Policies Towards Foreign Direct Investment

Bangladesh actively seeks foreign investment, particularly in apparel, power, oil and gas, and infrastructure projects. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with promoting supervising and promoting private investment. The BIDA Act of 2016 approved the merger of the now disbanded Board of Investment and the Privatization Committee. BIDA performs the following functions:

• Provides pre-investment counseling services
• Registers and approves of private industrial projects
• Issues approval of branch/liaison/representative offices
• Issues work permits for foreign nationals
• Issues approval of royalty remittances, technical know-how and technical assistance fees
• Facilitates import of capital machinery and raw materials
• Issues approvals for foreign loans and supplier credits

The Bangladesh Export Processing Zone Authority (BEPZA) acts as the investment supervisory authority in export processing zones (EPZs). BEPZA is the one stop service provider and regulatory authority for companies operating inside EPZs. In addition, Bangladesh plans to establish over 100 Economic Zones (EZs) over the next several years. The EZs are designed to attract additional foreign investment to locations throughout the country. The Bangladesh Economic Zones Authority (BEZA) is responsible for supervising and promoting investments in the economic zones (EZs).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled. Draft regulations in the area of telecommunication infrastructure currently include provisions precluding 100 percent foreign ownership.

Four sectors are reserved for government investment and exclude both foreign and domestic private sector activity:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

In addition, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:

1. Fishing in the deep sea
2. Bank/financial institution in the private sector
3. Insurance company in the private sector
4. Generation, supply and distribution of power in the private sector
5. Exploration, extraction and supply of natural gas/oil
6. Exploration, extraction and supply of coal
7. Exploration, extraction and supply of other mineral resources
8. Large-scale infrastructure project (e.g. flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station)
9. Crude oil refinery (recycling/refining of lube oil used as fuel)
10. Medium and large industry using natural gas/condescend and other minerals as raw material
11. Telecommunication service (mobile/cellular and land phone)
12. Satellite channel
13. Cargo/passenger aviation
14. Sea-bound ship transport
15. Sea-port/deep seaport
16. VOIP/IP telephone
17. Industries using heavy minerals accumulated from sea beach

While discrimination against foreign investors is not widespread, the government frequently promotes local industries and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically-manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms, following a prime ministerial directive. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined.

Business Registration

The Bangladesh Investment Development Authority (BIDA), formerly the Board of Investment, is responsible for screening, reviewing and approving FDI in Bangladesh. BIDA is directly supervised by the Prime Minister’s office and the Chairman of BIDA has Minister-equivalent rank. There have been instances where receiving approval was delayed. Once the foreign investor’s application is submitted to BIDA, the authorities review the proposal to ensure the investment does not create conflicts with local business. Investors note it is frequently necessary to separately register with other entities such as the National Board of Revenue. According to the World Bank, business registration in Bangladesh takes 19.5 days on average with nine distinct steps: http://www.doingbusiness.org/data/exploreeconomies/bangladesh/ 

The steps for investment are also available at: http://bida.gov.bd/ .

Requirements vary by sector, but all foreign investors are also required to obtain clearance certificates from relevant ministries and institutions with regulatory oversight. BIDA establishes time-lines for the submission of all the required documents. For example, if a proposed foreign investment is in the healthcare equipment field, investors need to obtain a No Objection Certificate (NOC) from the Directorate General for Health Services under the Ministry of Health. The NOC states that the specific investment will not hinder local manufacturers and is in alignment with the guidelines of the ministry. Negative outcomes can be appealed, except for applications pertaining to the four restricted sectors previously mentioned.

A foreign investor also must register its company with the Registrar of Joint Stock Companies and Firms (RJSC&F) and open a local bank account under the registered company’s name. For BIDA screening, an investor must submit the RJSC&F Company Registration certificate, legal bank account details, a NOC from the relevant ministry, department, or institution, and a project profile (if the investment is more than $1.25 million) along with BIDA’s formatted application form.

Other Investment Policy Reviews

In 2013 Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD): http://unctad.org/en/Pages/DIAE/Investment%20Policy%20Reviews/Investment-Policy-Reviews.aspx .

Bangladesh has not conducted an IPR through the Organization for Economic Cooperation and Development.

A Trade Policy Review was last done by the World Trade Organization in October 2012 and can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp370_e.htm .

With EU assistance, Bangladesh conducted a trade policy review, the “Comprehensive Trade Policy of Bangladesh” which was published in the ministry of commerce in September 2014 and is still in draft mode pending further review and approval:

https://mincom.gov.bd/ 

Business Facilitation

The Government has had limited success reducing the time required to establish a company. BIDA and BEZA are both attempting to establish one-stop business registration shops and these agencies have proposed draft legislation for this purpose.

