elections”.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $268.972 2019 $269.296 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $0.704 bn 2019 $3.745 bn BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $3.86 bn 2019 $14.826 bn BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 31.8 % 2019 29.26% UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html 
  

* Source for Host Country Data:

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 85,821 100% Total Outward 146,470 100%
Sweden 24,259 28.3% The Netherlands 35,579 24.3%
Luxembourg 12,644 14.7% Sweden 28,842 19.7%
The Netherlands 12,593 14.7% Ireland 23,589 16.1%
Norway 5,464 6.4% Norway 7,394 5.0%
China, P.R., Mainland 4,153 4.8% Denmark 7,391 5.0%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 386,524 100% All Countries 238,719 100% All Countries 147,802 100%
United States 67,238 17% Ireland 54,623 23% Sweden 20,904 14%
Ireland 60,273 16% United States 51,713 22% United States 15,524 11%
Luxenbourg 52,416 14% Luxenbourg 46,845 20% Denmark 13,554 9%
Sweden 33,699 9% Caymand Islands 16,675 7% Germany 13,531 9%
Denmark 20,571 5% Sweden 12,793 5% France 12,947 9%

France and Monaco

Executive Summary

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

In 2020, despite the global economic crisis caused by the COVID-19 pandemic, the United States retained its position as the leading foreign investor in France. U.S. firms completed 204 investments in France in 2020, creating 8,286 jobs, five percent more than in 2019. The total stock of U.S. foreign direct investment in France reached nearly $84 billion. More than 4,600 U.S. firms operate in France, supporting nearly 500,000 jobs.

Following the election of French President Emmanuel Macron in May 2017, the French government implemented significant labor market and tax reforms. By relaxing the rules on companies to hire and fire employees and by offering investment incentives, Macron has improved the operating environment in France, based on surveys of U.S. investors. In late 2018, France’s Yellow Vest movement, a populist, grassroots protest movement for economic justice, rekindled class warfare and exemplified the existence of two Frances, putting on hold ongoing economic and labor reforms, such as cuts to unemployment benefits and pensions.

The onset of the pandemic in 2020 delayed these reforms indefinitely, as Macron shifted focus to mitigating France’s most severe economic crisis in the post-war era. The economy shrank 8.3 percent in 2020 compared to the year prior. In response, the government implemented unprecedented fiscal support for businesses and households that reached 25 percent of GDP as of March 2021. The government’s centerpiece fiscal package was the €100 billion ($118 billion) France Relance plan, of which over half is dedicated to supporting businesses, most of which is accessible to U.S. firms operating in France. This includes access to unemployment schemes that support workers’ wages, subsidies to vulnerable sectors, investment in green and developing technologies, production tax cuts and other tax benefits, and expanded funding for research and development. The government’s agenda aims to bolster competitiveness, increase productivity, and accelerate the ecological transition.

Also in 2020, France increased its protection against foreign direct investment that may pose a threat to national security. In the wake of the crisis, France’s investment screening body expanded the scope of sensitive sectors to include biotechnology companies and lowered the threshold to review an acquisition from a 25 percent ownership stake by the acquiring firm to 10 percent, a temporary provision set to expire at the end of 2021. In 2020, the government blocked at least one transaction, which included the attempted acquisition of a French firm by a U.S. company in the defense sector.

The 2021 finance law continues to reduce corporate tax from its current level of 28 percent. Firms with revenues above €250 million ($295 million) will be taxed 26.5 percent on profits in 2021, and 25 percent in 2022.  Firms with revenues at or below €250 million ($295 million) will be taxed 27.5 percent on profits in 2021, and 25 percent in 2022.  The OECD average rate is 21.5 percent.

Although France’s fiscal package is unprecedented at nearly 25 percent of GDP, it is not sufficient to fully absorb the economic impact of the pandemic. Key issues to watch in 2021 are: 1) the degree to which COVID-19 continues to agitate the macroeconomic environment in France and across Europe; 2) the extent of the government’s continued support for the economy; 3) the speed at which EU member states, including France, can draw down on the Next Generation EU package to support the broader European recovery; and 4) how the green transition impacts the business environment, including the possible implementation of an EU carbon border adjustment mechanism, which could impact firms’ ability to import and export.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 23 of 179 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 32 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 12 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD83.826 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 42.450 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

France welcomes foreign investment. In the current economic climate, the French government sees foreign investment as a means to create additional jobs and stimulate growth. Investment regulations are simple, and a range of financial incentives are available to foreign investors. According to surveys of U.S. investors, U.S. companies find France’s skilled and productive labor force, good infrastructure, technology, and central location in Europe attractive. France’s membership in the European Union (EU) and the Eurozone facilitates the efficient movement of people, services, capital, and goods. However, notwithstanding French efforts at economic and tax reform, market liberalization, and attracting foreign investment, perceived disincentives to investing in France include the relatively high tax environment. Labor market fluidity is improving due to labor market reforms but is still rigid compared to some OECD economies.

