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Rwanda

Executive Summary

The data in this report reflects the economic situation in Rwanda before the COVID-19 pandemic.  Rwanda’s main economic drivers are tourism, hospitality, and exports of tea and coffee.  All of these sectors have either been completely shut down due to the pandemic or severely reduced.  The International Monetary Fund has forecasted that COVID-19 will result in the Rwandan economy having the lowest rate of growth, 2 percent, since the 1994 Genocide with a return to 6-7 percent growth by 2022. It is notable that the underlying regulatory environment and pro-growth government has not changed, leaving open the possibility that Rwanda could be back to its February 2020 level of economic performance by 2022.

The Government of Rwanda

Rwanda has a history of strong economic growth, high rankings in the World Bank’s Ease of Doing Business Index, and a reputation for low corruption.  The Government of Rwanda (GOR) has taken a series of policy reforms intended to improve Rwanda’s investment climate and increase foreign direct investment (FDI).  In 2018, the GOR implemented additional reforms to decrease bureaucracy in: construction permitting; establishing electrical service; and customs processing times for exporters.  The GOR also introduced online processes for certificates of origin and phytosanitary approvals.  The country presents a number of FDI opportunities, including:  manufacturing; infrastructure; energy distribution and transmission; off-grid energy; agriculture and agro-processing; low cost housing; tourism; services; and information and communications technology (ICT).  The Investment Code provides equal treatment between foreigners and nationals for certain operations, free transfer of funds, and compensation against expropriation; the 2008 U.S.-Rwanda Bilateral Investment Treaty (BIT) reinforced this treatment.

According to the National Institute of Statistics for Rwanda (NISR), Rwanda attracted USD 462 million in FDI inflows in 2018, representing five percent of GDP.  Rwanda had a total USD 3.2 billion of FDI stock in 2018, the latest year data is available.  In 2019, the Rwanda Development Board (RDB) reported registering USD 2.46 billion in new investment commitments (a 22.6 percent increase from 2018), mainly in energy, manufacturing, construction, agriculture, services and mining.  FDI accounted for 37 percent of registered projects.

In February 2020, Standard and Poors upgraded Rwanda’s rating from B to B+, citing strong and continued growth prospects. The COVID pandemic has obviously changed this outlook.  Government debt has rapidly increased over the past few years to more than 50 percent of GDP, but most of these loans are on highly concessionary terms.  The GOR is expected to add to this debt as part of their COVID response.  Development Institutions such as the World Bank, African Development Bank , International Monetary Fund and others, have lessened or completely suspended debt repayment terms for less developed countries such as Rwanda as a result of COVID-19.  Many companies report that although it is easy to start a business in Rwanda, it can be difficult to operate a profitable or sustainable business due to a variety of hurdles and constraints.  These include the country’s landlocked geography and resulting high freight transport costs, a small domestic market, limited access to affordable financing, payment delays with government contracts, and inconsistent enforcement of laws and regulations.  Government interventions designed to support overall economic growth can significantly impact investors, with some expressing frustration that they were not consulted prior to the abrupt implementation of government policies and regulations that affected their business.  A number of investors have stated that tax incentives included in deals signed by RDB are not honored by the lead tax agency, the Rwanda Revenue Authority (RRA).  Similarly, some investors stated that Rwanda’s immigration authority does not always honor the employment and immigration commitments of investment certificates and deals.  Some investors reported difficulties in registering patents and having rules against infringement of their property rights enforced in a timely manner.    While electricity and water supply have improved, businesses may continue to experience intermittent outages, especially during peak times, due to distribution challenges.  Generating power is not an issue with the GOR as they are planning to develop more than100 percent of their power generation needs through various power projects.  Some investors report difficulties in obtaining foreign exchange from time-to-time, which could be attributed to Rwanda running a persistent trade deficit.

Table 1: Key Metrics and Rankings 
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 51 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 38 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 94 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 N/A https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 780 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

Note:  According to NISR, stock of U.S. FDI in the country stood at USD 182.67 million in 2018 (most recent data available)

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Over the past decade, the GOR has undertaken a series of policy reforms intended to improve the investment climate, wean Rwanda’s economy off foreign assistance, and increase FDI levels.   Rwanda enjoyed strong economic growth up until March 2020, averaging over seven percent  annually over the last decade, high rankings in the World Bank’s Doing Business report (38 out of 190 economies in 2020, and second best in African, compared to 29 in 2019 and 41 in 2018), and a reputation for low corruption.  GDP growth in 2020 is expected to be negative due to the dampening economic effects of COVID-19.  The RDB was established in 2006 to fast track investment projects by integrating all government agencies responsible for the entire investor experience under one roof.  This includes key agencies responsible for business registration, investment promotion, environmental compliance clearances, export promotion and other necessary approvals.  New investors can register online at the RDB’s website and receive a certificate in as fast as six hours, and the agency’s “one-stop shop” helps investors secure required approvals, certificates, and work permits.  RDB states its investment priorities are: innovation and technology, particularly ICT and green innovation; tourism and real estate; agriculture and food security; energy and infrastructure; and mining.

In 2020, The World Bank Ease of Doing Business report indicated that Rwanda made doing business easier by exempting newly formed small and medium businesses from paying for a trading license during their first two years of operation.  In addition, the GOR reduced the time to obtain water and sewage connections in order to facilitate construction permits and improved building controls by requiring construction professionals to obtain liability insurance.  The country also upgraded its power grid infrastructure and improved its regulations on weekly rest, working hours, severance pay and reemployment priority rules.

A number of investors have said a top concern affecting their operations in Rwanda is that tax incentives included in deals negotiated or signed by the RDB are not fully honored by the RRA.   Investors further cite the inconsistent application of tax incentives and import duties as a significant challenge to doing business in Rwanda.  For example, a few investors have said that local customs officials have attempted to charge them duties based on their perception of the value of an import, regardless of the actual purchase price.

Under Rwandan law, foreign firms should receive equal treatment with regard to taxes, as well as access to licenses, approvals, and procurement.  Foreign firms should receive VAT tax rebates within 15 days of receipt by the RRA, but firms complain that the process for reimbursement can take months, and occasionally years.  Refunds can be further held up pending the results of RRA audits.  A number of investors cited punitive retroactive fines following audits that were concluded after many years.  RRA aggressively enforces tax requirements and imposes penalties for errors – deliberate or not – in tax payments.  Investors cited lack of coordination among ministries, agencies and local government (districts) leading to inconsistencies in implementation of promised incentives and other facilitation.  Others pointed to lack of clarity on who the regulator is on certain matters.  The U.S. Treasury Department’s Office of Technical Assistance (OTA) has provided tax consultants to RRA to review auditing practices in Rwanda.  The OTA program concluded in 2020 and produced a standardized tax audit handbook for RRA’s auditors to use.

Limits on Foreign Control and Right to Private Ownership and Establishment

Rwanda has neither statutory limits on foreign ownership or control nor any official economic or industrial strategy that discriminates against foreign investors.  Local and foreign investors have the right to own and establish business enterprises in all forms of remunerative activity.

Foreign nationals may hold shares in locally incorporated companies.  The GOR has continued to privatize state holdings, although the government, ruling party, and military continue to play a dominant role in Rwanda’s private sector.  Foreign investors can acquire real estate but with a general limit on land ownership.  While local investors can acquire land through leasehold agreements that extend to a maximum of 99 years, foreign investors can be restricted to leases up to 49 years with the possibility of renewal.  The government published a new Investment Code in 2015 aimed at providing tax breaks and other incentives to boost FDI.  The Investment Code includes equal treatment for foreigners and nationals with regard to certain operations, free transfer of funds, and compensation against expropriation.  In April 2018, Rwanda introduced new laws to curb capital flight.  Management, loyalty and technical fees a local subsidiary can remit to its related non-residential companies (parent company) are capped at two percent of turnover.  Companies resolving to go beyond the cap are subject to a 30 percent corporate tax on turnover, in addition to 15 percent withholding tax and 18 percent reserve charge.

Other Investment Policy Reviews

In February 2019, The World Trade Organization (WTO) published a Trade Policy Review for the East African Community (EAC) covering Burundi, Kenya, Rwanda, Tanzania and Uganda.  The report is available at: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/tpr/s/*)%20and%20((%20@Title=%20rwanda%20)%20or%20(@CountryConcerned=%20rwanda))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true# 

The Rwanda annex to the report is available at:   https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?Id=251521&filename=q/WT/TPR/S384-04.pdf 

https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?Id=251521&filename=q/WT/TPR/S384-04.pdf 

Business Facilitation

RDB offers one of the fastest business registration processes in Africa.  New investors can register online at RDB’s website (http://org.rdb.rw/busregonline ) or register in person at RDB offices in Kigali.  Once a certificate of registration is generated, company tax identification and employer social security contribution numbers are automatically generated.  The RDB “One Stop Center” assists firms in acquiring visas and work permits, connections to electricity and water, and support in conducting required environmental impact assessments.

RDB is prioritizing additional reforms to improve the investment climate.  By 2020, it hopes to amend the land policy to merge issuance of freehold titles and occupancy permits; introduce online notarization of property transfers; implement small claims procedure to allow self-representation in court and reduce attorney costs; launch electronic auctioning to reduce time to enforce judgments, reducing court fees and allowing payments electronically; and establish a commercial division at the Court of Appeal to fast-track commercial dispute resolution.

Rwanda promotes gender equality and has pioneered a number of projects to promote women entrepreneurs, including the creation of the Chamber of Women Entrepreneurs within the Rwanda Private Sector Federation (PSF).  Both men and women have equal access to investment facilitation and protections.

Outward Investment

The government does not have a formal program to provide incentives for domestic firms seeking to invest abroad, but there are no restrictions in place limiting such investment.

3. Legal Regime

Transparency of the Regulatory System

The GOR generally employs transparent policies and effective laws largely consistent with international norms.  Rwanda is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures.  The Rwanda eRegulations system is an online database designed to bring transparency to investment procedures in Rwanda.  Investors can find further information on administrative procedures at:  https://businessprocedures.rdb.rw/.

Rwandan laws and regulations are published in the Government Gazette and online at http://primature.gov.rw/index.php?id=97 .  Government institutions generally have clear rules and procedures, but implementation can sometimes be uneven.  Investors have cited breach of contracts and incentive promises, and the short time given to comply with changes in government policies, as hurdles to comply with regulations.  For example, in 2019 the GOR submitted a draft law that was passed by Parliament the same year, banning single use plastic containers.  Investors in the beverage and agro-processing sectors expressed concern that the law would have a serious impact on their operations, that alternative packaging was not available in some cases, and that the GOR did not consult effectively with stakeholders before submitting it.  The law built on a ban on the manufacture and use of polyethylene bags introduced in 2008.

There is no formal mechanism to publish draft laws for public comment, although civil society sometimes has the opportunity to review them.  There is no informal regulatory process managed by nongovernmental organizations.  Regulations are usually developed rapidly in an effort to achieve policy goals and sometimes lack a basis in scientific or data-driven assessments.  Scientific studies, or quantitative analysis (if any) conducted on the impact of regulations, are not generally made publicly available for comment.  Regulators do not publicize comments they receive.  Public finances and debt obligations are generally made available to the public before budget enactment.  Finances for State Owned Enterprises (SOE) are not publicly available but may be requested by civil society organizations with a legitimate reason.

There is no government effort to restrict foreign participation in industry standards-setting consortia or organizations.  Legal, regulatory, and accounting systems are generally transparent and consistent with international norms but are not always enforced.  The Rwanda Utility Regulation Agency (RURA), the Office of the Auditor General (OAG), the Anticorruption Division of the RRA, the Rwanda Standards Board (RSB), the National Tender Board, and the Rwanda Environment Management Authority also enforce regulations.  Consumer protection associations exist but are largely ineffective.  The business community has been able to lobby the government and provide feedback on some draft government policies through the PSF, a business association with strong ties to the government.  In some cases, the PSF has welcomed foreign investors to positively influence government policies.  However, some investors have criticized the PSF for advocating to businesses about government policies rather than advocating business concerns to the government.

The American Chamber of Commerce launched in November 2019, and a European Chamber of Commerce launched in March 2020.  Both are coordinating policy advocacy efforts to improve the business environment for American, European and other foreign firms in Rwanda.  The Chinese also have a Chamber of Commerce registered in China and active in Rwanda.

International Regulatory Considerations

Rwanda is a member of the EAC Standards Technical Management Committee. Approved EAC measures are generally incorporated into the Rwandan regulatory system within six months and are published in the National Gazette like other domestic laws and regulations.  Rwanda is also a member of the standards technical committees for the International Standardization Organization, the African Organization for Standardization, and the International Electrotechnical Commission. Rwanda is a member of the International Organization for Legal Metrology and the International Metrology Confederation. The Rwanda Standards Board represents Rwanda at the African Electrotechnical Commission. Rwanda has been a member of the WTO since 22 May 1996 and notifies the WTO Committee on Technical Barriers to Trade on draft technical regulations.

Legal System and Judicial Independence

The Rwandan legal system was originally based on the Belgian civil law system. However, since the renovation of the legal framework in 2002, the introduction of a new constitution in 2003, and the country’s entrance to the Commonwealth in 2009, there is now a mixture of civil law and common law (hybrid system). Rwanda’s courts address commercial disputes and facilitate enforcement of property and contract rights. Rwanda’s judicial system suffers from a lack of resources and capacity but continues to improve. Investors occasionally state that the government takes a casual approach to contract sanctity and sometimes fails to enforce court judgments in a timely fashion. The government generally respects judicial independence, though domestic and international observers have noted that outcomes in high-profile politically sensitive cases appeared predetermined.

In August 2018, the GOR created a Court of Appeal in an attempt to reduce backlogs and expedite the appeal process without going to the Supreme Court. The new Court of Appeal arbitrates cases handled by the High Court, Commercial High Court, and Military High Court. The Supreme Court continues to decide on cases of injustice filed from the Ombudsman Office and on constitutional interpretation. Based on Article 15 of Law 76/2013 of 11/09/2013, the Office of the Ombudsman has the authority to request that the Supreme Court reconsider and review judgments rendered at the last instance by ordinary, commercial, and military courts, if there is any persistence of injustice.  More information on the review process can be found at https://ombudsman.gov.rw/en/?Court-Judgement-Review-Unit-1375 . A Tax Court is yet to be established in Rwanda. In 2019, the RDB announced the government’s intent to create a commercial division at the Court of Appeal to fast-track resolution on commercial disputes.

Laws and Regulations on Foreign Direct Investment

National laws governing commercial establishments, investments, privatization and public investments, land, and environmental protection are the primary directives governing investments in Rwanda.  Since 2011, the government reformed tax payment processes and enacted additional laws on insolvency and arbitration.  The 2015 Investment Code establishes policies on FDI, including dispute resolution (Article 9).  The RDB keeps investment-related regulations and procedures at:  http://businessprocedures.rdb.rw .

According to a WTO policy review report dated January 2019, Rwanda is not a party to any countertrade and offsetting arrangements, or agreements limiting exports to Rwanda.

A new property tax law was passed in August 2018.  The new law removes the provision that taxpayers must have freehold land titles to pay property taxes.  Small and medium enterprises (SMEs) will receive a two-year tax trading license exemption upon establishment.

In April 2018, the GOR passed a new law to streamline income tax administration and to clarify the law.  The new law can be accessed here: http://www.primature.gov.rw/media-publication/publication/latest-offical-gazettes.html?no_cache=1&tx_drblob_pi1%5BdownloadUid%5D=464 .

Competition and Anti-Trust Laws

Since 2010, a Competition and Consumer Protection Unit was created at the Ministry of Trade and Industry (MINICOM) to address competition and consumer protection issues.  The government is setting up the Rwanda Inspectorate, Competition and Consumer Protection Authority (RICA), a new independent body with the mandate to promote fair competition among producers.  The body will reportedly aim to ensure consumer protection and enforcement of standards.  To read more on competition laws in Rwanda, please visit:  http://www.minicom.gov.rw/index.php?id=136.

Market forces determine most prices in Rwanda, but, in some cases, the GOR intervenes to fix prices for items considered sensitive in Rwanda.  RURA, in consultation with relevant ministries, sets prices for petroleum products, water, electricity, and public transport.  MINICOM and the Ministry of Agriculture have fixed farm gate prices, or the market value of a cultivated product minus the selling costs, for agricultural products like coffee, maize, and Irish potatoes from time to time.  On international tenders, a 10 percent price preference is available for local bidders, including those from regional economic integration bodies in which Rwanda is a member.

Some U.S. companies have expressed frustration that while authorities require them to operate as a formal enterprise that meets all Rwandan regulatory requirements, some local competitors are informal businesses that do not operate in full compliance with all regulatory requirements.  Other investors have claimed unfair treatment compared to SOEs, ruling party-aligned or politically connected business competitors in securing public incentives and contracts.