Companies can register their business at Office of the Registrar of Joint Stock Companies and Firms: www.roc.gov.bd . However, the online business registration process is not clear and cannot be used by a foreign company to attain the business registration as certain steps are required to be performed in-person.

In addition, BIDA has branch/liaison office registration information on its website at: www.boi.gov.bd/ . The online business registration process is clear and complete but cannot be used by foreign companies to attain the business registration as certain steps are required to be performed in-person.

Other agencies with which a company must typically register are as follows:

• City Corporation – Trade License
• National Board of Revenue – Tax & VAT Registration
• Chief Inspector of Shops and Establishments – Employment of workers notification

The company registration process now takes around 15 workdays to complete. The process to open a branch or liaison office is approximately one month. The process for trade license, tax registration, and VAT registration requires seven days, two days, and three weeks, respectively.

Outward Investment

Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947. As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the 1947 Act by adding a “conditional provision” that permits outbound investment for export-related enterprises. Private sector contacts note that the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience.

Bangladesh has signed bilateral investment treaties with 28 countries, including Austria, the Belgium-Luxembourg Economic Union, China, Denmark, France, Germany, India, Indonesia, Iran, Italy, Japan, Democratic People’s Republic of Korea, Republic of Korea, Malaysia, Netherlands, Pakistan, Philippines, Poland, Romania, Singapore, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom, United States, Uzbekistan and Vietnam.

The U.S.-Bangladesh Bilateral Investment Treaty, signed on March 12, 1986, entered into force on July 23, 1989. The Foreign Investment Act includes a guarantee of national treatment.

The United States and Bangladesh signed a bilateral treaty for the avoidance of double taxation on September 26, 2004. The United States ratified it on March 31, 2006. The parties exchanged instruments of ratification on August 7, 2006. The treaty became effective for most taxpayers beginning in the 2007 tax year.

Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area (SAFTA), the Asia-Pacific Trade Agreement (APTA), and the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC). Bangladesh has not signed any bilateral free trade agreements (FTA) but has started initial FTA discussions with Sri Lanka in March 2017.

Bangladesh has taken steps to strengthen bilateral economic relations with India by reducing trade barriers and improving connectivity. Bangladesh gained duty-free access to India via regional, not bilateral trade agreements. The first is the South Asian Association for Regional Cooperation (SAARC) Preferential Trading Arrangement (SAPTA) that was signed in April 1993 and operationalized in December 1995, which gives limited preferential market access to exports of member countries. The second is the South Asian Free Trade Area (SAFTA) agreement that was signed in January 2004 in Islamabad and entered into force from January 2006. Tariff reduction under SAFTA started from July 2006. Since November 2011, under SAFTA Bangladesh can export goods duty-free to India, with the exception of alcohol and tobacco. India also provides duty-free and preferential tariff treatment to Bangladesh under the Duty Free Tariff Preference (DFTP) Scheme for Least Developed Countries (LDCs) effective from August 13, 2008. As a founding member of the World Trade Organization (WTO) and as a Less Developed Country (LDC), Bangladesh has been an active advocate for LDC interests in WTO negotiations.

Transparency of the Regulatory System

Since 1989, the government has gradually moved to decrease regulatory obstruction of private business. The chambers of commerce have called for a greater voice for the private sector in government decisions and for privatization, but at the same time many support protectionism and subsidies for their own industries. The result is that policy and regulations in Bangladesh are often not clear, consistent, or publicized. Registration and regulatory processes are alleged to be frequently used as rent-seeking opportunities. The major rule-making and regulatory authority exist in the national level – under each Ministry with many final decisions being made at the top-most levels, including the Prime Minister’s office (PMO). The PMO is actively engaged in policies, as well as foreign investment in government-controlled projects.