Limits on Foreign Control and Right to Private Ownership and Establishment

France is among the least restrictive countries for foreign investment. With a few exceptions in certain specified sectors, there are no statutory limits on foreign ownership of companies. Foreign entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.

France maintains a national security review mechanism to screen high-risk investments. French law stipulates that control by acquisition of a domiciled company or subsidiary operating in certain sectors deemed crucial to France’s national interests relating to public order, public security and national defense are subject to prior notification, review, and approval by the Economy and Finance Minister. Other sectors requiring approval include energy infrastructure; transportation networks; public water supplies; electronic communication networks; public health protection; and installations vital to national security. In 2018, four additional categories – semiconductors, data storage, artificial intelligence and robotics – were added to the list requiring a national security review. For all listed sectors, France can block foreign takeovers of French companies according to the provisions of the 2014 Montebourg Decree.

On December 31, 2019 the government issued a decree to lower the threshold for vetting of foreign investment from outside Europe from 33 to 25 percent and then lowered it again to 10 percent on July 22, 2020, a temporary provision to prevent predatory investment during the COVID-19 crisis. This lower threshold is set to expire at the end of 2021. The decree also enhanced government-imposed conditions and penalties in cases of non-compliance and introduced a mechanism to coordinate the national security review of foreign direct investments with the European Union (EU Regulation 2019/452). The new rules entered into force on April 1, 2020. The list of strategic sectors was also expanded to include the following activities listed in the EU Regulation 2019/452: agricultural products, when such products contribute to national food supply security; the editing, printing, or distribution of press publications related to politics or general matters; and R&D activities relating to quantum technologies and energy storage technologies. Separately, France expanded the scope of sensitive sectors on April 30, 2020 to include biotechnology companies.

Procedurally, the Minister of Economy, Finance, and Recovery has 30 business days following the receipt of a request for authorization to either: 1) declare that the investor is not required to obtain such authorization; 2) grant its authorization without conditions; or 3) declare that an additional review is required to determine whether a conditional authorization is sufficient to protect national interests. If an additional review is required, the Minister has an additional 45 business days to either clear the transaction (possibly subject to conditions) or prohibit it. The Minister is further allowed to deny clearance based on the investor’s ties with a foreign government or public authority. The absence of a decision within the applicable timeframe is a de facto rejection of the authorization.

The government has also expanded the breadth of information required in the approval request. For example, a foreign investor must now disclose any financial relationship with or significant financial support from a State or public entity; a list of French and foreign competitors of the investor and of the target; or a signed statement that the investor has not, over the past five years, been subject to any sanctions for non-compliance with French FDI regulations.

In 2020, the government blocked at least one transaction—the attempted acquisition of a French firm by a U.S. company in the defense sector.

Other Investment Policy Reviews

France has not recently been the subject of international organizations’ investment policy reviews. The OECD Economic Survey for France (April 2019) can be found here:  http://www.oecd.org/economy/france-economic-forecast-summary.htm .

Business Facilitation

Business France is a government agency established with the purpose of promoting new foreign investment, expansion, technology partnerships, and financial investment. Business France provides services to help investors understand regulatory, tax, and employment policies as well as state and local investment incentives and government support programs. Business France also helps companies find project financing and equity capital. Business France recently unveiled a website in English to help prospective businesses that are considering investments in the French market ( https://www.businessfrance.fr/en/invest-in-France ).

In addition, France’s public investment bank, Bpifrance, assists foreign businesses to find local investors when setting up a subsidiary in France. It also supports foreign startups in France through the government’s French Tech Ticket program, which provides them with funding, a resident’s permit, and incubation facilities. Both business facilitation mechanisms provide for equitable treatment of women and minorities.