More information on specific types of agreements, decisions and practices considered to be anti-competitive, or abuse of dominant position, in Rwanda can be found here: https://rura.rw/fileadmin/Documents/docs/ml08.pdf 

Expropriation and Compensation

The 2015 Investment Code forbids the expropriation of investors’ property in the public interest unless the investor is fairly compensated.  A new expropriation law came into force in 2015, which included more explicit protections for property owners.

A 2017 study by Rwanda Civil Society Platform argues that the government conducts expropriations on short notice and does not provide sufficient time or support to help landowners fairly negotiate compensation.  The report includes a survey that found only 27 percent of respondents received information about planned expropriation well in advance of action.  While mechanisms exist to challenge the government’s offer, the report notes that landowners are required to pay all expenses for the second valuation, a prohibitive cost for rural farmers or the urban poor.  Media have reported that wealthier landowners have the ability to challenge valuations and have received higher amounts.  Political exiles and other embattled opposition figures have been involved in taxation lawsuits that resulted in their “abandoned properties” being sold at auction, allegedly at below market values.

Dispute Settlement

ICSID Convention and New York Convention

Rwanda is signatory to the International Center for Settlement of Investment Disputes (ICSID) and the African Trade Insurance Agency (ATI).  ICSID seeks to remove impediments to private investment posed by non-commercial risks, while ATI covers risk against restrictions on import and export activities, inconvertibility, expropriation, war, and civil disturbances.

Rwanda ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2008.

Investor-State Dispute Settlement

Rwanda is a member of the East African Court of Justice for the settlement of disputes arising from or pertaining to the EAC.  Rwanda has also acceded to the 1958 New York Arbitration Convention and the Multilateral Investment Guarantee Agency convention.  Under the U.S.-Rwanda BIT, U.S. investors have the right to bring investment disputes before neutral, international arbitration panels.  Disputes between U.S. investors and the GOR in recent years have been resolved through international arbitration, court judgments, or out of court settlements.  Judgments by foreign courts and contract clauses that abide by foreign law are accepted and enforced by local courts, though they lack capacity and experience to adjudicate cases governed by non-Rwandan law.  There have been a number of private investment disputes in Rwanda, though the government has yet to stand as complainant, respondent, or third party in a WTO dispute settlement.  Rwanda has been a party to two cases at ICSID since Rwanda became a member in 1963; one of these cases is an ongoing case brought by an American investor against Rwanda.  SOEs are also subject to domestic and international disputes.  SOEs and ruling party-owned companies party to suits have both won and lost judgments in the past.

International Commercial Arbitration and Foreign Courts

In 2012, the GOR launched the Kigali International Arbitration Center (KIAC).   KIAC case handling rules are modeled on the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules.  By July 2019, KIAC reviewed 115 cases worth USD 64 million in claims involving petitions from 19 different nationalities since 2012.  Some businesses report being pressured to use the Rwanda-based KIAC for the seat of arbitration in contracts signed with the GOR.  Because KIAC has a short track record and its domiciled in Rwanda, these companies would prefer arbitration take place in a third country, and some have reported difficulty in securing international financing due to KIAC provision in their contracts.

Bankruptcy Regulations

Rwanda ranks 38 out of 190 economies for resolving insolvency in the World Bank’s 2020 Doing Business Report and is number two in Africa.  It takes an average of two and a half years to conclude bankruptcy proceedings in Rwanda.  The recovery rate for creditors on insolvent firms was reported at 19.3 cents on the dollar, with judgments typically made in local currency.

In April 2018, the GOR instituted a new Insolvency and Bankruptcy Law.  One major change is the introduction of an article on “pooling of assets” allowing creditors to pursue parent companies and other members of the group, in case a subsidiary is in liquidation.  The new law can be accessed here:  http://org.rdb.rw/wp-content/uploads/2018/06/Insolvency-Law-OGNoSpecialbisdu29April2018.pdf 

4. Industrial Policies

Investment Incentives

The 2015 Investment Code offers a package of benefits and incentives to both domestic and foreign investors under certain conditions, including:

  • For an international company with its headquarters or regional office in Rwanda, a preferential corporate income tax rate of 0 percent;
  • For any investor, a preferential corporate income tax rate of 15 percent;
  • Corporate income tax holiday of up to seven years;
  • Exemption of customs tax for products used in Export Processing Zones (EPZ);
  • Exemption of capital gains tax;
  • VAT refund;
  • Accelerated depreciation; and
  • Immigration incentives.

Further details on benefits under the Investment Code can be accessed here:  http://businessprocedures.rdb.rw/media/Investiment_promotion_law.pdf .

Poorly coordinated efforts between the RDB, RRA, MINICOM, and the Directorate of Immigration and Emigration can lead to inconsistent application of incentives, according to investors.  Investors reported that tax incentives included in deals signed by the RDB are not honored by the RRA in all cases or sometimes not in a timely manner.  Additionally, investors continue to face challenges receiving payment for services rendered for GOR projects, VAT refund delays, and/or expatriation of profits.  In 2016, the GOR instituted a law governing public-private partnership (PPPs) as a step toward courting investments in key development projects.  The law provides a legal framework concerning establishment, implementation, and management of PPPs.  Detailed guidelines for the law can be accessed here:  http://rdb.rw/wp-content/uploads/2018/08/PPP-Guidelines.pdf 

Foreign Trade Zones/Free Ports/Trade Facilitation

Rwanda has established the Kigali Special Economic Zone (KSEZ), which was set up through the merger of former Kigali Free Trade Zone and the Kigali Industrial Park projects.  SEZs in Rwanda are regulated by the SEZ Authority of Rwanda (SEZAR), based at the RDB.  Land in KSEZ is acquired through Prime Economic Zone Secretariat, a private developer, under the regulations of SEZAR.  The price per square meter is USD 62, and the minimum size that can be acquired is one hectare.  Bonded warehouse facilities are now available both in and outside of Kigali for use by businesses importing duty-free materials.  The GOR has established a number of benefits for investors operating in the SEZs, including tax and land ownership advantages.  A company basing itself in the SEZ can also opt to be a part of the Economic Processing Zone.  A number of criteria must be satisfied in order to qualify, such as extensive records on equipment, materials and goods, suitable offices, security provisions, and a number of property constraints.

Holding an EPZ license will exempt a company from VAT, import duties, and corporate tax.  The company is then obliged to export a minimum of 80 percent of production.  Even after considering savings due to these government incentives, a few investors reported that land in the SEZs was significantly more expensive than land outside the zones.  The GOR has stated that there are no fiscal, immigration, or customs incentives beyond those provided in the 2015 Investment Code, though media has occasionally speculated that certain investors received additional incentives.  The negative list of goods prohibited under the EAC Customs Management Act applies in SEZs.  In November 2018, the GOR approved the Bugesera Special Economic Zone (BSEZ), located 45 minutes from Kigali.  Procedural information and cost involved in operating in SEZs can be accessed here: https://businessprocedures.rdb.rw/procedure/238/189?l=en .  The SEZ policy was revised in 2018.  Under the new policy, foreigners and locals may only lease land (formerly, foreign investors were able to purchase land outright in SEZ).  To read more on the new policy, please see: http://www.minicom.gov.rw/fileadmin/minicom_publications/documents/SEZ_Policy_-_January_2018_v2.pdf 

Rwanda created the Export Growth Facility (EGF) in 2015, with an initial capital of RWF 500 million, administered by the Development Bank of Rwanda (BRD).  German KfW Development Bank injected EUR 8.5 million in support of the fund.  The pilot program targets SMEs with export sales below USD 1 million.  Priority sectors include horticulture, agro-processing, and manufacturing.  The facility has three windows: an investment catalyst fund, a matching grant fund for market entry costs, and an export guarantee facility.  Investment catalyst funds support private sector investments in export-orientated production through a 6.5 percent subsidy on market interest rates (normally between 16-20 percent).  The matching grant fund provides grants (50 percent of the need) for expenditure on specific market entry costs (export strategy elaboration, export promotion, compliance with standards, etc.).  The export guarantee fund provides short-term guarantees to commercial banks financing exporters’ pre- and post-shipment operations.  The export guarantee component is not yet operational.  The facility supports both locally and foreign-owned companies in Rwanda; at least one American company has already received a loan.  Rwanda created the Business Development Fund (BDF) in 2011 to provide support to SMEs in credit guarantees, matching grants, asset leasing, and advisory services.  BDF works with banks to provide guarantees between 50-75 percent of required collaterals.  The maximum guarantee is RWF 500 million for agriculture projects and RWF 300 million for other sectors, for a maturity period of up to 10 years.

The GOR also manages the Rwanda Green Fund (FONERWA) to spur investment in green innovation.  The UK Aid Department for International Development, KFW, and other donors have invested in the fund.  FONERWA claims projects it supports have created more than 137,000 green jobs.

Performance and Data Localization Requirements

There is no legal obligation for nationals to own shares in foreign investments or requirement that shares of foreign equity be reduced over time.  However, the government strongly encourages local participation in foreign investments.   There is no requirement for private companies to store their proprietary data in Rwanda.  There is also no requirement for foreign IT providers to turn over source code and/or provide access to encryption technology.  IT companies dealing with government data cannot store it outside Rwanda or transfer it without GOR approval. Rwandans private data must be stored in Rwanda. There is no formal requirement that a certain number of senior officials or board members be citizens of Rwanda.  Under the 2015 Investment Code, the government allows registered those who invest a minimum of USD 250,000 to hire up to three expatriate employees, without the need to conduct a labor market test in Rwanda.  Investors who wish to hire more than three expatriate employees must conduct a labor market test, unless the available position is listed on Rwanda’s “Occupations in Demand” list.  The Directorate General of Immigration and Emigration does not always honor the employment and immigration commitments of investment certificates and deals, according to a number of investors.

While the government does not impose conditions on the transfer of technology, it does encourage foreign investors, without legal obligation, to transfer technology and expertise to local staff to help develop Rwanda’s human capital.  There is no legal requirement that investors must purchase from local sources or export a certain percentage of their output, though the government offers tax incentives for the latter.  Unless stipulated in a contract or memorandum of understanding characterizing the purchase of privatized enterprises, performance requirements are not imposed as a condition for establishing, maintaining, or expanding other investments.  Such requirements are imposed chiefly as a condition to tax and investment incentives.  The GOR is not involved in assessing the type and source of raw materials for performance, but the RSB determines quality standards for some product categories.

5. Protection of Property Rights

Real Property

The law protects and facilitates acquisition and disposition of all property rights.  Investors involved in commercial agriculture have leasehold titles and are able to secure property titles, if necessary.  The 2015 Investment Code states that investors shall have the right to own private property, whether individually or in association with others.  Foreign investors can acquire real estate, though there is a general limit on land ownership.  While local investors can acquire land through leasehold agreements that extend to 99 years, the lease period for foreigners has been as limited to 49 years, in some cases.  Such leases are theoretically renewable, but the law is new enough that foreigners generally have not yet attempted to renew a lease.  Mortgages are a nascent but growing financial product in Rwanda, increasing from 770 properties in 2008 to 13,394 in 2017, according to the RDB.

Intellectual Property Rights

The 2015 Investment Code guarantees protection of investors’ intellectual property rights (IPR), and legitimate rights related to technology transfer.  IPR legislation covering patents, trademarks, and copyrights was approved in 2009.  A Registration Service Agency, which is part of the RDB, was established in 2008 and has improved IPR t protection by registering all commercial entities and facilitating business identification and branding.  The RDB and the RSB are the main regulatory bodies for Rwanda’s intellectual property rights law.  The RDB registers intellectual property rights, providing a certificate and ownership title.  Every registered IPR title is published in the Official Gazette.  The fees payable for substance examination and registration of IPR apply equally to domestic and foreign applicants.  Since 2016, any power of attorney that a non-resident grants to a Rwandan-based industrial property agent must be notarized. (Previously, a signature would have been sufficient.)

Registration of patents and trademarks is on a first time, first right basis, so companies should consider applying for trademark and patent protection in a timely manner.  It is the responsibility of the copyright holders to register, protect, and enforce their rights where relevant, including retaining their own counsel and advisors.  Through the RSB and the RRA, Rwanda has worked to increase IPR protection, but many goods that violate patents, especially pharmaceutical products, make it to market nonetheless.  As many products available in Rwanda are re-exports from other EAC countries, it may be difficult to prevent counterfeit goods without regional cooperation.  Also, investors reported difficulties in registering patents and having rules against infringement of their property rights enforced in a timely manner.

Rwanda conducts anti-counterfeit goods campaigns on a regular basis, but statistics on IPR enforcement are not publicly available.  A few companies have expressed concern over inappropriate use of their intellectual property.  While the government has offered rhetorical support, enforcement has been mixed.  In some cases, infringement has stopped, but in other cases, companies have been frustrated with the slow pace of receiving judgment or of receiving compensation after successful legal cases.

As a COMESA member, Rwanda is automatically a member of African Regional Intellectual Property Organization.  Rwanda is also a member of the World Intellectual Property Organization (WIPO) and is working toward harmonizing its legislation with WTO Agreement on the Trade-Related Aspects of Intellectual Property (TRIPS).  Rwanda has yet to ratify WIPO Internet Treaties, though the government has taken steps to implement and enforce TRIPS Agreement. In addition to TRIPS, Rwanda is a party to the following treaties and conventions:  the Paris Convention; the Berne Convention; the Patent Cooperation Treaty; the Madrid Protocol; the Hague Agreement; and the Brussels Convention.   Rwanda is not a party to the following treaties and conventions: the Beijing Treaty; the Budapest Treaty; Locarno Agreement; the Marrakesh Treaty; the Nairobi Treaty; the Nice Agreement; the Phonograms Convention; the Singapore Treaty; the Strasbourg Agreement ; the Trademark Law Treaty; the Vienna Convention; the WIPO Copyright Treaty; and the WIPO Performance and Phonograms Treaty.

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

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

6. Financial Sector

Capital Markets and Portfolio Investment

Rwanda’s capital markets are relatively immature and lack complexity.  Only eight companies have publicly listed and traded equities in Rwanda.  The Rwanda Capital Market Authority was established in 2017 to regulate the capital market, commodity exchange and related contracts, collective investment schemes, and warehouse receipts.  Most capital market transactions are domestic.  While offers can attract some international interests, they are rare.  Rwanda is one of a few sub-Saharan African countries to have issued sovereign bonds.  In 2019, the National Bank of Rwanda issued five new bonds including a 20-year bond, the longest tenor ever issued by the country.  During the same year, seven existing bonds were reopened. Rwandan government bonds and other debt securities are highly oversubscribed and bond yields average 12 percent.  BNR, the country’s Central Bank, has implemented reforms in recent years that are helping to create a secondary market for Rwandan treasury bonds.  Secondary market continue go growth from low base.  In 2019, BNR reported that deals and turn overs increased by 47.0 percent and 106.5 percent respectively following intense awareness campaigns and increased number of products (new issuances and re-openings).  In January 2020, the IMF completed its first review of Rwanda’s economic performance under the Policy Coordination Instrument and Monetary Policy Consultation, which can be found here:  https://www.imf.org/en/Publications/CR/Issues/2020/01/17/Rwanda-First-Review-Under-the-Policy-Coordination-Instrument-and-Monetary-Policy-48956  

https://www.imf.org/en/Publications/CR/Issues/2020/01/17/Rwanda-First-Review-Under-the-Policy-Coordination-Instrument-and-Monetary-Policy-48956  

Money and Banking System

Many U.S. investors express concern that local access to affordable credit is a serious challenge in Rwanda.  Interest rates are high for the region ranging from 15 percent to 20 percent, banks offer predominantly short-term loans, collateral requirements can be higher than 100 percent of the value of the loan, and Rwandan commercial banks rarely issue significant loan values.  The prime interest rate is 16-18 percent.  Large international transfers are subject to authorization.  Investors who seek to borrow more than USD 1 million must often engage in multi-party loan transactions, usually leveraging support from larger regional banks.  Credit terms generally reflect market rates, and foreign investors are able to negotiate credit facilities from local lending institutions if they have collateral and “bankable” projects.  In some cases, preferred financing options may be available through specialized funds including the Export Growth Fund, BRD, or FONERWA.

Rwanda’s financial sector remains highly concentrated.  The share of the three largest Banks’s assets increased from 46.5 percent in December 2018 to 48.4 percent in December 2019.  The largest, partially state-owned, Bank of Kigali (BoK), holds more than 30 percent of all assets.  The banking sector holds more than 65 percent of total financial sector assets in Rwanda.  Non-performing loans dropped from 6.4 percent in December 2018 to 4.9 percent in December 2019.  Foreign banks are permitted to establish operations in Rwanda, with several Kenyan-based banks in the country.  Atlas Mara Limited acquired a majority equity stake in Banque Populaire du Rwanda (BPR) in 2016.  BPR/Atlas Mara has the largest number of branch locations and is Rwanda’s second largest bank after BoK.  In total, Rwanda’s banks have assets of more than USD 3 billion, which increased 12.5 percent between  December 2018 and 2019, according to BNR.  The IMF gives BNR high marks for its effective monetary policy.  BNR introduced a new monetary policy framework in 2019, which shifts toward inflation-targeting monetary framework in place of a quantity-of-money framework.