The Bangladesh Investment Development Authority (BIDA) – a merger of the Board of Investment (BOI) and the Privatization Commission (PC) – was formed in accordance with the Bangladesh Investment Development Authority Bill 2016 passed by parliament on July 25, 2016. The bill established BIDA as the apex private investment promotion and facilitation agency in Bangladesh. The move came amid complaints about redundancies in the BOI’s and the PC’s overlapping mandates and concerns that the PC had not made sufficient progress. BIDA hopes to become a “one-stop shop” for investors and a “true” investment promotion authority rather than simply follow the referral service-orientation of BOI. Currently, BIDA is not yet a one-stop shop and companies must still seek approvals from relevant line ministries

Bangladesh has achieved incremental progress in using information technology to improve the transparency and efficiency of some government services and to develop independent agencies to regulate the energy and telecommunication sectors. Some investors cited government laws, regulations, and implementation as impediments to investment. The government has historically limited opportunities for the private sector to comment on proposed regulations. In 2009, Bangladesh adopted the Right to Information Act that provides for multilevel stakeholders consultation through workshops or media outreach. Although the consultation process exists, it is still weak and subject to further improvement.

Ministries do not generally publish and release draft proposals to the public. However, several agencies, including the Bangladesh Bank, BIDA, the Commerce of Ministry and the Bangladesh Telecommunications Regulatory Commission have occasionally posted draft legislation and regulations online and solicited feedback from the business community. In some instances, parliamentary committees have also reached out to relevant stakeholders for input on draft legislation. The media continues to be the main information source for the public on many draft proposals. There is also no legal obligation to publish proposed regulations, consider alternatives to proposed regulation, or solicit comments from the general public.

Regulatory agencies generally do not solicit comments on proposed regulations from the general public; however, when a consultation occurs, comments may be received through public media consultation, feedback on websites (e.g., in the past, the Bangladesh Bank received comments on monetary policy), Focused Group Discussions (FGDs), or workshops with relevant stakeholders. There is no government body tasked with soliciting and receiving comments, but the Bangladesh Government Press of the Ministry of Information is entrusted with the authority of disseminating government information to the public. The law does not require regulatory agencies to report on the results of consultations, and in practice, regulators do not generally report the results. Widespread use of social media in Bangladesh has created an additional platform for public input into developing regulations, and government officials appear to be sensitive to this form of messaging.

The Bangladesh Government Press, http://www.dpp.gov.bd/bgpress/ , the government printing office, publishes the weekly “Bangladesh Gazette” every Thursday. The gazette provides official notice of government actions, including the issuance of government rules and regulations and the transfer and promotion of government employees. Laws can also be accessed at http://bdlaws.minlaw.gov.bd/ 

Bangladesh passed the Financial Reporting Act of 2015 that created the Financial Reporting Council (FRC) and aims to establish transparency and accountability in the accounting and auditing of financial institutions. However, the FRC is not fully operational and accounting practices and quality varies widely in Bangladesh. Internationally known and recognized firms have begun establishing local offices in Bangladesh and the presence of these firms is positively influencing the accounting norms in the country. Some firms are capable of providing financial reports audited to international standards while others maintain unreliable (or multiple) sets of accounting reports. Regulatory agencies also do not conduct impact assessment of proposed regulations; hence, regulations are often not reviewed on the basis of data-driven assessments. National budget documents are not prepared according to internationally accepted standards.

International Regulatory Considerations

Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area (SAFTA), the South Asia Association for Regional Cooperation, the Asia-Pacific Trade Agreement (APTA), and the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC). BIMSTEC in particular aims to integrate regional regulatory systems between Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan. However, efforts to advance regional cooperation measures have stalled in recent years and regulatory systems remain uncoordinated.

Local law is based on English Common Law system, but most fall short of international standards. The country’s regulatory system remains weak, where many of the laws and regulations are not enforced and standards are not maintained.

Bangladesh has been a member of the World Trade Organization (WTO) since January, 1995. WTO requires all signatories to the Agreement on Technical Barriers to Trade (TBT) to establish a National Inquiry Point and Notification Authority to gather and efficiently distribute trade-related regulatory, standards and conformity assessment information to the WTO Member community. Bangladesh Standards and Testing Institute (BSTI) is the National Enquiry Point. There is an internal committee on WTO affairs in BSTI and it participates in the notification activities to WTO through the Ministry of Commerce and the Ministry of Industries.

The contact address of the Bangladesh WTO-TBT National Enquiry Point is:

Maan Bhaban
116/A, Tejgaon Industrial Area, Dhaka-1208
Tel: +88-02 8870278 ( off) , Fax : +88-02-9131581
Mob: +8801552402985, +8801915479519
E-mail ; rezaulkarim60@gmail.com
Link to BSTI: http://bsti.gov.bd/ 