President Macron made innovation one of his priorities with a €10 billion ($11.8 billion) fund that is being financed through privatizations of State-owned enterprises. France’s priority sectors for investment include:  aeronautics, agro-foods, digital, nuclear, rail, auto, chemicals and materials, forestry, eco-industries, shipbuilding, health, luxury, and extractive industries. In the near-term, the French government intends to focus on driverless vehicles, batteries, the high-speed train of the future, nano-electronics, renewable energy, and health industries.

Business France and Bpifrance are particularly interested in attracting foreign investment in the tech sector. The French government has developed the “French Tech” initiative to promote France as a location for start-ups and high-growth digital companies. In addition to 17 French cities, French Tech offices have been established in 100 cities around the world, including New York, San Francisco, Los Angeles, Shanghai, Hong Kong, Vietnam, Moscow, and Berlin. French Tech has special programs to provide support to startups at various stages of their development. The latest effort has been the creation of the French Tech 120 Program, which provides financial and administrative support to some 123 most promising tech companies. In 2019, €5 billion ($5.9 billion) in venture funding was raised by French startups, an increase of nearly threefold since 2015. In September 2019, President Emmanuel Macron convinced major asset managers such as AXA and Natixis to invest €5 billion ($5.9 billion) into French tech companies over the next three years. He also announced the creation of a listing of France’s top 40 startups “Next 40” with the highest potential to grow into unicorns.

On June 5, 2020, the French government introduced a new €1.2 billion ($1.4 billion) plan to support French startups, especially in the health, quantum, artificial intelligence, and cybersecurity sectors. The plan includes the creation of a €500 million ($590 million) investment fund to help startups overcome the COVID-19 crisis and continue to innovate. It also comprises a “French Tech Sovereignty Fund” with an initial commitment of €150 million ($177 million) launched on December 11, 2020 by Bpifrance, France’s public investment bank.

The website Guichet Enterprises ( https://www.guichet-entreprises.fr/fr/ ) is designed to be a one-stop website for registering a business. The site, managed by the National Institute of Industrial Property (INPI), is available in both French and English although some fact sheets on regulated industries are only available in French.

Outward Investment

French firms invest more in the United States than in any other country and support approximately 780,000 American jobs. Total French investment in the United States reached $310.7 billion in 2019. France was our tenth largest trading partner with approximately $99.7 billion in bilateral trade in 2020. The business promotion agency Business France also assists French firms with outward investment, which it does not restrict.

3. Legal Regime

Transparency of the Regulatory System

The French government has made considerable progress in the last decade on the transparency and accessibility of its regulatory system. The government generally engages in industry and public consultation before drafting legislation or rulemaking through a regular but variable process directed by the relevant ministry. However, the text of draft legislation is not always publicly available before parliamentary approval. U.S. firms may also find it useful to become members of industry associations, which can play an influential role in developing government policies. Even “observer” status can offer insight into new investment opportunities and greater access to government-sponsored projects.

To increase transparency in the legislative process, all ministries are required to attach an impact assessment to their draft bills. The Prime Minister’s Secretariat General (SGG for Secretariat General du Gouvernement) is responsible for ensuring that impact studies are undertaken in the early stages of the drafting process. The State Council (Conseil d’Etat), which must be consulted on all draft laws and regulations, may reject a draft bill if the impact assessment is inadequate.

After experimenting with new online consultations, the Macron Administration is regularly using this means to achieve consensus on its major reform bills. These consultations are often open to professionals as well as citizens at large. Another innovation is to impose regular impact assessments after a bill has been implemented to ensure its maximum efficiency, revising, as necessary, provisions that do not work in favor of those that do. Finally, the Macron Administration aims to make all regulations and laws available online by 2022.

Over past decades, reforms have extended the investigative and decision-making powers of France’s Competition Authority. On April 11, 2019, France implemented the European Competition Network (ECN) Directive, which widens the powers of all European national competition authorities to impose larger fines and temporary measures. The Authority publishes its methodology for calculating fines imposed on companies charged with abuse of a dominant position. It issues specific guidance on competition law compliance, and government ministers, companies, consumer organizations, and trade associations now have the right to petition the authority to investigate anti-competitive practices.

While the Authority alone examines the impact of mergers on competition, the Minister of the Economy retains the power to request a new investigation or reverse a merger transaction decision for reasons of industrial development, competitiveness, or saving jobs.  The Competition Authority continues to simplify takeover and merger notifications with online procedures via a dedicated platform in 2020. Also in 2020, the Competition Authority issued new merger control guidelines that replaced the prior ones issued in 2013. The new guidelines clarify the Competition Authority’s procedural rules and increase transparency into the substantive merger review process. In particular, the new rules emphasize the Competition Authority’s ability to request documents from merging parties.