In 2019, BNR reported that commercial banks liquidity ratio was 49 percent (compared to BNR’s required minimum of 20 percent), suggesting reluctance toward making loans.  The capital adequacy ratio grew to 24.1 percent from 21.4 percent over the year, well above the minimum of 15 percent, suggesting the Rwanda banking sector continues to be generally risk averse.  Local banks often generate significant revenue from holding government debt and from charging a variety of fees to banking customers.  Credit cards are becoming more common in major cities, especially at locations frequented by foreigners, but are not used in rural areas.  Rwandans primarily rely on cash or mobile money to conduct transactions.

During the COVID-19 pandemic local banks deferred loan payments from customers.  Despite this, the banking sector was confident that they had sufficient liquidity until July 2020 due to the favorable economic conditions prior to COVID-19.  In March 2020, the IMF disbursed USD 109 Million to Rwanda under the Rapid Credit Facility and the World Bank approved a USD 14.25 million immediate funding in the form of an International Development Association credit to support Rwanda’s response to the COVID-19 pandemic.  At the same time, the BNR arranged a 50 Billion Rwandan Franc (USD 53.4 Million) liquidity fund for local banks.  By December 2019, the number of debit cards in the country grew eight percent year over year to 945,000, and the number of mobile banking customers grew 22 percent to 1,266,000. The total number of bank and MFI accounts increased from 7.1 million to 7.7 million between 2018-2019. The number of retail point of sale (POS) machines grew from 2,801 to 3,477 while POS transactions grew by 53 percent in volume and 29 percent in value between 2019 and 2018 according to BNR.

Foreign Exchange and Remittances

Foreign Exchange

In 1995, the government abandoned a dollar peg and established a floating exchange rate regime, under which all lending and deposit interest rates were liberalized.  BNR publishes an official exchange rate on a daily basis, which is typically within a two percent range of rates seen in the local market.  Some investors report occasional difficulty in obtaining foreign exchange.  Rwanda generally runs a large trade deficit, estimated at more than 10 percent of GDP in 2019. Transacting locally in foreign currency is prohibited in Rwanda.  Regulations set a ceiling on the foreign currency that can leave the country per day.  In addition, regulations specify limits for sending money outside the country; BNR must approve any transaction that exceed these limits.

Most local loans are in local currency.  In December 2018, BNR issued a new directive on lending in foreign currency which requires the borrow to have a turnover of at least RWF 50 million or equivalent in foreign currency, have a known income stream in foreign currency not below 150 percent of the total installment repayments, and the repayments must be in foreign currency.  The collateral pledged by non-resident borrowers must be valued at 150 percent of the value of the loan.  In addition, BNR requires banks to report regularly on loans granted in foreign currency.

Remittance Policies

Investors can remit payments from Rwanda only through authorized commercial banks.  There is no limit on the inflow of funds, although local banks are required to notify BNR of all transfers over USD 10,000 to mitigate the risk of potential money laundering.  A withholding tax of 15 percent to repatriate profits is considered high by a number of investors given that a 30 percent tax is already charged on profits, making the realized tax burden 45 percent.  Additionally, there are some restrictions on the outflow of export earnings.  Companies generally must repatriate export earnings within three months after the goods cross the border.  Tea exporters must deposit sales proceeds shortly after auction in Mombasa, Kenya.  Repatriated export earnings deposited in commercial banks must match the exact declaration the exporter used crossing the border.

Rwandans working overseas can make remittances to their home country without impediment.  It usually takes up to three days to transfer money using SWIFT financial services.  The concentrated nature of the Rwandan banking sector limits choice, and some U.S. investors have expressed frustration with the high fees charged for exchanging Rwandan francs to dollars.

Sovereign Wealth Funds

In 2012, the Rwandan government launched the Agaciro Development Fund (ADF), a sovereign wealth fund that includes investments from Rwandan citizens and the international diaspora.  By September 30, 2019, the fund was worth 194.3 billion RWF in assets (around USD 204 million).  The ADF operates under the custodianship of BNR and reports quarterly and annually to the Ministry of Finance and Economic Planning, its supervisory authority.  ADF is a member of the International Forum of Sovereign Wealth Funds and is committed to the Santiago Principles.  ADF only operates in Rwanda.  In addition to returns on investments, citizens and private sector voluntary contributions, and other donations, ADF receives RWF 5 billion every year from tax revenues and 5 percent of proceeds from every public asset that is privatized.  The fund also receives 5 percent of royalties from minerals and other natural resources each year.  The government has transferred a number of its shares in private enterprises to the management of ADF including those in the BoK, Broadband Systems Corporation (BSC), Gasabo 3D Ltd, Africa Olleh Services (AoS), Korea Telecom Rwanda Networks (KTRN), and the One and Only Nyungwe Lodge.  ADF invests mainly in Rwanda.  While the fund can invest in foreign non-fixed income investments, such as publicly listed equity, private equity, and joint ventures, the AGDF Corporate Trust Ltd (the fund’s investment arm) held no financial assets and liabilities in foreign currency, according to the 2018 annual report.

7. State-Owned Enterprises

Rwandan law allows private enterprises to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations.  Since 2006, the GOR has made efforts to privatize SOEs; reduce the government’s non-controlling shares in private enterprises; and attract FDI, especially in the ICT, tourism, banking, and agriculture sectors, but progress has been slow.  Current SOEs include water and electricity utilities, as well as companies in construction, ICT, aviation, mining, insurance, agriculture, finance, and other investments.  Some investors complain about competition from state-owned and ruling party-aligned businesses.  SOEs and utilities appear in the national budget, but the financial performance of most SOEs is only detailed in an annex that is not publicly available.  The most recent state finances audit report of the OAG also covers SOEs and has sections criticizing the management of some of the organizations.   SOEs are governed by boards with most members having other government positions.

State-owned non-financial corporations include Ngali Holdings, Horizon Group Ltd, REG, Water and Sanitation Corporation, RwandAir, National Post Office, Rwanda Printery Company Ltd, King Faisal Hospital, Muhabura Multichoice Ltd, Prime Holdings, Rwanda Grain and Cereals Corporation, Kinazi Cassava Plant, and the Rwanda Inter-Link Transport Company.  State-owned financial corporations include the NBR, Development Bank of Rwanda, Special Guarantee Fund, Rwanda National Investment Trust Ltd, ADF, BDF and the Rwanda Social Security Board.  The GOR has interests in the BoK, Rwanda Convention Bureau, BSC, CIMERWA, Gasabo 3D Ltd, AoS, KTRN, Dubai World Nyungwe Lodge, and Akagera Management Company, among others.

Privatization Program

Rwanda continues to carry out a privatization program that has attracted foreign investors in strategic areas ranging from telecommunications and banking to tea production and tourism.  As of 2017 (latest data available), 56 companies have been fully privatized, seven were liquidated, and 20 more were in the process of privatization.  RDB’s Strategic Investment Department is responsible for implementing and monitoring the privatization program. Some observers have questioned the transparency of certain transactions, as a number of transactions were undertaken through mutual agreements directly between the government and the private investor, some of whom have personal relationships with senior government officials, rather than public offerings.

8. Responsible Business Conduct

There is a growing awareness of corporate social responsibility (CSR) within Rwanda, and several foreign-owned companies operating locally implement CSR programs.  Rwanda implements the OECD’s Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.  Rwanda also implements the International Tin Supply Chain Initiative tracing scheme.  In 2016, the Better Sourcing Program (currently RCS Global Group) began an alternative mineral tracing scheme in Rwanda.  Rwanda also has guidelines on corporate governance by publicly listed companies.  In recognition of the firm’s strong commitment to CSR, the U.S. Department of State awarded Sorwathe, a U.S.-owned tea producer in Kinihira, Rwanda, the Secretary of State’s 2012 Award for Corporate Excellence for Small and Medium Enterprises.  In 2015, the U.S. firm Gigawatt Global was also a finalist for the Secretary of State’s Award for Corporate Excellence in the environmental sustainability category.  Rwanda is not a member of the Extractive Industries Transparency Initiative (EITI).

9. Corruption

Rwanda is ranked among the least corrupt countries in Africa, with Transparency International’s 2019 Corruption Perception Index putting the country among Africa’s four least corrupt nations and 51st in the world.  The government maintains a high-profile anti-corruption effort, and senior leaders articulate a consistent message emphasizing that combating corruption is a key national goal.  The government investigates corruption allegations and generally punishes those found guilty.  High-ranking officials accused of corruption often resign during the investigation period, and many have been prosecuted.  Rwanda has ratified the UN Anticorruption Convention.  It is a signatory to the OECD Convention on Combating Bribery.  It is also a signatory to the African Union Anticorruption Convention.  U.S. firms have identified the perceived lack of government corruption in Rwanda as a key incentive for investing in the country.  There are no local industry or non-profit groups offering services for vetting potential local investment partners, but the Ministry of Justice keeps judgments online, making it a source of information on companies and individuals in Rwanda at www.judiciary.gov.rw/home/ .  The Rwanda National Public Prosecution Authority issues criminal records on demand to applicants at www.nppa.gov.rw .

Resources to Report Corruption

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

Mr. Anastase Murekezi, Chief Ombudsman , Ombudsman (Umuvunyi)
P.O Box 6269, Kigali, Rwanda
Telephone: +250 252587308
omb1@ombudsman.gov.rw / sec.permanent@ombudsman.gov.rw

Mr. Felicien Mwumvaneza, Commissioner for Quality Assurance Department (Anti-Corruption Unit) Rwanda Revenue Authority
Avenue du Lac Muhazi, P.O. Box 3987, Kigali, Rwanda
Telephone: +250 252595504 or +250 788309563
felicien.mwumvaneza@rra.gov.rw / commissioner.quality@rra.gov.rw

Mr. Obadiah Biraro, Auditor General, Office of the Auditor General
Avenue du Lac Muhazi, P.O. Box 1020, Kigali, Rwanda
Telephone: +250 78818980 , oag@oag.gov.rw

Contact at “watchdog” organization

Mr. Apollinaire Mupiganyi , Executive Director , Transparency International Rwanda
P.O: Box 6252 Kigali, Rwanda
Telephone: +250 788309563,
amupiganyi@transparencyrwanda.org / mupiganyi@yahoo.fr

10. Political and Security Environment

Rwanda is a stable country with relatively little violence.  According to a 2017 report by the World Economic Forum, Rwanda is the ninth safest country in the world.   Gallup’s Global Law and Order Index report of 2018 ranked Rwanda 2nd safest place in Africa.  Investors have cited the stable political and security environment as an important driver of investments.  A strong police and military provide a security umbrella that minimizes potential criminal activity.

The U.S. Department of State recommends that U.S. citizens exercise caution when traveling near the Rwanda-Democratic Republic of the Congo (DRC) border, given the possibility of fighting and cross-border attacks involving the Democratic Forces for the Liberation of Rwanda (FDLR) and other groups opposed to the GOR.  Relations between Burundi and Rwanda are tense, and there is a risk of cross-border incursions and armed clashes.  Since 2018, there have been a few incidents of sporadic fighting in districts bordering Burundi and in Nyungwe National Park.

Grenade attacks aimed at the local populace occurred on a recurring basis between 2008 and 2014 in Rwanda.  There have been several cross-border attacks in Western Rwanda on Rwandan police and military posts reportedly since 2016.  Despite occasional violence along Rwanda’s borders with the DRC and Burundi, there have been no incidents involving politically motivated damage to investment projects or installations since the late 1990s.  Relations with Uganda are also tense, but leaders continue to emphasize they are seeking a political solution.  Rwanda has not allowed commercial traffic to cross the Rwandan-Ugandan border since February 2019 forcing most, if not all, commercial traffic to the Rwandan-Tanzanian border.  In May 2020, the Rwandan-Tanzania border crossings were negatively impacted due to the influx of Tanzanian truck drivers infected with COVID-19.

Please see the following link for State Department Country Specific Information:   https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Rwanda.html 

11. Labor Policies and Practices

General labor is available, but Rwanda suffers from a shortage of skilled labor, including accountants, lawyers, engineers, tradespeople, and technicians.  Higher institutes of technology, private universities, and vocational institutes are improving and producing more and highly-trained graduates each year.  The Rwanda Workforce Development Authority sponsors programs to support both short and long-term professional trainings targeting key industries in Rwanda.  Carnegie Mellon University opened a campus in Kigali in 2012–its first in sub-Saharan Africa–and currently offers a Master of Science in Electrical and Computer Engineering and Master of Science in Information Technology.  In 2013, the nonprofit university program, Kepler, was established for students to work toward a U.S.-accredited degree through online learning and in-person seminars through a relationship with Southern New Hampshire University.  Oklahoma Christian University offers an online Master of Business Administration program with on-site support in Kigali.  The African Institute of Mathematics, University of Global Health Equity and African Leadership University campuses in Rwanda offer college level and advanced degrees in many fields.    Investors are strongly encouraged to hire Rwandan nationals whenever possible.  According to the Investment Code, a registered investor who invests an equivalent of at least USD 250,000 may recruit three foreign employees.  However, a number of foreign investors reported difficulties importing qualified staff in accordance with the Investment Code due to Rwandan immigration rules and practices.  In some cases, these problems occurred even though investors had signed agreements with the government regarding the number of foreign employees.

Investors are strongly encouraged to hire Rwandan nationals whenever possible.  According to the Investment Code, a registered investor who invests an equivalent of at least USD 250,000 may recruit three foreign employees.  However, a number of foreign investors reported difficulties importing qualified staff in accordance with the Investment Code due to Rwandan immigration rules and practices.  In some cases, these problems occurred even though investors had signed agreements with the government regarding the number of foreign employees.

Rwanda has ratified all of the International Labor Organization’s eight core conventions.  Policies to protect workers in special labor conditions exist, but enforcement remains inconsistent.  The government encourages, but does not require, on-the-job training and technology transfer to local employees.  The law restricts voluntary collective bargaining by requiring prior authorization or approval by authorities and requiring binding arbitration in cases of non-conciliation.  The law provides some workers the right to conduct strikes, subject to numerous restrictions, but strikes are very rare. There is no unemployment insurance or other social safety net programs for workers laid off for economic reasons.  The minimum wage remains at 100 Rwandan Franc per day  (less than USD 0.10 per day) and has not been changed since the 1974.   The legal framework for employment rights for disabled persons is not as strong as in the United States, but the government and some employers are making efforts to offer reasonable accommodations. In 2000, the government revised the national labor code to eliminate gender discrimination, restrictions on the mobility of labor, and wage controls.   Private firms are responsible for their local employees’ income tax payments and Rwanda Social Security Board pension contributions.  For full-time workers, these payments amount to more than 30 percent of take-home pay, which can be a disadvantage if competing firms are in the informal economy and not compliant with these requirements.  Labor laws are not waived in order to attract or retain investment.  There are no labor law provisions in SEZs or industrial parks, which differ from national labor laws.  Collective bargaining is not common in Rwanda.  Few professional associations fix minimum salaries for their members and some investors have expressed concern that labor law enforcement is uneven or opaque.  The minimum wage has not changed since 1974 and is 100 Rwandan francs (USD 0.10) per day.

The legal framework for employment rights for disabled persons is not as strong as in the United States, but the government and some employers are making efforts to offer reasonable accommodations. In 2000, the government revised the national labor code to eliminate gender discrimination, restrictions on the mobility of labor, and wage controls.   Private firms are responsible for their local employees’ income tax payments and Rwanda Social Security Board pension contributions.  For full-time workers, these payments amount to more than 30 percent of take-home pay, which can be a disadvantage if competing firms are in the informal economy and not compliant with these requirements.  Labor laws are not waived in order to attract or retain investment.  There are no labor law provisions in SEZs or industrial parks, which differ from national labor laws.  Collective bargaining is not common in Rwanda.  Few professional associations fix minimum salaries for their members and some investors have expressed concern that labor law enforcement is uneven or opaque.  The minimum wage has not changed since 1974 and is 100 Rwandan francs (USD 0.10) per day.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

DFC (Former Overseas Private Investment Corporation) has provided financing and political risk insurance to more than a dozen U.S. projects in Rwanda since 1975.  DFC officials have expressed interest in expanding the corporation’s portfolio in Rwanda and are currently evaluating potential projects.  The Export-Import Bank continues its program to ensure short-term export credit transactions involving various payment terms, including open accounts that cover the exports of consumer goods, services, commodities, and certain capital goods.  The 1965 U.S.-Rwanda Investment Incentive Agreement remains in force; Rwanda and the United States are discussing potential updates to this agreement.