Legal System and Judicial Independence

Bangladesh is a common law based jurisdiction. Many of the basic laws of Bangladesh such as penal code, civil and criminal procedural codes, contract law and company law are influenced by English common laws. However family laws such as laws relating to marriage, dissolution of marriage and inheritance are based on religious scripts, and therefore differ between religious communities. The Bangladeshi legal system is based on a written constitution and the laws often take statutory forms that are enacted by the legislature and interpreted by the higher courts. Ordinarily, executive authorities and statutory corporations cannot make any law, but can make by-laws to the extent authorized by the legislature. Such subordinate legislation is known as rules or regulations and is also enforceable by the court. Yet, being a common law system, the statutes are short, and set out basic rights and responsibilities, but are elaborated by the courts in their application and interpretation of those. The Judiciary of Bangladesh acts through the (1) The Superior Judiciary having Appellate, Revision & Original Jurisdiction, and (2) Sub-Ordinate Judiciary having Original Jurisdiction.

Since 1971, Bangladesh’s legal system has been updated in areas of company, banking, bankruptcy and money loan court laws, and other commercial laws. An important impediment to investment in Bangladesh is a weak and slow legal system in which the enforceability of contracts is uncertain. The judicial system does not provide for interest to be charged in tort judgments, which means delays in proceedings carry no penalties. Bangladesh does not have a separate court or division of a court dedicated solely to hearing commercial cases. The Joint District Judge court (a civil court) is responsible for enforcing contracts. Bangladesh scored 7.5 in the World Bank’s 2016 Quality of Judicial Processes Index out of an 18 score.

Some notable commercial laws include:

• The Contract Act, 1872 (Act No. IX of 1930)
• The Sale of Goods Act, 1930 (Act No. III of 1930)
• The Partnership Act, 1932 (Act No. IX of 1932)
• The Negotiable Instruments Act, 1881 (Act No. XXVI of 1881)
• The Bankruptcy Act, 1997 (Act No. X of 1997)
• The Arbitration Act, 2001 (Act No. I of 2001)

The judicial system of Bangladesh has never been completely independent from the interference of the executive branch of the government. In a significant milestone, the government in 2007 separated the country’s judiciary from the executive, but the executive retains strong influence over the judiciary through control of judicial appointments. Other pillars of the justice system, including the police, courts, and legal profession are also closely aligned with the executive branch. In lower courts, corruption is widely perceived as a serious problem. Regulations or enforcement actions are appealable under the Appellate Division of the Supreme Court.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980, the Bangladesh Export Processing Zones Authority Act of 1980, the Companies Act of 1994, the Telecommunications Act of 2001, the Industrial Policy Act of 2005, the Industrial Policy Act of 2010, and the Bangladesh Economic Zones Act 2010. The Industrial Policy Act of 2016 was approved by the Cabinet Committee on Industrial Purchase on February 24, 2016 and replaces the Industrial Policy of 2010.

The Industrial Policy Act of 2016, which replaced the 2010 Act, offers incentives for “green”, high-tech, or “transformative” industries. Foreign investors who invest $1 million or transfer $2 million to a recognized financial institution can apply for Bangladeshi citizenship. The Government of Bangladesh will provide financial and policy support for high-priority industries (those that create large-scale employment and earn substantial export revenue) and creative (architecture, arts and antiques, fashion design, film and video, interactive laser software, software, and computer and media programming) industries. Specific importance will be given to agriculture and food processing, ready-made garments (RMG), information and communication technology (ICT) and software, pharmaceuticals, leather and leather products, and jute and jute goods.

In the past year, BIDA has submitted proposed legislation for a One-Stop Service Act (OSS) to attract further foreign direct investment to Bangladesh. In addition, Petrobangla, the state-owned oil and gas company, has modified its production sharing agreement contract for offshore gas exploration to include an option to export gas.

BIDA has a “one-stop” website that provides relevant laws, rules, procedure, and reporting requirements for investors at: http://www.bida.gov.bd/ . Aside from information on relevant business laws and licenses, the website includes information on Bangladesh’s investment climate, opportunities for business, potential sectors, and how to do business in Bangladesh. The website also has an eService Portal for Investors, which provides services like visa recommendations for foreign investors, approval/ extension of work permit for expatriates, approval of foreign borrowing, and approval/ renewal of branch/ liaison and representative office. However, the effectiveness of these online services is questionable.

Competition and Anti-Trust Laws

The Government of Bangladesh formed an independent agency in 2011 called the “Bangladesh Competition Commission (BCC)” under the Ministry of Commerce. The Parliament of Bangladesh then passed the Competition Act in June 2012, and in September 2013, Joint Additional Secretary Md. Sujayet Ullah was appointed to operationalize the BCC. However, the BCC has experienced operational delays. Currently, the WTO Cell of the Ministry of Commerce, which has stated the BCC will start functioning soon, handles all competition-related issues but the exact date has not been confirmed.