France’s budget documents are comprehensive and cover all expenditures of the central government. An annex to the budget also provides estimates of cost sharing contributions, though these are not included in the budget estimates. Last September, the French government published its first “Green Budget,” as an annex to the 2021 Finance Bill. This event attests to France’s strong commitment, notably under the OECD-led “Paris Collaborative on Green Budgeting” (which France joined in December 2017), to integrate “green” tools into the budget process. In its spring report each year, the National Economic Commission outlines the deficits for the two previous years, the current year, and the year ahead, including consolidated figures on taxes, debt, and expenditures. Since 1999, the budget accounts have also included contingent liabilities from government guarantees and pension liabilities.  The government publishes its debt data promptly on the French Treasury’s website and in other documents. Data on nonnegotiable debt is available 15 days after the end of the month, and data on negotiable debt is available 35 days after the end of the month.  Annual data on debt guaranteed by the state is published in summary in the CGAF Report and in detail in the Compte de la dette publique. More information can be found at:  https://www.imf.org/external/np/rosc/fra/fiscal.htm 

International Regulatory Considerations

France is a founding member of the European Union, created in 1957. As such, France incorporates EU laws and regulatory norms into its domestic law. France has been a World Trade Organization (WTO) member since 1995 and a member of GATT since 1948. While developing new draft regulations, the French government submits a copy to the WTO for review to ensure the prospective legislation is consistent with its WTO obligations. France ratified the Trade Facilitation Agreement in October 2015 and has implemented all of its TFA commitments.

Legal System and Judicial Independence

French law is codified into what is sometimes referred to as the Napoleonic Code, but is officially the Code Civil des Francais, or French Civil Code. Private law governs interactions between individuals (e.g., civil, commercial, and employment law) and public law governs the relationship between the government and the people (e.g., criminal, administrative, and constitutional law).

France has an administrative court system to challenge a decision by local governments and the national government; the State Council (Conseil d’Etat) is the appellate court. France enforces foreign legal decisions such as judgments, rulings, and arbitral awards through the procedure of exequatur introduced before the Tribunal de Grande Instance (TGI), which is the court of original jurisdiction in the French legal system.

France’s Commercial Tribunal (Tribunal de Commerce or TDC) specializes in commercial litigation.  Magistrates of the commercial tribunals are lay judges, who are well known in the business community and have experience in the sectors they represent. Decisions by the commercial courts can be appealed before the Court of Appeals. France’s judicial system is procedurally competent, fair, and reliable and is independent of the government.

The judiciary – although its members are state employees – is independent of the executive branch. The judicial process in France is known to be competent, fair, thorough, and time-consuming. There is a right of appeal. The Appellate Court (cour d’appel) re-examines judgments rendered in civil, commercial, employment or criminal law cases. It re-examines the legal basis of judgments, checking for errors in due process and reexamines case facts. It may either confirm or set aside the judgment of the lower court, in whole or in part. Decisions of the Appellate Court may be appealed to the Highest Court in France (cour de cassation).

The French Financial Prosecution Office (Parquet National Financier, or PNF), specialized in serious economic and financial crimes, was set up by a December 6, 2013 law and began its activities in 2014.

Laws and Regulations on Foreign Direct Investment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all sorts of remunerative activities. U.S. investment in France is subject to the provisions of the Convention of Establishment between the United States of America and France, which was signed in 1959 and remains in force. The rights it provides U.S. nationals and companies include:  rights equivalent to those of French nationals in all commercial activities (excluding communications, air transportation, water transportation, banking, the exploitation of natural resources, the production of electricity, and professions of a scientific, literary, artistic, and educational nature, as well as certain regulated professions like doctors and lawyers). Treatment equivalent to that of French or third-country nationals is provided with respect to transfer of funds between France and the United States. Property is protected from expropriation except for public purposes; in that case it is accompanied by payment that is just, realizable, and prompt.

Potential investors can find relevant investment information and links to laws and investment regulations at  http://www.businessfrance.fr/ .