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 $9.507billion http://www.statistics.gov.rw/
publication/gdp-national-accounts-2018
 

www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or International Statistical Source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country ($M USD, stock positions) 2018 $182.7 2018 $11 BEA data available
http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_data.htm
 
Host Country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_data.htm
 
Total Inbound Stock of FDI as % host GDP N/A N/A N/A N/A

*Host country source: https://www.statistics.gov.rw/file/8442/download?token=pcrJ3_Fj 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/Top Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward Amount 100% Total Outward Amount 100%
Mauritius 779.5 24.4% N/A
Kenya 239.2 7.5%
Netherlands 211.5 6.6%
United States 182.7 5.7%
South Africa 183.8 5.7%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data on Rwanda equity security holdings by nationality is not available.  According to a 2018 BNR report, portfolio investment remains the lowest component of foreign investment in Rwanda mainly due to the low level of financial market development.  Portfolio investment stock amounted to $109.3 million in 2018, a 5 percent increase from 2017 levels.  In 2018, Rwanda recorded foreign portfolio inflows of $5.4 million compared to $2.5 million in 2017.

14. Contact for More Information

Jonathan Scott
Economic and Commercial Officer
United States Embassy
2657 Avenue de la Gendarmerie, P.O. Box 28 Kigali, Rwanda
+250-252-596-538
KigaliEcon@state.gov

Tanzania

Executive Summary

The United Republic of Tanzania has a relatively stable political environment, reasonable macroeconomic policies, and resiliency from external shocks. However, recently adopted Government of Tanzania (GoT) policies raise questions about short- and medium-term prospects for foreign direct investment (FDI), and foster a more challenging business environment. Tanzania is ranked 141 out of 190 countries on the World Bank’s “Doing Business” rankings, the lowest among its East African peers. After nearly a nearly a decade of double-digit growth, Tanzania’s rate of GDP growth slowed over the past two years. The private sector remains concerned about heavy-handed and arbitrary enforcement of rules; stagnant credit growth; poor budget credibility and execution; and excessive domestic arrears (especially to the domestic private sector). Tanzania’s diverse economy gives it some resiliency but nevertheless, it faces considerable challenges from the COVID-19 pandemic, as well as high rates of poverty and youth unemployment.

Profitable sectors for foreign investment in Tanzania have traditionally included agriculture, mining and services, construction, tourism, and trade. However, aggressive revenue raising measures and unfriendly investor legislation have made investment less attractive in recent years. Labor regulations make it difficult to hire foreign employees, even when the required skills are not available within the local labor force. Corruption, especially in government procurement, privatization, taxation, and customs clearance remains a concern for foreign investors, though the government has prioritized efforts to combat the practice. GoT-funded infrastructure development offers investment opportunities in rail, real estate development, and construction.

Compared to some of its neighbors, Tanzania remains a politically stable and peaceful country. Since November 2015, however, the government has restricted civic and media freedoms, including severely limiting the ability of opposition political parties and civil society organizations to debate issues publicly, or assemble peacefully. Elections in 2019 were marred by allegations of irregularities and suppression of opposition candidates. National elections, including Presidential elections, are scheduled for October 2020.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 96 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 141 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 97 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 $1.38 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $ 1,020 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The United Republic of Tanzania, according to Government officials, welcomes foreign direct investment (FDI) as it pursues its industrialization and development agenda. However, in practice, government policies and actions do not effectively keep and attract investment. The 2019 World Investment Report indicates that FDI flows to Tanzania increased from USD 938 million in 2017 to USD 1.1 billion in 2018, although they have not recovered to pre-2015 levels. (The Bank of Tanzania reports 2018 FDI as USD 2.82 billion, down from USD 5.07 billion in 2017.). Investors and potential investors note the biggest challenges to investment include difficulty in hiring foreign workers, reduced profits due to unfriendly and opaque tax policies, increased local content requirements, regulatory/policy instability, lack of trust between the GoT and the private sector, and mandatory initial public offerings (IPOs) in key industries.

The United Republic of Tanzania has framework agreements on investment, and offers various incentives and the services of investment promotion agencies. Investment is mainly a non-Union matter, thus there are different laws, policies, and practices for the Mainland and Zanzibar. Zanzibar updated its investment policy in 2019, while the Mainland/Union policy dates from 1996. Efforts to update the Mainland Investment Policy and Investment Act were underway, but incomplete as of the date of this publication.. International agreements on investment are covered as Union matters and therefore apply to both regions.

The Tanzania Investment Center (TIC) is intended to be a one-stop center for investors, providing services such as permits, licenses, visas, and land. The Zanzibar Investment Promotion Authority (ZIPA) provides the same function in Zanzibar.

The Government of Tanzania has an ongoing dialogue with the private sector via the Tanzania National Business Council (TNBC). TNBC meetings are chaired by the President of the United Republic of Tanzania and co-chaired by the head of the Tanzania Private Sector Foundation (TPSF). Unfortunately, the TNBC has only met twice in the past five years. There is also a Zanzibar Business Council (ZBC), as well as Regional Business Councils (RBCs), and District Business Councils (DBCs).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally receive treatment equivalent to domestic investors but limits still persist in a number of sectors. Tanzania conforms to best practice in several cases. There are no geographical restrictions on private establishments with foreign participation or ownership, no limitations on number of foreign entities that can operate in a given sector, and no sectors in which approval is required for foreign investment greenfield FDI but not for domestic investment.

However, Tanzania discourages foreign investment in several sectors through limitations on foreign equity ownership or other activities, including aerospace, agribusiness (fishing), construction and heavy equipment, travel and tourism, energy and environmental industries, information and communication, and publishing, media, and entertainment.

Specific examples include the following: The Tourism Act of 2008 bars foreign companies from engaging in mountain guiding activities, and states that only Tanzanian citizens can operate travel agencies, car rental services, or engage in tour guide activities (with limited exceptions). Per the Merchant Shipping Act of 2003, only citizen-owned ships are authorized to engage in local trade, a requirement that can be waived at the Minister’s discretion. Furthermore, the Tanzania Shipping Agencies Act of November 2017 gives exclusive monopoly power to the Tanzania Shipping Agency Corporation (TASAC) to conduct business as shipping agents, shipping regulator, and licensor of other private shipping agencies. The Act also gives TASAC an exclusive mandate to provide clearing and forwarding functions relating to imports and exports of minerals, mineral concentrates, machinery and equipment for the mining and petroleum sector, products and/or extracts related to minerals and petroleum arms and ammunition, live animals, government trophies and any other goods that the Minister responsible for maritime transport may specify.

  • The Tourism Act of 2008 bars foreign companies from engaging in mountain guiding activities, and states that only Tanzanian citizens can operate travel agencies, car rental services, or engage in tour guide activities (with limited exceptions). Per the Merchant Shipping Act of 2003, only citizen-owned ships are authorized to engage in local trade, a requirement that can be waived at the Minister’s discretion. Furthermore, the Tanzania Shipping Agencies Act of November 2017 gives exclusive monopoly power to the Tanzania Shipping Agency Corporation (TASAC) to conduct business as shipping agents, shipping regulator, and licensor of other private shipping agencies. The Act also gives TASAC an exclusive mandate to provide clearing and forwarding functions relating to imports and exports of minerals, mineral concentrates, machinery and equipment for the mining and petroleum sector, products and/or extracts related to minerals and petroleum arms and ammunition, live animals, government trophies and any other goods that the Minister responsible for maritime transport may specify.
  • A 2009 amendment to the Fisheries Regulations imposes onerous conditions for foreign citizens to engage in commercial fishing and the export of fishery products, sets separate licensing costs for foreign citizens and Tanzanians, and limits the types of fishery products that foreign citizens may work with.
  • Foreign construction contractors can only obtain temporary licenses, per the Contractors Registration Act of 1997, and contractors must commit in writing to leave Tanzania upon completion of the set project. 2004 amendments to the Contractors Registration By-Laws limit foreign contractor participation to specified, more complex classes of work.
  • Foreign capital participation in the telecommunications sector is limited to a maximum of 75 percent.
  • All insurers require one-third controlling interest by Tanzania citizens, per the Insurance Act.
  • The Electronic and Postal Communications (Licensing) Regulations 2011 limits foreign ownership of Tanzanian TV stations to 49 percent and prohibits foreign capital participation in national newspapers.
  • Mining projects must be at least partially owned by the GoT and “indigenous” companies, and hire, or at least favor, local suppliers, service providers, and employees. (See Chapter 4: Laws and Regulations on FDI for details.). Gemstone mining is limited to Tanzanian citizens with waivers of the limitation at ministerial discretion. In February 2019, responding to low growth and investment in the sector, the government revised the 2018 Mining Regulations to reduce local ownership requirements from 51 percent to 20 percent.

Currently, foreigners can invest in stock traded on the Dar es Salaam Stock Exchange (DSE), but only East African residents can invest in government bonds. East Africans, excluding Tanzanian residents, however, are not allowed to sell government bonds bought in the primary market for at least one year following purchase.

Other Investment Policy Reviews

There have not been any third-party investment policy reviews (IPRs) on Tanzania in the past three years, the most recent OECD report is for 2013. The World Trade Organization (WTO) published a Trade Policy Review in 2019 on all the East African Community states, including Tanzania.

WTO – Trade Policy Review: East African Community (2019)https://www.wto.org/english/tratop_e/tpr_e/tp484_e.htm 

OECD – Tanzania Investment Policy Review (2013)http://www.oecd.org/daf/inv/investment-policy/tanzania-investment-policy-review.htm 

WTO – Secretariat Report of Tanzaniahttps://www.wto.org/english/tratop_e/tpr_e/s384-04_e.pdf 

UNCTAD – Trade and Gender Implications (2018)https://unctad.org/en/PublicationsLibrary/ditc2017d2_en.pdf 

Business Facilitation

The World Bank’s Doing Business 2020 Indicators rank Tanzania 141 out of 190 overall for ease of doing business, and 162nd for ease of starting a business. There are 10 procedures to open a business, higher than the sub-Saharan Africa average of 7.4. The Business Registration and Licensing Agency (BRELA) issues certificates of compliance for foreign companies, certificates of incorporation for private and public companies, and business name registration for sole proprietor and corporate bodies. After registering with BRELA, the company must: obtain a taxpayer identification number (TIN) certificate, apply for a business license, apply for a VAT certificate, register for workmen’s compensation insurance, register with the Occupational Safety and Health Authority (OSHA), receive inspection from the Occupational Safety and Health Authority (OSHA), and obtain a Social Security registration number.

The TIC provides simultaneous registration with BRELA, TRA, and social security (http://tiw.tic.co.tz/ ) for enterprises whose minimum capital investment is not less than USD 500,000 if foreign owned or USD 100,000 if locally owned.

In May 2018, the government adopted the Blueprint for Regulatory Reforms to improve the business environment and attract more investors. The reforms, which were developed as a collaborative effort between the Ministry of Industry, Trade and Investment and the private sector, seek to improve the country’s ease of doing business through regulatory reforms and to increase efficiency in dealing with the government and its regulatory authorities. The official implementation of the Business Environment Improvement Blueprint started on July 1, 2019, though there have been little tangible changes or advancements. A new Business Facilitation Act aimed at implementing key actions from the Blueprint is pending adoption by Parliament.

Outward Investment

Tanzania does not promote or incentivize outward investment. There are restrictions on Tanzanian residents’ participation in foreign capital markets and ability to purchase foreign securities. Under the Foreign Exchange (Amendment) Regulations 2014 (FEAR), however, there are circumstances where Tanzanian residents may trade securities within the East African Community (EAC). In addition, FEAR provides some opportunities for residents to engage in foreign direct investment and acquire real assets outside of the EAC.

3. Legal Regime

Transparency of the Regulatory System

According to the World Bank’s Global Indicators of Regulatory Governance (http://rulemaking.worldbank.org/ ), Tanzania scores low in regulatory governance with 1.5 out of 5 total in transparency of regulatory governance (neighboring Kenya and Uganda, by contrast, both score 3.25)

Tanzania has formal processes for drafting and implementing rules and regulations. Generally, after an Act is passed by Parliament, the creation of regulations is delegated to a designated ministry. In theory, stakeholders are legally entitled to comment on regulations before they are implemented. However, ministries and regulatory agencies frequently fail to provide adequate opportunity for meaningful input as there is no minimum period of time for public comment set forth in law. Stakeholders often report that they are either not consulted or given too little time to provide meaningful input. Ministries or regulatory agencies do not have the legal obligation to publish the text of proposed regulations before their enactment. Sometimes, it is difficult to obtain the final, adopted version of a bill in a timely manner nor is it always public information if and when the President signed the bill. Moreover, the government has increasingly used presidential decree powers to bypass regulatory and legal structures.

In 2016, the President signed the Access to Information Act into law. In theory, the Act gives citizens more rights to information; however, some claim that the Act gives too much discretion to the GoT to withhold disclosure. Although information, including rules and regulations, is available on the GoT’s “Government Portal” (https://www.tanzania.go.tz/documents ), the website is generally not current and incomplete. Alternatively, rules and regulations can be obtained on the relevant ministry’s website, but many offer insufficient information.

Nominally, independent regulators are mandated with impartially following the regulations. The process, however, has sometimes been criticized as being subject to political influence, depriving the regulator of the independence it is granted under the law.

Tanzania does not meet the minimum standards for transparency of public finances and debt obligations.

International Regulatory Considerations

Tanzania is also part of both the EAC and the Southern African Development Community (SADC) and subject to their respective regulations. However, according to the 2016 East African Market Scorecard (most recent), Tanzania is not compliant with several EAC regulations.

Tanzania is a member of the International Organization for Standardization (ISO). The national standards body, the Tanzania Bureau of Standards, was established in 1975. It has been most active in promoting standards and quality in process technology, including agro-processing, chemicals and textiles, and engineering, including mining and construction.

Tanzania is a member of the World Trade Organization (WTO) and its National Enquiry Point (NEP) is the Tanzania Bureau of Standards (TBS). As the WTO NEP, TBS handles information on adopted or proposed technical regulations, as well as on standards and conformity assessment procedures. Tanzania does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Tanzania’s legal system is based on the English Common Law system. The first source of law is the 1977 Constitution, followed by statutes or acts of Parliament; and case law, which are reported or unreported cases from the High Courts and Courts of Appeal and are used as precedents to guide lower courts. The Court of Appeal, which handles appeals from Mainland Tanzania and Zanzibar, is the highest court, followed by the High Court, which handles civil, criminal and commercial cases. There are four specialized divisions within the High Courts: Labor, Land, Commercial, and Corruption and Economic Crimes. The Labor, Land, and Corruption and Economic Crimes divisions have exclusive jurisdiction over their respective matters, while the Commercial division does not claim exclusive jurisdiction. The High Court and the District and Resident Magistrate Courts also have original jurisdiction in commercial cases subject to specified financial limitations.

Apart from the formal court system, there are quasi-judicial bodies, including the Tax Revenue Appeals Tribunal and the Fair Competition Tribunal, as well as alternate dispute resolution procedures in the form of arbitration proceedings. Judgments originating from countries whose courts are recognized under the Reciprocal Enforcement of Foreign Judgments Act (REFJA) are enforceable in Tanzania. To enforce such judgments, the judgment holder must make an application to the High Court of Tanzania to have the judgment registered. Countries currently listed in the REFJA include Botswana, Lesotho, Mauritius, Zambia, Seychelles, Somalia, Zimbabwe, Swaziland, the United Kingdom, and Sri Lanka.

The Tanzanian constitution guarantees judicial independence. However, the degree of judicial independence has varied significantly in the past few years, and many perceive that political interference in justice has increased over the past five years.

Regulations and enforcement actions are appealable and they are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

In 2017, new laws and regulations were enacted that may impact the risk-return profile on foreign investments, especially those in the extractives and natural resources industries. The laws/regulations include the Natural Wealth and Resources (Permanent Sovereignty) Act 2017, Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act 2017, Written Laws (Miscellaneous Act) 2017, and Mining (Local Content) Regulations 2018. The three new acts were introduced by the executive branch under a certificate of urgency, meaning that standard advance publication requirements were waived to expedite passage. As a result, there was minimal stakeholder engagement.

Investors, especially those in natural resources and mining, have expressed concern about the effects of these new laws. Two of the new laws apply to “natural wealth and resources,” which are broadly defined and not only include oil and gas, but in theory, could include wind, sun, and air space. Investors are encouraged to seek legal counsel to determine the effect these laws may have on existing or potential investments. For natural resource contracts, the laws remove rights to international arbitration and subject contracts, past and present, to Parliamentary review. More specifically, the law states “Where [Parliament] considers that certain terms …or the entire arrangement… are prejudicial to the interests of the People and the United Republic by reason of unconscionable terms it may, by resolution, direct the Government to initiate renegotiation with a view to rectifying the terms.”  Further, if the GoT’s proposed renegotiation is not accepted, the offending terms are automatically expunged. “Unconscionable” is defined broadly, including catch-all definitions for clauses that are, for example, “inequitable or onerous to the state.” Under the law, the judicial branch does not play a role in determining whether a clause is “unconscionable.”