In January 2016, the two parent companies of Malaysia-based Robi and India-based Airtel signed a formal deal to merge their operations in Bangladesh, completing the country’s first telecommunications merger. The deal, valued at $12.5 million, is to date, Bangladesh’s largest corporate merger. The merger raised anti-competition concerns but it was completed in November 2016 after the Bangladesh Telecommunication Regulatory Commission (BTRC) and Prime Minister Sheikh Hasina gave final approvals.

Expropriation and Compensation

Since the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, the Government of Bangladesh has not nationalized or expropriated property from foreign investors. In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of more than 90 percent of fixed assets in the modern manufacturing sector, including the textile, jute and sugar industries and all banking and insurance interests, except those in foreign (but non-Pakistani) hands. The government has since taken steps to privatize many of these industries during the last 20 years and the private sector has developed into a main driver of the country’s sustained economic growth of approximately six percent per year during the past two decades.

Dispute Settlement

ICSID Convention and New York Convention

Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and it acceded in May 1992 to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Alternative dispute resolutions are possible under the Bangladesh Arbitration Act of 2001. The current legislation allows for enforcement of arbitral awards.

Investor-State Dispute Settlement

Bangladeshi law allows contracts to refer dispute settlement to third country forums for resolution. Bangladesh is also a party to the South Asia Association for Regional Cooperation (SAARC) Agreement for the Establishment of an Arbitration Council, signed November 2005, which aims to establish a permanent center for alternative dispute resolution in one of the SAARC member countries.

In practice, enforcement of arbitration results is applied unevenly and the government has challenged ICSID rulings, especially those that involve rulings against the government. The timeframe for dispute resolution is unpredictable and has no set limit. It can be done as quickly as a few months, but often takes years depending on the type of dispute. Anecdotal information indicates average resolution times can be as high as 16 years. Local courts may be biased against foreign investors in resolving disputes.

Bangladesh is a signatory of the New York Convention and recognizes the enforcement of international arbitration awards. Domestic arbitration is under the authority of the district judge court bench and foreign arbitration is under the authority of the relevant high court bench.

The ability of the Bangladeshi judicial system to enforce its own awards is weak. Senior members of the government have been effective in using their offices to resolve investment disputes on several occasions, but the government’s ability to resolve investment disputes at a lower level is mixed. The government does not publish the numbers of investment disputes involving U.S. or foreign investors. Anecdotal evidence indicates investment disputes occur with limited frequency and the involved parties often resolve the disputes privately rather than seek government intervention.

The greatest number of complaints arising from U.S. investors in recent years involves disputes with the National Board of Revenue (NBR) over prior year tax returns. The investors have alleged that NBR is disproportionately targeting them to meet tax collection targets and not due to legitimate problems with previously filed tax returns.

International Commercial Arbitration and Foreign Courts

Bangladeshi law allows contracts to refer dispute settlement to third country forums for resolution. The Bangladesh Arbitration Act of 2001 and amendments in 2004 reformed alternative dispute resolution in Bangladesh. The Act consolidated the law relating to both domestic and international commercial arbitration. It thus creates a single and unified legal regime for arbitration in Bangladesh. Although the new Act is principally based on the UNCITRAL Model Law, it is a patchwork quilt as some unique provisions are derived from the Indian Arbitration and Conciliation Act 1996 and some from the English Arbitration Act 1996.

The practice of alternative dispute resolution (ADR) in Bangladesh has many challenges, including lack of funds, lack of lawyer cooperation, and lack of good faith. Slow adoption of ADR mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes in Bangladesh.

As in many countries, Bangladesh has adopted a “conflicts of law” approach to determining whether a judgment from a foreign legal jurisdiction is enforceable in Bangladesh. This single criterion allows the courts of Bangladesh broad discretion in choosing whether to enforce foreign judgments with significant effects on matrimonial, adoption, corporate, and property disputes. Most enterprises in Bangladesh, and especially state-owned enterprises (SOEs) because the ruling government party nominates the company leaders, maintain strong ties with the government. Thus, domestic courts strongly tend to favor SOEs and thereafter, local companies, in investment disputes.