Competition and Antitrust Laws

Major reforms have extended the investigative and decision-making powers of France’s Competition Authority. France implemented the European Competition Network or ECN Directive on April 11, 2019, allowing the French Competition Authority to impose heftier fines (above €3 million / $3.5 million) and temporary measures to prevent an infringement that may cause harm. The Authority issues decisions and opinions mostly on antitrust issues, but its influence on competition issues is growing. For example, following a complaint in November 2019 by several French, European, and international associations of press publishers against Google over the use of their content online without compensation, the Authority ordered the U.S. company to start negotiating in good faith with news publishers over the use of their content online. In another matter, on December 20, 2019, Google was fined €150 million ($177 million) for abuse of dominant position. Following an in-depth review of the online ad sector, the Competition Authority found Google Ads to be “opaque and difficult to understand” and applied in “an unfair and random manner.”

The Competition Authority launches regular in-depth investigations into various sectors of the economy, which may lead to formal investigations and fines. The Authority publishes its methodology for calculating fines imposed on companies charged with abuse of a dominant position. It issues specific guidance on competition law compliance. Government ministers, companies, consumer organizations and trade associations have the right to petition the authority to investigate anti-competitive practices. While the Authority alone examines the impact of mergers on competition, the Minister of the Economy retains the power to request a new investigation or reverse a merger transaction decision for reasons of industrial development, competitiveness, or saving jobs.

A new law on Economic Growth, Activity and Equal Opportunities (known as the “Macron Law”), adopted in August 2016, vested the Competition Authority with the power to review mergers and alliances between retailers ex-ante (beforehand). The law provides that all contracts binding a retail business to a distribution network shall expire at the same time. This enables the retailer to switch to another distribution network more easily. Furthermore, distributors are prohibited from restricting a retailer’s commercial activity via post-contract terms. The civil fine incurred for restrictive practices can now amount to up to five percent of the business’s revenue earned in France.

Expropriation and Compensation

In accordance with international law, the national or local governments cannot legally expropriate property to build public infrastructure without fair market compensation. There have been no expropriations of note during the reporting period.

Dispute Settlement

ICSID Convention and New York Convention

France is a member of the World Bank-based International Centre for Settlement of Investment Disputes (ICSID) Convention and a signatory to the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) which means local courts are obligated to enforce international arbitral awards under this system. The International Chamber of Commerce’s International Court of Arbitration (ICA) has been based in Paris since 1923.

France was one of the first countries to enact a modern arbitration law in 1980-1981. In 2011, the French Ministry of Justice issued Decree 2011-48, which introduced further international best practices into French arbitration procedural law. As a result, parties are free to agree orally to settle their disputes through arbitration, subject to standards of due process and a newly enacted principle of procedural efficiency and fairness.

Investor-State Dispute Settlement

The President of the High Civil Court of First Instance (Tribunal de Grande Instance) of Paris has the authority to issue orders related to ad-hoc international arbitration. Paris is the seat of the International Chamber of Commerce’s International Court of Arbitration, composed of representatives from 90 countries, that handles investment as well as commercial disputes.

France does not have a bilateral investment treaty with the United States.   The European Commission directly negotiates on behalf of the EU on foreign direct investment since it is part of the EU Common Commercial Policy. In 2015, the EU agreed to pursue an investment court approach to investor-State dispute settlement. While this model is included in the Comprehensive Economic and Trade Agreement (CETA) with Canada and the EU-Vietnam FTA, no actual court has yet been established in any form or context; no disputes have been brought under these post-2015 treaties.

International Commercial Arbitration and Foreign Courts

French law provides conditions for the recognition and the enforcement of foreign arbitral awards in relation to the New York Convention. The provisions of French law are contained in the Code of Civil Procedure and the Code of Civil Enforcement Procedures. The recognition of judgments of foreign courts by French courts is possible, but judgements must be accompanied by the issuance of an exequatur – a legal document issued by a sovereign authority that permits the exercise or enforcement of a foreign judgement.  The French Civil Code additionally provides for several mechanisms of alternative dispute resolution (ADR) including out-of-court arbitration and conciliation where a judicial conciliator facilitates resolution of a dispute.