The Mining (Local Content) Regulations 2018 require that indigenous Tanzanian companies are given first preference for mining licenses. An ‘indigenous Tanzanian company’ is one incorporated under the Companies Act with at least 51 percent of its equity owned by and 100 percent of its non-managerial positions held by Tanzanians. Furthermore, foreign mining companies must have at least 5 percent equity participation from an indigenous Tanzanian company and must grant the GoT a 16 percent carried interest. Lastly, foreign companies that supply goods or services to the mining industry must incorporate a joint venture company in which an indigenous Tanzanian company must hold equity participation of at least 20 percent.

The Mining (Local Content) Regulations 2018 also set the timeframe for local content percentages to be raised over the next 10 years which vary by type of good or service provided. There are immediate requirements to use 100 percent local content for financial, insurance, legal, catering, cleaning, laundry, and security services. All contractors must submit a local content plan to the GoT, which includes provisions to favor local content and meets required local content percentages. The plan must include five sub-plans on employment and training; research and development; technology transfer; legal services; and financial services. The regulations also require contractors to implement bidding procedures to acquire goods and services and to award contracts to indigenous Tanzanian companies if they do not exceed the lowest bidder by more than 10 percent. There are also regular contractor reporting requirements. Violating these regulations can lead to a fine of up to TZS 500 million or five years imprisonment.

The Tanzania Investment Center contains many relevant laws, rules, procedures, and reporting requirements for investors on its portal at http://tanzania.eregulations.org , but it is not comprehensive.

Competition and Anti-Trust Laws

The Fair Competition Commission (FCC) is an independent government body mandated to intervene, as necessary, to prevent significant market dominance, price fixing, extortion of monopoly rent to the detriment of the consumer, and market instability. The FCC has the authority to restrict mergers and acquisitions if the outcome is likely to create market dominance or lead to uncompetitive behavior.

Expropriation and Compensation

The constitution and investment acts require government to refrain from nationalization. However, the GoT may expropriate property after due process for the purpose of national interest. The Tanzanian Investment Act guarantees payment of fair, adequate, and prompt compensation; access to the court or arbitration for the determination of adequate compensation; and prompt repatriation in convertible currency where applicable. For protection under the Tanzania Investment Act, foreign investors require USD 500,000 minimum capital and Tanzanian investors require USD 100,000.

GoT authorities do not discriminate against U.S. investments, companies, or representatives in expropriation. There have been cases of government revocation of hunting concessions that grant land rights to foreign investors, including a U.S.-based company with strategic investor status in 2016. In late 2018, the GoT expropriated several dormant cashew-processing factories. In early 2019, the GoT reportedly repossessed 16 previously-privatized factories that were not in operation. At the same time, the government issued a notice to more than 30 businesses, including hotels and other factories, warning them that if they did not present a plan for revitalizing their businesses, the GoT would repossess them. The ownership structures of these businesses are unconfirmed; however, there are reports that some have foreign ownership. At least one factory with substantial U.S. investment reports that the GoT has blocked the sale of its assets.

There are numerous examples of indirect expropriation, such as confiscatory tax regimes or regulatory actions that deprive investors of substantial economic benefits from their investments.

Dispute Settlement

ICSID Convention and New York Convention

Tanzania is a member of both the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA). Tanzania is a signatory to the New York Convention on the Recognition and Enforcement of Arbitration Awards.

A new Arbitration Act adopted in February 2020 replaces the 1931 Arbitration Act and is generally a replica of the English Arbitration Act, 1996. The act slightly amends the Public Private Partnership (PPP) (Amendment) Act, No. 9 of 2018 (the PPP Amendment Act) which stated that PPP agreements are subject to local arbitration under the arbitration laws of Tanzania and must take place on Tanzanian soil. With the change, however, the arbitrator body may be international. There was a similar semantic change to the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 and the Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 (collectively the Natural Wealth Laws) to again allow for international arbitration as long as they are governed by Tanzanian law and the venue is in Tanzania. However, it is important to note that interpretations of this act vary among legal practitioners and thus far, there has been no foreign arbitral body to travel to Tanzania

Investor-State Dispute Settlement

Investment-related disputes in Tanzania can be protracted. The Commercial Court of Tanzania operates two sub-registries located in the cities of Arusha and Mwanza. The sub-registries, however, do not have resident judges. A judge from Dar es Salaam conducts a monthly one-week session at each of the sub-registries. The government said it intends to establish more branches in other regions including Mbeya, Tanga, and Dodoma, though progress has stalled. Court-annexed mediation is also a common feature of the country’s commercial dispute resolution system.

Despite legal mechanisms in place, foreign investors have claimed that the GoT sometimes does not honor its agreements. Additionally, investors continue to face challenges receiving payment for services rendered for GoT projects. One high profile example of such a dispute is that of a U.S.-based energy company, which in 2017 filed an application for ICSID arbitration seeking USD 561 million for alleged breach of contract of a purchase power agreement. The dispute is ongoing.

Bankruptcy Regulations

Tanzania has a bankruptcy law which allows for companies to declare insolvency. The insolvency process includes the appointment of receiver managers, administrative receivers, or liquidators. In practice the process is very long and expensive. Preferential debts such as government taxes and rents, outstanding wages and salaries, and other employee compensation take priority over other claims, including those from creditors. Insolvent or illiquid companies may also seek the protection of the courts by seeking a compromise or arrangement as proposed between a company and its creditors, a certain class of creditors, or its shareholders.

According to the 2020 World Bank’s Ease of Doing Business report, it takes an average of three years to conclude bankruptcy proceedings in Tanzania. The recovery rate for creditors on insolvent firms was reported at 20.4 U.S. cents on the dollar, with judgments typically made in local currency.

4. Industrial Policies

Investment Incentives

The Tanzania Investment Center (TIC) offers a package of investment benefits and incentives to both domestic and foreign investors without performance requirements. A minimum capital investment of USD 500,000 if foreign owned or USD 100,000 if locally owned is required.

These incentives include the following:

  • Discounts on customs duties, corporate taxes, and VAT paid on capital goods for investments in mining, infrastructure, road construction, bridges, railways, airports, electricity generation, agribusiness, telecommunications, and water services.
  • 100 percent capital allowance deduction in the years of income for the above-mentioned types of investments – though there is ambiguity as to how this is accomplished.
  • No remittance restrictions. The GoT does not restrict the right of foreign investors to repatriate returns from an investment.
  • Guarantees against nationalization and expropriation. Any dispute arising between the GoT and investors may be settled through negotiations or submitted for arbitration.
  • Allowing interest deduction on capital loans and removal of the five-year limit for carrying forward losses of investors.

Investors may apply for “Strategic Status” or “Special Strategic Status” to receive further incentives. The criteria used to determine whether an investor may receive these designations are available on TIC’s website (www.tic.co.tz/strategicInvestor ).

The government habitually introduces waivers through the Public Finance Act with the aim of attracting investment in certain targeted sectors. In Financial Year 2019/2020, the government introduced a VAT exemption for the following items in order to encourage investment: import of grain drying equipment; supply of aircraft lubricants to a local operator of air transportation; and imports refrigerated by a person in horticulture for exclusive use in Tanzania Mainland.  The GoT also introduced a reduction of corporate income tax for new investors involved in the production of sanitary pads from 30% to 25% for two years, subject to the investor signing a performance agreement with the government.

The Export Processing Zones Authority (EPZA) oversees Tanzania’s Export Processing Zones (EPZs) and Special Economic Zones (SEZs). EPZA’s core objective is to build and promote export-led economic development by offering investment incentives and facilitation services. Minimum capital requirements for EPZ and SEZ investors are USD 500,000 for foreign investors and USD 100,000 for local investors. Investment incentives offered for EPZs include the following.

  • An exemption from corporate taxes for ten years.
  • An exemption from duties and taxes on capital goods and raw materials.
  • An exemption on VAT for utility services and on construction materials.
  • An exemption from withholding taxes on rent, dividends, and interests.
  • Exemption from pre-shipment or destination inspection requirements.
  • SEZs offer similar incentives, excluding the ten-year exemption from corporate taxes.

The Zanzibar Investment Promotion Agency (ZIPA) and the Zanzibar Free Economic Zones Authority (ZAFREZA) offer following incentives:

CATEGORY “A” FREE ECONOMIC ZONE DEVELOPERS: DEVELOPMENT OF INFRASTRUCTURE

  1. The developer of a Free Economic Zone shall benefit to the following incentives:
  • exemption from payment of taxes and duties for machinery, equipment, heavy duty vehicles, building and construction materials, and any other goods of capital nature to be used for purposes of development of the Free Economic Zone infrastructure;
  • exemption from payment of corporate tax for an initial period of ten years and thereafter a corporate tax, shall be charged at the rate specified in the Income Tax Act;
  • exemption from payment of withholding tax on rent, dividends ‘and interest for the first ten years;
  • exemption from payment of property tax for the first ten years;
  • remission of customs duty, value added tax and any other tax payable in respect of importation of one administrative vehicle, ambulances, firefighting equipment and firefighting vehicles and up to two buses for employees’ transportation to and from the Free Economic Zone;
  • exemption from payment of stamp duty on any instrument executed in or outside the Free Economic Zone relating to transfer, lease or hypothecation of any movable or immovable property situated within the Free Economic Zone or any document, certificate, instrument, report or record relating to any activity, action, operation, project, undertaking or venture in the Free Economic Zone;
  • treatment of goods destined into Free Economic Zones as transit goods; and
  • on site customs inspection of goods within Free Economic Zones.

CATEGORY “B” FREE ECONOMIC ZONES OPERATORS: APPROVED INVESTORS PRODUCING FOR SALE INTO THE CUSTOMS TERRITORY

  1. Approved Investors whose primary markets are within the customs territory shall be entitled to the:
  • remission of customs duty, value added tax and any other tax charged on raw materials and goods of capital nature related to the production in the Free Economic Zones;
  • exemption from payment of withholding tax on interest on foreign sourced loan;
  • remission of customs duty, value added tax and any other tax payable in respect of importation of one administrative vehicle, one ambulances, firefighting equipment and firefighting vehicles and up to two buses for employees’ transportation into and from the Free Economic Zones;
  • exemption from pre-shipment or destination inspection requirements;
  • on site customs inspection of goods within Free Economic Zones;
  • access to competitive, modern and reliable services available within the Free Economic Zones; and
  • subject to compliance with applicable conditions and procedures for foreign exchange and payment of tax whenever appropriate, unconditional transfer through any authorized dealer bank in freely convertible currency of;

(i) net profits or dividends attributable to the investment;       (ii) payments in respect of loan servicing where a foreign loan has been obtained;

(ii) payments in respect of loan servicing where a foreign loan has been obtained;       (iii) royalties, fees and charges for any technology transfer agreement;

(iii) royalties, fees and charges for any technology transfer agreement;       (iv) the remittance of proceeds in the event of sale or liquidation of the licensed business or any interest attributable to the licensed business; and

(iv) the remittance of proceeds in the event of sale or liquidation of the licensed business or any interest attributable to the licensed business; and       (v) payments of emoluments and other benefits to foreign personnel employed in Tanzania in connection with the licensed business.

(v) payments of emoluments and other benefits to foreign personnel employed in Tanzania in connection with the licensed business.

CATEGORY “C” FREE ECONOMIC ZONE OPERATORS: APPROVED INVESTORS PRODUCING FOR EXPORT MARKETS

  1. Approved Investors producing for export markets m non-manufacturing or processing sectors shall be entitled to the:
  • subject to compliance with applicable conditions and procedures, accessing the export credit guarantee scheme;
  • remission of customs duty, value added and any other tax charged on raw materials and goods of capital nature related to the production in the Free Economic Zones;
  • exemption from payment of corporate tax for an initial period of ten years and thereafter, a corporate tax shall be charged at the rate specified in the Income Tax Act;
  • exemption from payment of withholding tax on rent, dividends and interests for the first ten years;
  • exemption from payment of all taxes and levies imposed by the Local Government Authorities for products produced in the Free Economic Zones for a period of ten years;
  • exemption from pre-shipment or destination inspection requirements;
  • on site customs inspection of goods in the Free Economic Zones;
  • remission of customs duty, value added tax and any other tax payable in respect of importation of one administrative vehicle, ambulances, firefighting equipment and vehicles and up to two buses for employees’ transportation to and from the Free Economic Zones;
  • treatment of goods destined into Free Economic Zones as transit goods;
  • access to competitive, modern and reliable services available within the Free Economic Zones; and
  • subject to compliance with applicable conditions and procedures for foreign exchange and payment of tax whenever appropriate unconditional transfer through any authorized dealer bank in freely convertible currency of:

(i) net profits or dividends attributable to the investment;

(ii) payments in respect of loan servicing where a foreign loan has been obtained;

(iii) royalties, fees and charges ifor any technology transfer agreement;

(iv) the remittance of proceeds in the event of sale or liquidation of the business enterprises or any interest attributable to the investment;

(v) payments of emoluments and other benefits to foreign personnel employed in Tanzania in connection with the business enterprise; twenty percent of total turnover is allowed to be sold to the local market and is subject to the payment of all taxes;

  • twenty percent of total turnover is allowed to be sold to the local market and is subject to the payment of all taxes;
  • hundred percent foreign ownership is allowed ; and
  • no limit to the duration that goods may be stored in the Freeport Zones.

2. For purposes of this section investors licensed primarily for export markets are investors whose exports are more than eighty percent of total annual production.

Incentives and allowances outside Free Economic Zones

1. Approved investor investing outside Free Economic Zones, may be granted the:

  • exemption from payment of import duty, excise duty Value Added Tax and other similar taxes on machinery, equipment, spare parts, vehicles and other input necessary and exclusively required by that enterprise during construction period indicated in the Investment Certificate;
  • exemption from payment of business license fee for the first three months of trial operation;
  • corporate tax exemption for up to five years;
  • hundred percent foreign ownership;
  • hundred percent retention of all profits after tax;
  • hundred percent allowance Research and Development; and
  • hundred percent allowance for free repatriation of profit after tax.

2. Without prejudice to the provisions of paragraph 1 of this Part, approved investor investing in manufacturing sector may further be granted the:

  • exemption from payment of any tax on all goods produced for exports;
  • exemption from payment of trade levy for raw materials and industrial inputs procured from Tanzania Mainland;
  • exemption from payment of import duty, Value Added Tax and other similar taxes on raw and packaging materials during project operations;
  • exemption of Income Tax on interest on registered borrowed capital; and
  • hundred percent allowance investment deduction on capital expenditure within five years;

3. Without prejudice to the provisions of paragraph 1 of this Part, Approved Investor investing in real estate business may also be granted the:

  • exemption of income tax on interest on borrowed capital;
  • stamp duty exemption;
  • hundred percent allowance investment deduction on capital expenditure within five years; and
  • capital gains tax on properties sold or purchased.

Foreign Trade Zones/Free Ports/Trade Facilitation

Tanzania’s export processing zones (EPZs) and special economic zones (SEZs) are assigned geographical areas or industries designated to undertake specific economic activities with special regulations and infrastructure requirements. EPZ status can also be extended to stand-alone factories at any geographical location. EPZ status requires the export of 80 percent or more of the goods produced. SEZ status has no export requirement, allowing manufacturers to sell their goods locally. As of March 2018, there were 14 designated EPZ/SEZ industrial parks, 10 of which are in development, and 75 stand-alone EPZ factories.

Performance and Data Localization Requirements

The Non-Citizens (Employment Regulation) Act (see Section 12 Labor Policies and Practices below) requires employers to attempt to fill positions with Tanzanian citizens before seeking work permits for foreign employees, and to develop plans to transition all positions held by foreign employees to local employees over time.

Because the local content (LC) initiative cuts across all economic sectors, the government decided that oversight of LC development should take a multi-sector approach, rather than being confined to a single ministry or sector. In 2015, the government directed the National Economic Empowerment Council (NEEC) to oversee implementation of local empowerment initiatives. The objective of the local content policy is to put local products and services – delivered by businesses owned and operated by Tanzanians – in an advantageous position to exploit opportunities emanating from inbound foreign direct investments. In 2015, the GoT enacted The Petroleum Act and, subsequently, issued The Petroleum (Local Content) Regulations 2017. Similarly, in 2017, the GoT amended mining laws, issuing The Mining (Local Content) Regulations 2018. (See Chapter 4: Laws and Regulations on Foreign Direct Investment for more on recent local content laws.)

As of November 2019, Bank of Tanzania (BoT) regulations require banks to physically house their primary data centers in Tanzania or face steep penalties. The Tanzanian Bankers Association is appealing the requirement as it is cumbersome, expensive, and contrary to industry best practices.