Bankruptcy Regulations

France has extensive and detailed bankruptcy laws and regulations. Any creditor, regardless of the amount owed, may file suit in bankruptcy court against a debtor. Foreign creditors, equity shareholders and foreign contract holders have the same rights as their French counterparts. Monetary judgments by French courts on firms established in France are generally made in euros.  Not bankruptcy itself, but bankruptcy fraud – the misstatement by a debtor of his financial position in the context of a bankruptcy – is criminalized. Under France’s bankruptcy code managers and other entities responsible for the bankruptcy of a French company are prevented from escaping liability by shielding their assets (Law 2012-346).  France has adopted a law that enables debtors to implement a restructuring plan with financial creditors only, without affecting trade creditors.  France’s Commercial Code incorporates European Directive 2014/59/EU establishing a framework for the recovery and resolution of claims on insolvent credit institutions and investment firms.  In the World Bank’s 2020 Doing Business Index, France ranked 32nd of 190 countries on ease of resolving insolvency.

The Bank of France, the country’s only credit monitor, maintains files on persons having written unfunded checks, having declared bankruptcy, or having participated in fraudulent activities. Commercial credit reporting agencies do not exist in France.

6. Financial Sector

Capital Markets and Portfolio Investment

There are no administrative restrictions on portfolio investment in France, and there is an effective regulatory system in place to facilitate portfolio investment. France’s open financial market allows foreign firms easy access to a variety of financial products, both in France and internationally. France continues to modernize its marketplace; as markets expand, foreign and domestic portfolio investment has become increasingly important. As in most EU countries, France’s listed companies are required to meet international accounting standards. Some aspects of French legal, regulatory, and accounting regimes are less transparent than U.S. systems, but they are consistent with international norms. Foreign banks are allowed to establish branches and operations in France and are subject to international prudential measures. Under IMF Article VIII, France may not impose restrictions on the making of payments and transfers for current international transactions without the (prior) approval of the Fund.

Foreign investors have access to all classic financing instruments, including short-, medium-, and long-term loans, short- and medium-term credit facilities, and secured and non-secured overdrafts offered by commercial banks. These assist in public offerings of shares and corporate debt, as well as mergers, acquisitions and takeovers, and offer hedging services against interest rate and currency fluctuations. Foreign companies have access to all banking services. Most loans are provided at market rates, although subsidies are available for home mortgages and small business financing.

Euronext Paris (also known as Paris Bourse) is part of a regulated cross-border stock exchange located in six European countries. Euronext Growth is an alternative exchange for medium-sized companies to list on a less regulated market (based on the legal definition of the European investment services directive), with more consumer protection than the Marché Libre still used by a couple hundred small businesses for their first stock listing. A company seeking a listing on Euronext Growth must have a sponsor with status granted by Euronext and prepare a French language prospectus for a permit from the Financial Markets Authority (Autorité des Marchés Financiers or AMF), the French equivalent of the U.S. Securities and Exchange Commission. Small and medium-size enterprises (SMEs) may also list on Enternext, a subsidiary of the Euronext Group created in 2013. The bourse in Paris also offers Euronext Access, an unregulated exchange for Start-ups.

Money and Banking System

France’s banking system recovered gradually from the 2008-2009 global financial crises and passed the 2018 stress tests conducted by the European Banking Authority. In the context of the COVID-19 outbreak, the European Banking Authority (EBA) postponed the EU-wide stress test to 2021 as a measure to temporarily alleviate the acute operational burden for banks. The EBA launched the EU-wide stress test exercise in January 2021 and its results will be published at the end of July 2021.

Four French banks were ranked among the world’s 20 largest as of January 2021 (BNP Paribas SA; Crédit Agricole Group, Société Générale SA, Groupe BPCE). The assets of France’s top five banks totaled $9.5 trillion in 2020. Acting on a proposal from France’s central bank, Banque de France, in March 2020, the High Council for Financial Stability (HCSF) instructed the country’s largest banks to decrease the “countercyclical capital buffer” from 0.25 percent to zero percent of their bank’s risk-weighted assets, thereby increasing liquidity to help mitigate the impact of the pandemic-induced recession. As of March 2021, banks maintained the zero percent countercyclical capital buffer with no intention to increase it before the end of 2022, at the earliest. The HCSF considered the risks to financial stability remain high, due to the impact of the crisis on the accounts of financial and non-financial actors. Firms increased their debt significantly in 2020, even if this was accompanied by an almost equivalent increase in their cash position. HCSF data highlighted the heterogeneity of the impact, as some companies were significantly weakened by the crisis, while others remain unaffected.   Banque de France is a member of the Eurosystem, which groups together the European Central Bank (ECB) and the national central banks of all countries that have adopted the euro. Banque de France is a public entity governed by the French Monetary and Financial Code. The conditions whereby it conducts its missions on national territory are set out in its Public Service Contract. The three main missions are monetary strategy; financial stability, together with the High Council of financial stability (Haut Conseil de la Stabilité Financière) which implements macroprudential policy; and the provision of economic services to the community. In addition, it participates in the preparation and implementation of decisions taken centrally by the ECB Governing Council.

Banque de France is a member of the Eurosystem, which groups together the European Central Bank (ECB) and the national central banks of all countries that have adopted the euro. Banque de France is a public entity governed by the French Monetary and Financial Code. The conditions whereby it conducts its missions on national territory are set out in its Public Service Contract. The three main missions are monetary strategy; financial stability, together with the High Council of financial stability (Haut Conseil de la Stabilité Financière) which implements macroprudential policy; and the provision of economic services to the community. In addition, it participates in the preparation and implementation of decisions taken centrally by the ECB Governing Council.

Foreign banks can operate in France either as subsidiaries or branches but need to obtain a license. Credit institutions’ licenses are generally issued by France’s Prudential Authority (Autorité de Contrôle Prudentiel et de Résolution or ACPR) which reviews whether certain conditions are met (e.g., minimum capital requirement, sound and prudent management of the bank, compliance with balance sheet requirements, etc.). Both EU law and French legislation apply to foreign banks. Foreign banks or branches are additionally subject to prudential measures and must provide periodic reports to the ACPR regarding operations in France, including detailed reports on their financial situation. At the EU level, the ‘passporting right’ allows a foreign bank settled in any EU country to provide their services across the EU, including France. There are about 941 credit institutions authorized to carry on banking activities in France; the list of foreign banks is available on this website:  https://www.regafi.fr/spip.php?page=results&type=advanced&id_secteur=3&lang=en&denomination=&siren=&cib=&bic=&nom=&siren_agent=&num=&cat=01-TBR07&retrait=0 

Foreign Exchange and Remittances

Foreign Exchange

For purposes of controlling exchange, the French government considers foreigners as residents from the time they arrive in France. French and foreign residents are subject to the same rules; they are entitled to open an account in a foreign currency with a bank established in France, and to establish accounts abroad. They must report all foreign accounts on their annual income tax returns, and money earned in France may be freely converted into dollars or any other currency and transferred abroad.

France is one of nineteen countries (known collectively as the Eurozone) that use the euro currency. Exchange rate policy for the euro is handled by the European Central Bank, located in Frankfurt, Germany. The average euro to USD exchange rate from March 1, 2020 to March 1, 2021 was 1 USD to 0.86 euro.

France is a founding member of the OECD-based Financial Action Task Force (FATF, a 39-member intergovernmental body). As reported in the Department of State’s France Report on Terrorism, the French government has a comprehensive anti-money laundering/ counterterrorist financing (AML/CTF) regime and is an active partner in international efforts to control money laundering and terrorist financing.  Tracfin, the French government’s financial intelligence unit, is active within international organizations, and has signed new bilateral agreements with foreign countries.

Remittance Policies

France’s investment remittance policies are stable and transparent. All inward and outward payments must be made through approved banking intermediaries by bank transfers. There is no restriction on the repatriation of capital. Similarly, there are no restrictions on transfers of profits, interest, royalties, or service fees. Foreign-controlled French businesses are required to have a resident French bank account and are subject to the same regulations as other French legal entities. The use of foreign bank accounts by residents is permitted.

Sovereign Wealth Funds

France has no sovereign wealth fund per se (none that use that nomenclature) but does operate funds with similar intent. The Public Investment Bank (Bpifrance) supports small and medium enterprises (SMEs), larger enterprises (Entreprises de Taille Intermedaire), and innovating businesses with over €36 billion ($42.5 billion) assets under management. The government strategy is defined at the national level and aims to fit with local strategies.  Bpifrance may hold direct stakes in companies, hold indirect stakes via generalist or sectorial funds, venture capital, development or transfer capital.  In November 2020, Bpifrance became a member of the One Planet Sovereign Wealth Funds (OPSWF) international initiative, which federates international sovereign wealth funds mobilized to contribute to the transition towards a more sustainable economy. Bpifrance stepped up its support for the ecological and energy transition, aiming to reach nearly €6 billion ($7.1 billion) per year by 2023.