In 2016, the GoT launched a USD 94 million national data center (NDC), which is operated by the GoT’s Telecommunications Corporation (TTC). Under the Tanzania Telecommunications Corporation (TTC) Act 2017, the TTC plans, builds, operates and maintains the “strategic telecommunications infrastructure,” which is defined as transport core infrastructure, data center and other infrastructure that the GoT proclaims “strategic” via official public notice.

5. Protection of Property Rights

Real Property

All land is owned by the government and procedures for obtaining a lease or certificate of occupancy may be complex and lengthy. Less than 15 percent of land has been surveyed, and registration of title deeds is handled manually, mainly at the local level. Foreign investors may occupy land for investment purposes through a government-granted right of occupancy (“derivative rights” facilitated by TIC), or through sub-leases from a granted right of occupancy. Foreign investors may also partner with Tanzanian leaseholders to gain land access.

Land may be leased for up to 99 years, but the law does not allow individual Tanzanians to sell land to foreigners. There are opportunities for foreigners to lease land, including through TIC, which has designated specific plots of land (a land bank) to be made available to foreign investors. Foreign investors may also enter into joint ventures with Tanzanians, in which case the Tanzanian provides the use of the land (but retains ownership, i.e., the leasehold).

Secured interests in property are recognized and enforced. Though TIC maintains a land bank, restrictions on foreign ownership may significantly delay investments. Land not in the land bank must go through a lengthy approval process by local-level authorities, the Ministry of Lands, Housing, Human Settlements Development (MoLHHSD), and the President’s Office to be designated as “general land,” which may be titled for investment and sale.

The MoLHHSD handles registration of mortgages and rights of occupancies and the Office of the Registrar of Titles issues titles and registers mortgage deeds. Title deeds are recognized as collateral for securing loans from banks. In January 2018, the GoT amended the land law, requiring that loan proceeds secured by mortgaging underdeveloped land be used solely to develop the specific piece of land used as collateral. The changes apply to general land managed by the MoLHHSD’s Commissioner for Lands, who must receive a report from the lender showing how loan proceeds will be used to develop the land. The law does not apply to village land allocated by village councils, which cannot be mortgaged to a financial institution.

Tanzania’s Registering Property rank in the World Bank’s 2020 Ease of Doing Business report deteriorated from 142 in 2018 to 146 in 2019 and 2020. According to the report, it takes eight procedures and 67 days to register property compared the Sub-Saharan Africa average of 51.6 days.

Intellectual Property Rights

The GoT’s Copyright Society of Tanzania (COSOTA) is responsible for registration and enforcement of copyrighted materials, while the Business Registrations and Licensing Agency (BRELA) within the Ministry of Trade administers trademark and patent registration. o It is the responsibility of the rights holders to enforce their rights where relevant, retaining their own counsel and advisors. The Fair Competition Commission (FCC) promotes competition, protects consumers against unfair market conduct, and has quasi-judicial powers to determine trademark and patent infringement cases. The FCC is also tasked with combating the sale of counterfeit merchandise. However, the Tanzania Medicines and Medical Devices Authority (TMDA) handles counterfeit human medicines, cosmetics, and packaged food materials. and its mandate is stipulated in the Tanzania Food, Drugs, and Cosmetics Act (TFDCA) as per the amendment of 2019. Despite its efforts, limited resources make it difficult for the GoT to adequately combat counterfeiting.

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

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

6. Financial Sector

Capital Markets and Portfolio Investment

Tanzania’s Dar es Salaam Stock Exchange (DSE) is a self-listed publicly-owned company. In 2013, the DSE launched a second tier market, the Enterprise Growth Market (EGM) with lower listing requirements designed to attract small and medium sized companies with high growth potential. As of December 2017, DSE’s total market capitalization reached USD 10.5 billion, a 20.6 percent increase over the previous year’s figure. The Capital Markets and Securities Authority (CMSA) Act facilitates the free flow of capital and financial resources to support the capital market and securities industry. Tanzania, however, restricts the free flow of investment in and out of the country, and Tanzanians cannot sell or issue securities abroad unless approved by the CMSA.

Under the Capital Markets and Securities (Foreign Investors) Regulation 2014, there is no aggregate value limitation on foreign ownership of listed non-government securities. Despite progress, the country’s capital account is not fully liberalized and only foreign individuals or companies from other EAC nations are permitted to participate in the government securities market. Even with this recent development allowing EAC participation, ownership of government securities is still limited to 40 percent of each security issued.

Tanzania’s Electronic and Postal Communications Act 2010 amended in 2016 by the Finance Act 2016 requires telecom companies to list 25 percent of their shares via an initial public offering (IPO) on the DSE. Of the seven telecom companies that filed IPO applications with the CMSA, only Vodacom’s application received approval. TiGo’s IPO is reportedly close to approval.

As part of the Mining (Minimum Shareholding and Public Offering) Regulations 2016, large scale mining operators were required to float a 30 percent stake on the DSE by October 7, 2018. In February 2017 the GoT moved the date to August 23, 2017. To date, no mining companies have listed on the DSE.

Money and Banking System

Tanzania’s financial inclusion rate increased significantly over the past decade thanks to mobile phones and mobile banking. However, participation in the formal banking sector remains low. Low private sector credit growth and high non-performing loan (NPL) rates are persistent problems.

According to the IMF’s most recent Financial System Stability Assessment, Tanzania’s bank-dominated financial sector is small, concentrated, and at a relatively nascent stage of development. Financial services provision is dominated by commercial banks, with the ten largest institutions being preeminent in terms of mobilizing savings and intermediating credit. The report found that nearly half of Tanzania’s 45 banks are vulnerable to adverse shocks and risk insolvency in the event of a global financial crisis. (Source: https://www.imf.org/en/Publications/CR/Issues/2018/12/04/United-Republic-of-Tanzania-Financial-Sector-Assessment-Program-Press-Release-Staff-Report-46418 )

The two largest banks are CRDB Bank and National Microfinance Bank (NMB), which represent almost 30 percent of the market. The only U.S. bank is Citibank Tanzania Limited. Private sector companies have access to commercial credit instruments including documentary credits (letters of credit), overdrafts, term loans, and guarantees. Foreign investors may open accounts and earn tax-free interest in Tanzanian commercial banks.

The Banking and Financial Institution Act 2006 established a framework for credit reference bureaus, permits the release of information to licensed reference bureaus, and allows credit reference bureaus to provide to any person, upon a legitimate business request, a credit report. Currently, there are two private credit bureaus operating in Tanzania – Credit Info Tanzania Limited and Dun & Bradstreet Credit Bureau Tanzania Limited.

Foreign Exchange and Remittances

Foreign Exchange

Tanzanian regulations permit unconditional transfers through any authorized bank in freely convertible currency of net profits, repayment of foreign loans, royalties, fees charged for foreign technology, and remittance of proceeds. The only official limit on transfers of foreign currency is on cash carried by individuals traveling abroad, which cannot exceed USD 10,000 over a period of 40 days. Investors rarely use convertible instruments.

The Bank of Tanzania’s new Bureau de Change regulations with stringent requirements came into force in June 2019. The regulations include a minimum capital requirement of TZS 1 billion (Approx. USD 431,000) and a non-interest bearing deposit of USD 100,000 with the Bank of Tanzania (the regulator). Regulations also require the business premises to be fitted with CCTV cameras, and new stringent procedures and policies for detecting and reporting money laundering and terrorism finance. Bank of Tanzania closed more than ninety percent of all forex shops in the country, stating that they did not pass inspection for compliance with these requirements. In response, commercial banks and Tanzania Posts Corporation were licensed to provide forex services.

The value of the Tanzanian currency, the shilling, is determined by a free-floating exchange rate system based on supply and demand in international foreign exchange markets. However, Interbank Foreign Exchange Market (IFEM) and the rates quoted by commercial banks and exchange bureaus often vary considerably. There are reports that the Bank of Tanzania has stepped in several times over the past few years to stabilize the exchange rate.

Remittance Policies

There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

Sovereign Wealth Funds

Tanzania does not have a sovereign wealth fund.

7. State-Owned Enterprises

Public enterprises do not compete under the same terms and conditions as private enterprises because they have access to government subsidies and other benefits. SOEs are active in the power, communications, rail, telecommunications, insurance, aviation, and port sectors. SOEs generally report to ministries and are led by a board. Typically, a presidential appointee chairs the board, which usually includes private sector representatives. SOEs are not subjected to hard budget constraints. SOEs do not discriminate against or unfairly burden foreigners, though they do have access to sovereign credit guarantees.

As of June 2019, the GoT’s Treasury Registrar reported shares and interests in 266 public parastatals, companies and statutory corporations. (See  http://www.tro.go.tz/index.php/en/latest-news/382-treasury-registrar-sets-record-with-552pc-increase-in-annual-dividend )

Relevant ministry officials usually appoint SOEs’ board of directors to serve preset terms under what is intended to be a competitive process. As in a private company, senior management report to the board of directors.

Privatization Program

The government retains a strong presence in energy, mining, telecommunication services, and transportation. The government is increasingly empowering the state-owned Tanzania Telecommunications Corporation Limited (TTCL) with the objective of safeguarding the national security, promoting socio-economic development, and managing strategic communications infrastructure. The government also acquired 51 percent of Airtel Telecommunication Company Limited and became the majority shareholder. In the past, the GoT has sought foreign investors to manage formerly state-run companies in public-private partnerships, but successful privatizations have been rare. Though there have been attempts to privatize certain companies, the process is not always clear and transparent.

8. Responsible Business Conduct

Responsible business conduct (RBC) includes respecting human rights, environmental protection, labor relations and financial accountability, and it is practiced by a number of large foreign firms. Tanzania has laws covering labor and environmental issues. The Employment and Labor Relations Act (ELRA) establishes labor standards, rights and duties, while the Labor Institutions Act (LIA) specifies the government entities charged with administering labor laws.

The GoT’s National Environment Management Council (NEMC) undertakes enforcement, compliance, review and monitoring of environmental impact assessments; performs research; facilitates public participation in environmental decision-making; raises environmental awareness; and collects and disseminates environmental information. Stakeholders, however, have expressed concerns over whether the NEMC has sufficient funding and capacity to handle its broad mandate.

There are no legal requirements for public disclosure of RBC, and the GoT has not yet addressed executive compensation standards. Dar es Salaam Stock Exchange (DSE) listed companies, however, must release legally required information to shareholders and the general public. In addition, the DSE signed a voluntary commitment with the United Nations Sustainable Stock Exchanges Initiative in June 2016, to promote long-term sustainable investments and improve environmental, social and corporate governance. Tanzania has accounting standards compatible with international accounting bodies.

The Tanzanian government does not usually factor RBC into procurement decisions. The GoT is responsible for enforcing local laws, however, the media regularly reports on corruption cases where offenders allegedly avoid sanctions. There have also been reports of corporate entities collaborating with local governments to carry out controversial undertakings that may not be in the best interest of the local population.

Some foreign companies have engaged NGOs that monitor and promote RBC to avoid adversarial confrontations. In addition, some of the multinational companies who are signatories to the Voluntary Principles on Security and Human Rights (VPs) have taken the lead and appointed NGOs to conduct programs to mitigate conflicts between the mining companies, surrounding communities, local government officials and the police.

Tanzania is a member of the Extractive Industries Transparency Initiative (EITI) and in 2015 Tanzania enacted the Extractive Industries Transparency and Accountability Act, which demands that all new concessions, contracts and licenses are made available to the public. The government produces EITI reports that disclose revenues from the extraction of its natural resources.

9. Corruption

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

Tanzania has three institutions specifically focused on anti-corruption. The Prevention and Combating of Corruption Bureau (PCCB) prevents corruption, educates the public, and enforces the law against corruption. The Ethics Secretariat and its associated Ethics Tribunal under the President’s office enforces compliance with ethical standards defined in the Public Leadership Codes of Ethics Act 1995.

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

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

President Magufuli’s current anti-corruption campaign has affected public discourse about the prevailing climate of impunity, and some officials are reluctant to engage openly in corruption. Transparency International (TI), which ranks perception of corruption in public sector, gave Tanzania a score of 37 points out of 100 for 2019 and 36 points for 2018. The Afrobarometer report estimates that between 2016 and 2018 the corruption increase in the previous 12 months was only 10% in Tanzania, the lowest in Africa. While for the same period, 23% of the respondents voted that Tanzania is doing a bad job of fighting corruption, again the lowest in Africa.

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

Resources to Report Corruption

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

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

10. Political and Security Environment

Since gaining independence, Tanzania has enjoyed a relatively high degree of peace and stability compared to its neighbors in the region.  Tanzania has held five national multi-party elections since 1995, the most recent in 2015. The next national elections are scheduled for October 2020. Mainland Tanzania government elections have been generally free of political violence.  Elections on the semi-autonomous archipelago of Zanzibar, however, have been marred by political violence several times since 1995, including in 2015.

October 2015 general elections were conducted in a largely open and transparent atmosphere; however, simultaneous elections in Zanzibar were controversially annulled after an opposition candidate declared victory.  A heavily criticized re-run election was held on March 20, 2016 despite an opposition boycott. Since the 2015 election, the GoT has placed several restrictions on political activity, including severely limiting the ability of opposition political parties and civil society organizations to debate issues publicly, or assemble peacefully.  Elections in 2018 and 2019 were marred by allegations of irregularities and suppression of opposition candidates and voters. National elections, including Presidential elections on the Mainland and Zanzibar are scheduled for October 2020.

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

There are also concerns about insecurity spilling over from neighboring countries, particularly along the Tanzania-Mozambique border, as well as from conflicts in the Democratic Republic of the Congo and Burundi.

11. Labor Policies and Practices

The GoT’s Five Year Development Plan 2016-2021 (FYDP II), which is in its fourth year of implementation, acknowledges Tanzania’s shortage of skilled labor and the importance of professional training to support industrialization. The Integrated Labor Force Survey Analytical Report of 2014 (most recent) found that only 3.6 percent of Tanzania’s 20-million-person labor force is highly skilled. On the regional front, Tanzania, Uganda, Rwanda and Kenya have committed to the EAC’s 2012 Mutual Recognition Agreement of engineers, making for a more regionally competitive engineering market.

In Tanzania, labor and immigration regulations permit foreign investors to recruit up to five expatriates with the possibility of additional work permits granted under specific conditions.

The Non-Citizens (Employment Regulation) Act 2015 introduced stricter rules for hiring foreign workers. Under the Act, the Labor Commissioner must determine if “all possible efforts have been explored to obtain a local expert” before approving a non-citizen work permit. In addition, employers must submit “succession plans” for foreign employees, detailing how knowledge and skills will be transferred to local employees.

Non-citizens may be granted two-year work permits, renewable up to five years, while foreign investors may be granted ten-year work permits which may be extended if the investor is deemed to be contributing to the economy and well-being of Tanzanians. Some stakeholders fear that this provision creates an opening for corruption and arbitrarily prejudicial decisions against foreign investors. Since the passage of the Act, GoT officials have been conducting aggressive “special permit inspections” to verify the validity of work permits. The process for obtaining work permits remains immensely bureaucratic, opaque at times, and slow.

Mainland Tanzania’s minimum wage, which has not changed since July 2013, is set by categories covering 12 employment sectors. The minimum wage ranges from TZS 100,000 (USD 45) per month for agricultural laborers to TZS 400,000 (USD 180) per month for laborers employed in the mining sector. Zanzibar’s minimum wage is TZS 300,000 (USD 135), after being increased from TZS 150,000 (USD 68) in April 2017.

Mainland Tanzania and Zanzibar governments maintain separate labor laws. Workers on the Mainland have the right to join trade unions. Any company with a recognized trade union possessing bargaining rights can negotiate in a Collective Bargaining Agreement. In the public sector, the government sets wages administratively, including for employees of state-owned enterprises.

Mainland workers have the legal right to strike and employers have the right to a lockout. The law restricts the right to strike when doing so may endanger the health of the population. Workers in certain sectors are restricted from striking or subject to limitations. In 2017, the GoT issued regulations that strengthened child labor laws, created minimum one-year terms for certain contracts, expanded the scope of what is considered discrimination, and changed contract requirements for outsourcing agreements. In 2019, the government adopted a new National Strategy Against Child Labor, though it has not officially been implemented.

The labor law in Zanzibar applies to both public and private sector workers. Zanzibar government workers have the right to strike as long as they follow procedures outlined in the Employment Act of 2005, but they are not allowed to join Mainland-based labor unions. Zanzibar requires a union with 50 or more members to be registered and sets literacy standards for trade union officers. An estimated 40 percent of Zanzibar’s workforce is unionized. (See Chapter 4: Laws and Regulations on Foreign Direct Investment for more on recent local content laws.)

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

In 1996, the U.S. Overseas Private Investment Corporation (OPIC), the predecessor agency to U.S. International Development Finance Corporation (DFC), signed an incentive agreement with the GoT. The Ministry of Foreign Affairs has in principle agreed that the existing OPIC agreement will allow for the International Development Finance Corporation (DFC) to operate in Tanzania. The current portfolio includes projects in agriculture, energy, micro-finance, and logistics. In addition, the DFC inherits USAID’s Development Credit Authority (DCA)’s active portfolio including guarantees to several banks to encourage lending to small and medium sized enterprises.

Tanzania is also a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA), which offers political risk insurance and technical assistance to attract FDI.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $58 Billion 2018 $58 Billion www.worldbank.org/en/country/Tanzania 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or internationalSource of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2018 $1,444 BEA
https://apps.bea.gov/
international/factsheet/
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2018 $1 million BEA
https://www.bea.gov/
international/direct-investment-and-multinational-enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 5.5% UNCTAD
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data:
National Bureau of Statistics (NBS): 2018 GDP: TZS 129.4 trillion (www.nbs.go.tz)
Bank of Tanzania (BoT): 2018 Investment Report (www.bot.go.tz )

Table 3: Sources and Destination of FDI
The IMF’s The Bank of Tanzania reports the top source countries for inward direct investment to Mainland Tanzania and Zanzibar separately. Data on outward direct investment is not available.

According to the Bank of Tanzania, the top sources for inward foreign investment into Mainland Tanzania in 2017 were: United Kingdom, South Africa, Norway, Netherlands, Nigeria, Mauritius, and Kenya.

According to the Bank of Tanzania, the top sources for inward foreign investment into Zanzibar in 2017 were: United Kingdom, Italy, Kenya, Luxembourg, South Africa, Spain, and the United States.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Economic Officer
U.S.  Embassy Dar es Salaam
686 Old Bagamoyo Road
Msasani, Dar es Salaam
Tel: 255-22-229-4000
drseconomic@state.gov

Uganda

Executive Summary

Uganda’s investment climate continues to present both important opportunities and major challenges for U.S. investors. With a market economy, ideal climate, ample arable land, young and largely English-speaking population, and at least 1.4 billion barrels of recoverable oil, Uganda offers numerous opportunities for investors. Uganda’s gross domestic product (GDP) grew by 6.5 percent in fiscal year (FY) 2018/2019. The International Monetary Fund (IMF) had projected 5.5 – 6 percent growth in FY 2019/2020, though the combined impact of the COVID-19 pandemic and related restrictions, the current locust infestation, and the negative economic effects associated with Uganda’s impending elections are likely to reduce this figure. Uganda maintains a liberal trade and foreign exchange regime. Foreign direct investment (FDI) surged by a whopping 80 percent to USD 1.75 billion in FY 2018/2019, driven by the construction and manufacturing sub-sectors. Uganda’s power, agricultural, construction, infrastructure, technology, and healthcare sectors present important opportunities for U.S. business and investment.

President Yoweri Museveni and government officials vocally welcome foreign investment in Uganda. However, the government’s actions sometimes do not support its rhetoric. Closing political space, poor economic management, endemic corruption, growing sovereign debt, weak rule of law, and the government’s failure to invest adequately in the health and education sectors all create risks for investors. U.S. firms may also find themselves competing with third country firms that cut costs and win contracts by disregarding environmental regulations and labor rights, dodging taxes, and bribing officials. Shortages of skilled labor and a complicated land tenure system also impede investment.

An uncertain mid-to-long-range political environment also increases risk to foreign businesses and investors. Domestic political tensions have increased in the run-up to the 2021 elections as 34-year incumbent President Museveni faces new challengers and a disenfranchised youth demographic that comprises 77 percent of the population.

On the legislative front, in a move aimed ostensibly at reducing the repatriation of hard currency profits, in October 2019, the government approved the Communications Licensing Framework which imposed a 20 percent mandatory stock listing requirement on mobile telecommunication service providers. The same framework also requires telecommunication infrastructure companies to sell 20 percent of their equity to Ugandan citizens.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2019 137 of 180 https://www.transparency.org/cpi2019
World Bank’s Doing Business Report 2020 116 of 190 https://www.doingbusiness.org/en/data/
exploreeconomies/uganda
Global Innovation Index 2019 102 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 USD 42 million https://apps.bea.gov/international/
factsheet/factsheet.cfm?Area=446
World Bank GNI per capita 2018 USD 620 https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD?locations=UG

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Ugandan government and authorities vocally welcome FDI, and the country’s free market economy, liberal financial system, and more than 40 million-person consumer market attract investors. However, rampant corruption, weak rule of law, and an increasingly aggressive Uganda Revenue Authority create a challenging business environment.

The 2019 Investment Code Act (ICA) established both benefits and challenges to FDI. It abolished restrictions on technology transfer and repatriation of funds by foreign investors, and established new incentives (e.g., tax waivers) for investment. However, the ICA also set a minimum value of USD 250,000 for FDI and a yet-to-be-specified minimum value for portfolio investment. Additionally, the ICA authorized the Government of Uganda (GOU) to alter these thresholds at any time, thereby creating potential uncertainty for investors. Under the ICA, investment licenses carry specific performance conditions varying by sector, such as requiring investors to permit the Uganda Investment Authority (UIA) to monitor operations, or to employ or train Ugandan citizens, or use Ugandan goods and services to the greatest extent possible. Further, the ICA empowers the GOU to revoke investment licenses of entities that “tarnish the good repute of Uganda as an attractive base for investment.” The government has yet to revoke any investor license on this ground.

In October 2019, the GOU passed the Communications Licensing Framework (CLF) which requires telecommunication (telecom) companies to list 20 percent of their equity on the Uganda Securities Exchange (USE), with the aim of increasing local ownership and reducing the repatriation of profits. Additionally, the CLF requires communication infrastructure companies to sell 20 percent of their equity to citizens of Uganda. However, no company has yet implemented these requirements, and in the first “test case,” the GOU exempted a telecom infrastructure company from the required equity sale.

The Uganda Investment Authority (UIA) facilitates investment by granting licenses to foreign investors, as well as promoting, facilitating, and supervising investments. It provides a “one-stop” shop online where investors can apply for a license, pay fees, register businesses, apply for land titles, and apply for tax identification numbers. In practice, investors may also need to liaise with other authorities to complete legal requirements. The UIA also triages complaints from foreign investors. The UIA’s website (www.ugandainvest.go.ug ) and the Business in Development Network Guide to Uganda (www.bidnetwork.org ) provide information on the laws and reporting requirements for foreign investors. In practice, investors often ultimately end up bypassing the UIA after experiencing bureaucratic delays and corruption. For larger investments, companies have reported that political support from a high-ranking Ugandan official is a prerequisite.

President Museveni hosts an annual investors’ roundtable to consult a select group of foreign and local investors on increasing investment, occasionally including U.S. investors. Every Ugandan embassy has a trade and investment desk charged with advertising investment opportunities in the country.

Limits on Foreign Control and Right to Private Ownership and Establishment

Except for land, foreigners have the right to own property, establish businesses, and make investments. Ugandan law permits foreign investors to acquire domestic enterprises and to establish green field investments. The Companies Act of 2010 permits the registration of companies incorporated outside of Uganda.

Foreigners seeking to invest in the oil and gas sector must register with the Petroleum Authority of Uganda (PAU) to be added to its National Supplier Database. More information on this process is available on the Embassy’s website (select – Registering a U.S. Firm on the National Supplier Database): https://ug.usembassy.gov/business/commercial-opportunities/

The Petroleum Exploration and Development Act and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act require companies in the oil sector to prioritize using local goods and labor when possible, and give the Minister of Energy and Mineral Development (MEMD) the authority to determine the extent of local content requirements in the sector.

All investors must obtain an investment license from the UIA. The UIA evaluates investment proposals based on a number of criteria, including potential for generation of new earnings; savings of foreign exchange; the utilization of local materials, supplies, and services; the creation of employment opportunities in Uganda; the introduction of advanced technology or upgrading of indigenous technology; and the contribution to locally or regionally balanced socioeconomic development.

Other Investment Policy Reviews

The United Nations Commission on Trade and Development (UNCTAD) issued its World Investment Report, 2019, available at: https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/World_Investment_Report.aspx 

The International Monetary Fund issued an Article IV Consultation and Review in 2020, and its concluding statement is available at: https://www.imf.org/en/News/Articles/2020/02/03/pr2031-uganda-imf-staff-concludes-visit 

The World Trade Organization (WTO) issued it Trade Policy Review in 2019; the report is available at: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=254764,251521,117054,95202,80262,80232,82036,106989&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True 

Business Facilitation

The UIA one-stop shop website assists in registering businesses and investments. In practice, investors and businesses may need to liaise with multiple authorities to set up shop, and the UIA lacks the capacity to play a robust business facilitation role. According to the 2020 World Bank Doing Business report, business registration takes an average of 25 days.

Prospective investors can also register online and apply for an investment license at https://www.ebiz.go.ug/ . The UIA also assists with the establishment of local subsidiaries of foreign firms by assisting in registration with the Uganda Registration Services Bureau (URSB) (http://ursb.go.ug/ ). New businesses are required to obtain a Tax Identification Number from the Uganda Revenue Authority (URA), which they can do online (https://www.ura.go.ug/myTin.do ) or through the UIA. Businesses must also secure a trade license from the municipality or local government in the area in which they intend to operate. Investors in specialized sectors such as finance, telecoms, and petroleum often need an additional permit from the relevant ministry in coordination with the UIA.

Under the Uganda Free Zones Act of 2014, the government continues to establish free trade zones for foreign investors seeking to produce goods for export and domestic use. Such investors receive a range of benefits including tax rebates on imported inputs and exported products. An investor seeking a free zone license may lodge an application with the Uganda Free Zones Authority (https://freezones.go.ug/ ).

Outward Investment

The GOU does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

On paper, Uganda’s legal and regulatory systems are generally transparent and non-discriminatory, and comply with international norms. In practice, bureaucratic hurdles and corruption significantly impact all investors, but with disproportionate effect on foreigners learning to navigate a parallel informal system. While Ugandan law requires open and transparent competition on government project tenders, U.S. investors have alleged that endemic corruption means that competitors not subject to the Foreign Corrupt Practices Act, or similar legislation, often pay bribes to win awards.

Ugandan law allows the banking, insurance, and media sectors to establish self-regulatory processes through private associations. The government continues to regulate these sectors, however, and the self-regulatory practices generally do not discriminate against foreign investors.

Potential investors must be aware of local, national, and supra-national regulatory requirements in Uganda. For example, EAC rules on free movement of goods and services would affect an investor planning to export to the regional market. Similarly, regulations issued by local governments regarding operational hours or the location of factories would only affect an investor’s decision at the local level. Foreign investors should liaise with relevant ministries to understand regulations in the proposed sector for investment.

Uganda’s accounting procedures are broadly transparent and consistent with international norms, though full implementation remains a challenge. Publicly listed companies must comply with accounting procedures consistent with the International Auditing and Assurance Standards Board.

Governmental agencies making regulations typically engage in only limited public consultation. Draft bills similarly are subject to limited public consultation and review. Local media typically cover public comment only on more controversial bills. Although the government publishes laws and regulations in full in the Uganda Gazette, the gazette is not available online and can only be accessed through purchase of hard copies at the Uganda Printing and Publishing Corporation offices. The Uganda Legal Information Institute also publishes all enacted laws on its website (https://ulii.org/ ).

Uganda’s court system and Inspector General of Government are responsible for ensuring the government adheres to its administrative processes, however, anecdotal reports suggest that corruption significantly undermines the judiciary’s oversight role.

In June 2019, Members of Parliament passed the Landlord and Tenants Bill that seeks to regulate the relationship between landlords and tenants. For foreign investors, the bill imposes a restriction against charging tenants rental fees in foreign currency, caps increment on rental charges to no more than 10 percent annually, and provides tenants with significantly more rights. President Museveni has yet to sign the bill into law. If signed into law, this bill could undermine investment in the real estate sector by giving disproportionate rights to tenants (commercial and residential) over property owners. The GOU has struggled to fully implement regulatory reforms announced in prior years.

Generally, there is legal redress to review regulatory mechanisms through the courts, and the process is made public.

Uganda’s legislative process includes public consultations, and, as needed, subject matter expert presentations before parliament; however, not all comments received by regulators are made publicly available and parliament’s decisions tend to be primarily politically driven. Formal scientific analyses of the potential impact of a pending regulation are seldom conducted.

Public finances are generally transparent and budget documents are available online. The government annually publishes the Annual Debt Statistical Bulletin, which contains the country’s debt obligations including status of public debt, cost of debt servicing, and liabilities. However, the government’s significant use of supplementary and classified budget accounts undermines parliamentary and public oversight of public finances.

International Regulatory Considerations

Per treaty, Uganda’s regulatory systems must conform to the below supranational regulatory systems. In practice, domestication of supranational legislation remains imperfect: -African, Caribbean, and Pacific Group of States (ACP)

  • African, Caribbean, and Pacific Group of States (ACP)
  • African Union (AU)
  • Common Market for Eastern and Southern Africa (COMESA)
  • Commonwealth of Nations
  • East African Community (EAC)

Uganda, through the Uganda National Bureau of Standards (UNBS) is a member of ISO, Codex Alimentarius and International Organization of Legal Metrology (OIML), and Afrinet. Uganda applies European Union directives and standards, but with modifications.

Uganda is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations through the Ugandan Ministry of Trade’s National TBT Coordination Committee.

Legal System and Judicial Independence

Uganda’s legal system is based on English Common Law. The courts are responsible for enforcing contracts. Litigants must first submit commercial disputes for mediation either within the court system or to the government-run Center of Arbitration for Dispute Resolution (CADER). Uganda does not have a singular commercial law; multiple statutes touch on commercial and contractual law. A specialized commercial court decides commercial disputes. Approximately 80 percent of commercial disputes are resolved through mediation. Litigants may appeal commercial court decisions and regulatory and enforcement actions through the regular national court system.

While in theory independent, in practice there are credible reports that the executive may attempt to influence the courts in high-profile cases. More importantly for most investors, endemic corruption and significant backlogs hamper the judiciary’s impartiality and efficacy.

Laws and Regulations on Foreign Direct Investment

The Constitution and ICA regulate FDI. The UIA provides an online “one-stop shop” for investors (www.ugandainvest.go.ug ).

Competition and Anti-Trust Laws

Uganda does not have any specialized laws or institutions dedicated to competition-related concerns, although commercial courts occasionally handle disputes with competition elements. There was no significant competition related dispute handled by the courts in 2019.

Expropriation and Compensation

The constitution guarantees the right to property for all persons, domestic and foreign. It also prohibits the expropriation of property, except when in the “national interest” as eminent domain and preceded by compensation to the owner at fair market value. The GOU’s new policy requiring telecommunication companies to list or sell 20 percent of their equity is what some are calling a form of indirect expropriation. Particularly considering that the few Ugandans who could afford to purchase this equity are likely to be closely associated with the government.

In 1972, then President Idi Amin expropriated assets owned by ethnic Asians (Indians). The expropriation was extrajudicial and was ordered by presidential decree. The government did not allow judicial challenge to the expropriations, nor offer any compensation to the owners. The GOU has since returned the vast majority of the properties to the original owners or their representatives. There have not been any expropriations since, and government projects are often significantly delayed by judicial disputes over compensation for property the GOU seeks to expropriate under eminent domain.

Dispute Settlement

ICSID Convention and New York Convention

Uganda is a party to both the ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The 2000 Domestic Arbitration and Conciliation Act incorporates the 1958 New York Convention.

Investor-State Dispute Settlement

Pursuant to the Arbitration and Conciliation Act, the courts and government in theory accept binding arbitration with foreign investors and between private parties. In practice, the overall challenges of the judiciary are likely to impede full enforcement. Uganda has not been involved in any official investment disputes with a U.S person in the last ten years; however, U.S. firms do complain about serious corruption in the award of government tenders.

Ugandan courts recognize and enforce foreign arbitral awards, including those issued against the government. The country is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Additionally, the Arbitration and Conciliation Act creates a framework for the recognition and enforcement of foreign arbitral awards, including those against the government.

Uganda has not had any experience of extrajudicial action against foreign investors. However, in 1972, the government of then President Idi Amin extra judicially expropriated property owned by ethnic Asians.

International Commercial Arbitration and Foreign Courts

Ugandan law provides for arbitration and mediation of civil disputes. The legal framework on arbitration includes the Arbitration and Conciliation Act and Commercial Court Division Mediation Rules. Litigants must first submit all civil disputes to mediation before a court-appointed mediator. CADER is a statutory institution that facilitates the mediation and operates based on the UNCITRAL Arbitration rules. However, unrecorded private arbitration is the most effective investment dispute resolution mechanism in Uganda.

The Foreign Judgments Reciprocal Enforcement Act enables the recognition and enforcement of judgments and awards made by foreign courts.