7. State-Owned Enterprises

The 11 listed entities in which the French State maintains stakes at the federal level are Aeroports de Paris (50.63 percent); Airbus Group (10.95 percent); Air France-KLM (14.29 percent, although expected to increase temporarily to nearly 30 percent as part of a March 2021 bailout package); EDF (83.58 percent), ENGIE (23.64 percent), Eramet (25.57 percent), La Française des Jeux (FDJ) (21.91 percent), Orange (a direct 13.39 percent stake and a 9.60 percent stake through Bpifrance), Renault (15.01 percent), Safran (11.23 percent), and Thales 25.68 percent). Unlisted companies owned by the State include SNCF (rail), RATP (public transport), CDC (Caisse des depots et consignations) and La Banque Postale (bank). In all, the government has majority and minority stakes in 88 firms, in a variety of sectors.

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

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

Privatization Program

The government will temporarily increase its stake in Air France-KLM, which was severely impacted by the COVID-19 crisis. Although terms are still being negotiated as of March 2021, it is likely France’s stake in the entity will increase from 14.3 percent to nearly 30 percent.

The government was due to privatize many large companies in 2019, including ADP and ENGIE in order to create a €10 billion ($11.8 billion) fund for innovation and research. However, the program was delayed because of political opposition to the privatization of airport manager ADP, regarded as a strategic asset to be protected from foreign shareholders. The government succeeded in selling in November 2019 a 52 percent stake in gambling firm FDJ. The government continues to maintain a strong presence in some sectors, particularly power, public transport, and defense industries.

10. Political and Security Environment

France is a politically stable country. Large demonstrations and protests occur regularly (sometimes organized to occur simultaneously in multiple French cities); these normally do not result in violence. When faced with imminent business closures, on rare occasions French trade unions have resorted to confrontational techniques such as setting plants on fire, planting bombs, or kidnapping executives or managers.

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

Between 2012 and 2020, 270 people have been killed in terrorist attacks in France, including the January 2015 assault on the satirical magazine Charlie Hebdo, the November 2015 coordinated attacks at the Bataclan concert hall, national stadium, and streets of Paris, and the 2016 Bastille Day truck attack in Nice. While the terrorist threat remains high, the threat is lower than its peak in 2015. Terrorist attacks have since been smaller in scale. Security services remained concerned with lone-wolf attacks, carried out by individuals already in France, inspired by or affiliated with ISIS.  French security agencies continue to disrupt plots and cells effectively. Despite the spate of recent small-scale attacks, France remains a strong, stable, democratic country with a vibrant economy and culture. Americans and investors from all over the world continue to invest heavily in France.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
French Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
French Gross Domestic Product (GDP) ($M USD) 2019 $2,762,036 2019 $ 2,715,518 www.worldbank.org/en/country
Foreign Direct Investment French Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in France ($M USD, stock positions) 2019 $69,160 2019 $83,826 BEA data available at
https://apps.bea.gov/
international/factsheet/
France’s FDI in the United States ($M USD, stock positions) 2019 $258,106 2019 $310,743 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 33.2% 2019 32.1% UNCTAD data available at

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

* French Source:  INSEE database for GDP figures and French Central Bank (Banque de France) for FDI figures. Accessed on March 19, 2021.  

Table 3: Sources and Destination of FDI
Direct Investment from/in France Economy Data 2019
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 868,686 100% Total Outward 1,532,818 100%
Luxembourg 170,622 19% United States 243,567 16%
The Netherlands 117,249 13% The Netherlands 203,426 13%
United Kingdom 115,987 13% Belgium 159,478 10%
Switzerland 103,230 12% United Kingdom 144,689 9%
Germany 82,985 9% Italy 96,470 6%
“0” reflects amounts rounded to +/- USD 500,000.

*Note: These figures represent the stock of foreign direct investment (FDI), not the annual flow of FDI.  The United States was the top investor by flow of FDI in 2020.

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets as of March 2021
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 2,857,162 100% All Countries 812,317 100% All Countries 2,044,846 100%
Luxembourg 494,945 17% Luxembourg 283,555 35% United States 275,087 13%
United States 374,725 13% United States 99,638 12% The Netherlands 244,554 12%
The Netherlands 299,787 10% Germany 74,835 9% Luxembourg 211,390 10%
Germany 216,963 8% Ireland 72,217 9% Italy 185,959 9%
United Kingdom 216,814 8% The Netherlands 55,323 7% United Kingdom 179,367 9%