There is no evidence that Ugandan courts favor state owned enterprises when arbitrating or settling disputes. However, court decisions are often influenced by corruption or high-level government officials.

Bankruptcy Regulations

The Bankruptcy Act of 1931, the Insolvency Act of 2011, as well as the Insolvency Regulations of 2013 generally align Uganda’s legal framework on insolvency with international standards. The 2020 World Bank Doing Business Report ranked Uganda 99 out of 190 countries for resolving insolvency. On average, Uganda recovers USD 0.39 per dollar, well above the sub-Saharan average of USD 0.20. Bankruptcy is not criminalized.

4. Industrial Policies

Investment Incentives

The Public Private Partnership Act of 2015 creates a legal framework for the government to partner with private investors, both local and foreign, to finance investments in key sectors. The government has undertaken joint ventures with foreign investors in the oil and gas sector and for infrastructure projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Uganda Free Zones Authority (UFZA) (https://freezones.go.ug/ ) regulates free trade zones, which offer a range of tax advantages. The government’s process in awarding free trade zone status is generally transparent. However, there have been reports that corrupt individuals in government are allocating free trade zones in return for bribes. By the end of 2019, UFZA issued three new Free Zone Licenses, increasing the number of Free Zones in the country to 16. UFZA states that the actual investment of the three new free zones was USD 21.74 million.

Performance and Data Localization Requirements

The ICA does not impose any direct requirements regarding local employment or specify mandatory numbers for local employment in management positions. The broadness of its provisions, however, arguably leaves the door open for enforcement of local employment requirements. The Petroleum Exploration, Development, and Production Act and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act require investors in the oil sector to contribute to the creation of a local skilled Ugandan workforce. The National Local Content Bill, which is currently undergoing parliamentary review, would require companies to petition the GOU for permission to hire a non-Ugandan, in conjunction with the claim that no qualified Ugandan is available. Additionally, the bill requires companies to have a Ugandan deputy for every non-Ugandan senior manager and submit a clear plan to localize these positions to the governing authority.

While the UIA has significantly improved its processing of work permits and investment licenses for foreigners, bureaucratic hurdles, inconsistent enforcement, and corruption can still make obtaining visas and work permits onerous and expensive. All foreign investors must acquire an investment license from the UIA.

In as much as there is no specific localization law in Uganda, some sector specific laws impose localization requirements. The petroleum laws require foreign oil companies to prioritize the use of local goods and labor when available, and the MEMD has the authority to determine the extent of local content requirements in the sector. The Public Procurement and Disposal of Public Assets Act, which regulates government procurements, also imposes thresholds on the contracts for which a foreign company can apply. In the petroleum laws, MEMD has the responsibility to monitor companies in the oil sector to ensure they are meeting the local content requirements. Additionally, the Office of the Auditor General carries out audits to ensure adherence to local content requirements. These performance reviews can form grounds for granting incentives or enforcement of the restrictions. Since the 2013 oil laws were passed, no company has been punished for breaching local content rules. Investment incentives in Uganda are quite controversial because they apply on a case by case basis, even though the ICA lists seven grounds for granting investment incentives.

While there are no general requirements for foreign information technology (IT) providers to give the government any source code or information related to encryption, the National Information Technology Authority Act allows the Minister for Information, Communication, and Technology to order an IT provider to submit any information to the National Information Technology Authority (NITA). Similarly, the Computer Misuse Act allows the government to “compel a service provider…to co-operate and assist the competent authorities in the collection or recording of traffic data in real time, associated with specified communication transmitted by means of a computer system.” These regulatory requirements apply to all IT providers, both foreign and local. There are no measures to prevent or unduly impede companies from freely transmitting customer or other business-related data outside of Uganda. In 2017, however, the Bank of Uganda interpreted Uganda’s cyber security legislation as providing it with the mandate to require financial institutions to relocate their data centers to Uganda to provide the government with access to customers’ digital financial information. Citing customer privacy concerns, financial firms remain in negotiations with the Bank of Uganda over this policy.

5. Protection of Property Rights

Real Property

Land rights are complicated in Uganda and present a significant barrier to investment. Uganda enforces property rights through the courts; however, corruption often influences final judgments. The Mortgage Act and associated regulations make provisions for mortgages, sub-mortgages, trusts, and other forms of lien. However, due to widespread corruption and an inefficient bureaucracy, investors frequently struggle with the integrity of land transactions and recording systems.

Foreigners cannot own land directly and may only acquire leases. Such leases cannot exceed 99 years. However, foreign investors can create a Ugandan-based firm to purchase and own real estate.

The Land Act provides for four forms of land tenure: freehold, customary, “Mailo” (a form of freehold), and leasehold. Freehold, leasehold, and Mailo tenure owners hold registered titles, while customary or indigenous communal landowners – who account for up to 80 percent of all landowners – do not. Ugandan law provides for the acquisition of prescriptive rights by individuals who settle onto land (squatters) and whose settlement on such land is unchallenged by the owner for at least twelve years.

Intellectual Property Rights

Ugandan law provides for the protection of intellectual property rights (IPR), but enforcement mechanisms are weak. The country lacks the capacity to prevent piracy and counterfeit distribution. As a result, theft and infringement of IPR is common and widespread. Uganda did not enact any IP related laws and regulations in the past year.

Uganda does not track seizures of counterfeit goods or prosecutions of IPR violations. Agriculture experts estimate some 20 percent of agriculture products under copyright in Uganda are counterfeit. Uganda is not included in the United States Trade Representative (USTR)Special 301 Report or the Notorious Markets List.. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles (http://www.wipo.int/directory/en/ ).

Uganda is not included in the United States Trade Representative (USTR)Special 301 Report or the Notorious Markets List.. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles (http://www.wipo.int/directory/en/ ).

6. Financial Sector

Capital Markets and Portfolio Investment

The government generally welcomes foreign portfolio investment and has put in place a legal and institutional framework to manage such investments. The Capital Markets Authority (CMA) licenses brokers and dealers and oversees the Uganda Securities Exchange (USE), which is now trading the stock of 18 companies. Liquidity remains constrained to enter and exit sizeable positions on the USE. Capital markets are open to foreign investors and there are no restrictions for foreign investors to open a bank account in Uganda. However, the government imposes a 15 percent withholding tax on interest and dividends. Foreign-owned companies may trade on the stock exchange, subject to some share issuance requirements. The government respects IMF Article VIII and refrains from restricting payments and transfers for current international transactions.

Credit is available from commercial banks on market terms and foreign investors can access credit. However, the high yields on GOU-issued (risk-free) securities pushes up interest rates on commercial loans, undermining the private sector’s access to affordable credit.

Money and Banking System

Formal banking participation remains low, with only 20 percent of Ugandans having access to bank accounts, many via their membership in formal savings groups. However, only about five million Ugandans have bank accounts, while more than 24 million use mobile money to conduct basic financial transactions. Uganda’s banking and financial sector is generally healthy, though non-performing loans remain a problem. According to the Bank of Uganda’s 2019 Financial Stability Report, Uganda’s non-performing loan rate stood at 3.8 percent at the end of June 2019. Uganda has 26 commercial banks with the top six controlling at least 60 percent of the banking sector’s total assets, valued at USD 8.6 billion. The Bank of Uganda regulates the banking sector, and foreign banks may establish branches in the country. In February, the Financial Action Taskforce added Uganda to its “Grey List” due to the country’s insufficient implementation of its anti-money laundering and countering financing of terrorism policies. As a result, Uganda’s correspondent banking relationships will face increased oversight, increasing transaction costs, and potentially jeopardizing some correspondent banking relationships. Uganda does not restrict foreigners’ ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Uganda keeps open capital accounts, and there are no restrictions on capital transfers in and out of Uganda. If, however, an investor benefited from tax incentives on the original investment, he or she will need to seek a “certificate of approval to “externalize” the funds. Investors may convert funds associated with any form of investment into any world currency. The Ugandan shilling (UGX) trades on a market-based floating exchange rate.

Remittance Policies

There are no restrictions for foreign investors on remittances to and from Uganda.

Sovereign Wealth Funds

In 2015, the government established the Uganda Petroleum Fund (PF) to receive and manage all government revenues from the oil and gas sector. By law, the government must spend a portion of proceeds from the fund on oil-related infrastructure, with parliament appropriating the remainder of revenues through the normal budget procedure. At the end of 2019, the PF had a balance of USD 20 million. The 2019 Auditor General’s report concluded that the absence of a policy regarding the management of the PF has led to inefficient and ineffective spending and investment decisions. In 2019, the GOU established the Petroleum Investment Advisory Committee (Committee) to oversee the investment of PF funds, however, the Committee did not pass the proposed Petroleum Investment Reserve Policy (Policy), which aimed to establish the investment guidelines. In the absence of the Policy, PF funds continue to be allocated to the national budget.

7. State-Owned Enterprises

Uganda has thirty State Owned Enterprises (SOEs). However, the GOU does not publish a list of its SOEs, and the public is unable to access detailed information on SOE ownership, total assets, total net income, or number of people employed. While there is insufficient information to assess the SOEs’ adherence to the OECD Guidelines of Corporate Governance, the GOU’s 2019 Office of Auditor General report noted corporate governance issues in some SOEs. SOEs do not get special financing terms and are subject to hard budget constraints. According to the Ugandan Revenue Authority Act, they have the same tax burden as the private sector. According to the Land Act, private enterprises have the same access to land as SOEs. One notable exception is the Uganda National Oil company (UNOC), which receives proprietary exploration data on new oil discoveries in Uganda. UNOC can then sell this information to the highest bidder in the private sector to generate income for its operations.

Privatization Program

The government privatized many SOEs in the 1990s. Uganda does not currently have a privatization program.

8. Responsible Business Conduct

Awareness of responsible business conduct varies greatly among corporate actors in Uganda. No organizations formally monitor compliance with Corporate Social Responsibility (CSR) standards. CSR is not a requirement for an investor to obtain an investment license and CSR programs are voluntary. While government officials make statements encouraging CSR, there is no formal government program to monitor, require, or encourage CSR. In practice, endemic corruption often enables companies to engage in harmful or illegal practices with impunity. Regulations on human and labor rights, and consumer and environmental protection, are seldom and inconsistently enforced. Several non-governmental organizations attempt to hold companies accountable for poor behavior through “name-and-shame” campaigns, usually with limited success.

Uganda’s capacity and political will to regulate the mineral trade across its borders remain weak. Credible organizations allege that Uganda’s gold refining sector, led by the African Gold Refinery (AGR), relies on conflict minerals illicitly imported from neighboring countries, especially from the eastern Democratic Republic of the Congo. While Uganda has no significant gold reserves, in FY 2018/2019, gold became the country’s largest export, totaling USD 1.06 billion.

Due to Uganda’s rampant corruption and culture of unaccountability, the GOU does not adequately enforce domestic laws related to human rights, labor rights, consumer protection, environmental protections, or other laws intended to protect individuals from adverse business impacts. According to UN Panel of Experts reports, AGR, Uganda’s largest refinery, does not adhere to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and there is no indication the GOU is urging it to do so. Uganda announced in January 2019 that it would join the Extractive Industry Transparency Initiative, however, is still in the process of fulfilling the requirements to become a member. Uganda has also not formally adopted the Voluntary Principles on Security and Human Rights.

9. Corruption

Uganda has generally adequate laws to combat corruption, and an interlocking web of anti-corruption institutions. The Public Procurement and Disposal of Public Assets Authority Act’s Code of Ethical Standards (Code) requires bidders and contractors to disclose any possible conflict of interest when applying for government contracts. However, endemic corruption remains a serious problem and a major obstacle to investment. Transparency International ranked Uganda 137 out of 180 countries in its 2019 Corruption Perception Index. While anti-corruption laws extend to family members of officials and political parties, in practice many well-connected individuals enjoy de facto impunity for corrupt acts and are rarely prosecuted in court.

The government does not require companies to adopt specific internal procedures to detect and prevent bribery of government officials. Larger private companies implement internal control policies; however, with 80 percent of the workforce in the informal sector, much of the private sector operates without such systems. While Uganda has signed and ratified the UN Anticorruption Convention, it is not yet party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and does not protect non–governmental organizations investigating corruption. Some corruption watchdog organizations allege government harassment.

U.S. firms consistently identify corruption as a major hurdle to business and investment. Corruption in government procurement processes remains particularly problematic for foreign companies seeking to bid on GOU contracts.

Resources to Report Corruption

Contacts at government agency or agencies are responsible for combating corruption:
Justice Irene Mulyagonja
Inspector General of Government
Inspectorate of Government
Jubilee Insurance Centre, Plot 14, Parliament Avenue, Kampala
Telephone: +256-414-344-219
Website: www.igg.go.ug 

Public Procurement and Disposal of Public Assets Authority (PPDA)
UEDCL Towers Plot 39 Nakasero Road
P.O. Box 3925, Kampala Uganda
Telephone: +256-414-311100.
Email: info@ppda.go.ug
Website: https://www.ppda.go.ug/ 

Contact at “watchdog” organization:
Anti-Corruption Coalition Uganda
Cissy Kagaba
Telephone: +256-414-535-659
Email: kagabac@accu.or.ug
Website: http://accu.or.ug 

10. Political and Security Environment

Uganda has experienced periodic political violence associated with elections and other political activities. Security services routinely use excessive force to stop peaceful protests and demonstrations. There are no prominent examples in the past ten years of such violence leading to significant damage of projects or installations. There has been an uptick in crime over the past several years, and political tensions are likely to increase in the run up to 2021 general elections.

11. Labor Policies and Practices

Over 70 percent of Ugandans are engaged in the agriculture sector, and only 20 percent work in the formal sector. Statistics on the number of foreign/migrant workers are not publicly available; however, given the abundance of cheap domestic labor, there is minimal import of unskilled labor. Conversely, there is an acute shortage of skilled and specialized laborers.

While there are no explicit provisions requiring the hiring of nationals, there are broad standards requiring investors to contribute to the creation of local employment. The Petroleum Exploration, Development, and Production Act of 2013 and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act of 2013 require investors to contribute to workforce development by providing skills training for workers.

Ugandan labor laws specify procedures for termination of employment and for termination payments. Depending on the employee’s duration of employment, employers are required to notify an employee two weeks to three months prior to the termination date. Employees terminated without notice are entitled to severance wages. Ugandan law only differentiates between termination with notice (or payment in lieu of notice) and summary dismissal (termination without notice). Summary dismissal applies when the employee fundamentally violates his/her terms of employment. Uganda does not provide unemployment insurance or any other social safety net programs for terminated workers. Current law requires employers to contribute 10 percent of an employee’s gross salary to the National Social Security Fund (NSSF). The Uganda Retirement Benefits Regulatory Authority Act of 2011 provides a framework for the establishment and management of retirement benefits schemes for the public and private sectors and created an enabling environment for liberalization of the pension sector.

The Employment Act of 2006 does not allow waivers of labor laws for foreign investors.

Ugandan law allows workers, except members of the armed forces, to form and join independent unions, bargain collectively, and conduct legal strikes. The National Organization of Trade Unions (NOTU) has 20 member unions. Its rival, the Central Organization of Free Trade Unions (COFTU), also has 20 union members. Union officials estimate that nearly half of employees in the formal sector belong to unions. In 2014, the Government of Uganda created the Industrial Court (IC) to arbitrate labor disputes. Public sector strikes are not uncommon in Uganda; however, there were no strikes during the past year.

Uganda ratified all eight International Labor Organization fundamental conventions enshrining labor and other economic rights, and partially incorporated these conventions into the 1995 Constitution, which stipulates and protects a wide range of economic rights. Despite these legal protections, many Ugandans work in unsafe environments due to poor enforcement and the limited scope of the labor laws. Labor laws do not protect domestic, agricultural, and informal sector workers.

In August 2019, President Museveni rejected the Minimum Wage Bill, which would have increased the monthly minimum wage from USD 1.60 to USD 36, and returned it to parliament for review. Museveni continues to argue that increasing Uganda’s minimum wage would undermine FDI and international competitiveness.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

The DFC is currently funding several projects in Uganda and maintains a bilateral agreement with the government of Uganda. Active projects in Uganda can be found here: https://www3.opic.gov/ActiveProjectsMap/Default.aspx# 

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 $35,000 2018 N/A https://www.imf.org/external/datamapper/
NGDPD@WEO/UGA
 
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 2018 $41,000 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 N/A N/A BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 47.4% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: Uganda Bureau of Statistics Statistical Abstract 2019

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 $9,294 100% No Data Available
The Netherlands $3,668 40%
Australia $1,519 16.3%
United Kingdom $840 9%
Kenya $778 8%
Mauritius $654 7%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Seth Miller
Economic and Commercial Officer
U.S. Embassy Kampala, Ggaba Road, Kampala
+256 (0) 414-306-240 (office)
MillerSA@state.gov

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