Investors are also increasingly turning to the Bangladesh International Arbitration Center (BIAC) for dispute resolution. BIAC is an independent arbitration center established by prominent local business leaders in April 2011 to improve commercial dispute resolution in Bangladesh to stimulate economic growth. The council committee is headed by the President of International Chamber of Commerce – Bangladesh (ICC,B) and includes the presidents of other prominent chambers such as like Dhaka Chamber of Commerce and Industry (DCCI) and Metropolitan Chamber of Commerce and Industry (MCCI). The center operates under the Bangladesh Arbitration Act of 2001. According to BIAC, fast track cases are resolved in approximately six months while typical cases are resolved in one year. Major Bangladeshi trade and business associations such as the American Chamber of Commerce in Bangladesh (AmCham) can sometimes help to resolve transaction disputes.

Bankruptcy Regulations

Many laws affecting investment in Bangladesh are old and outdated. Bankruptcy laws, which apply mainly to individual insolvency, are sometimes not used in business cases because of webs of falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was enacted in 1997, but has been ineffective in addressing these issues. An amendment to the Bank Companies Act of 1991 was enacted in 2013. Some bankruptcy cases fall under the Money Loan Court Act, which has more stringent and timely procedures.

Investment Incentives

In certain areas, current regulations permit a tax holiday for designated “thrust” (strategic) sectors and infrastructure projects established between July 01, 2011 and June 30, 2019. Industries set up in Export Processing Zones (EPZs) are also eligible for tax holidays.

Thrust sectors subject to exemption include: certain pharmaceuticals, automobile manufacturing, contraceptives, rubber latex, chemicals or dyes, certain electronics, bicycles, fertilizer, biotechnology, commercial boilers, certain brickmaking technologies, compressors, computer hardware, energy efficient appliances, insecticides, pesticides, petro-chemicals, fruit and vegetable processing textile machinery, tissue grafting and tire manufacturing industries.

Physical infrastructures eligible for exemptions include: deep sea ports, elevated expressways, road overpasses, toll road and bridges, EPZs, gas pipelines, information technology parks, industrial waste and water treatment facilities, liquefied natural gas (LNG) terminals, electricity transmission, rapid transit projects, renewable energy projects, and ports.

Tax Holidays

In addition to the above tax rebate, manufacturers located in rural areas and commencing commercial operations between July 1, 2014 and June 30, 2019 are eligible for tax exemptions of up to 20 percent for the first 10 years of production.

Independent non-coal fired power plants (IPPs) commencing production (COD) after January 1, 2015 are granted a 100 percent tax exemption for 5 years, a 50 percent exemption for years 6-8, and a 25 percent exemption for years 9-10. For Coal-fired IPPs contracting with Government before June 30, 2020 and COD before June 30, 2023, the tax exemption rate is 100 percent for the first 15 years of operations. For power projects, import duties are waived for imports of capital machinery and spare parts.

The valued-added tax rate on exports is zero. For companies that only export, import duties are waived for imports of capital machinery and spare parts. For companies that primarily export (80 percent and above) an import duty rate of 1 percent is charged for imports of capital machinery and spare parts identified and listed in notifications to relevant regulators. Import duties are also waived for EPZ industries and other export oriented industries for imports of raw materials consumed in production.

Special incentives are provided to encourage non-resident Bangladeshis to investment in the country. Non-resident Bangladeshi investors enjoy benefits similar to those of foreign investors. Moreover, unlike non-Bangladeshi foreign investors, they can buy newly issued shares and debentures in Bangladeshi companies. A quota of 10 percent of primary shares has been fixed for non-resident Bangladeshis. Furthermore, non-resident Bangladeshi’s can maintain foreign currency deposits in Non-resident Foreign Currency Deposit (NFCD) accounts. Additional incentives include:

• Tax exemptions on: royalties, technical know-how fees paid to any foreign collaborator, firm, company or expert;
• Under certain conditions, tax exemption for the interest on foreign loans;
• On the basis of bilateral tax agreements, avoidance of double taxation;
• For foreign technicians employed in specified industries, an income tax exemption for up to three years;
• Repatriation of invested capital, profits and dividends;
• Six month multiple entry investor visas;
• Consideration for Bangladeshi citizenship for investing a minimum of US$ 500,000 or by transferring US$ 1,000,000 (non-repatriable) to any recognized domestic financial institution;
• Consideration for permanent residency by investing a minimum of $75,000 (non-repatriable);
• Capital gains tax exemptions on transfers of shares of publicly listed companies.

Foreign Trade Zones/Free Ports/Trade Facilitation

Under the Bangladesh Export Processing Zones Authority Act of 1980, the government established an EPZ in Chittagong in 1983. Additional EPZs now operate in Dhaka (Savar), Mongla, Ishwardi, Comilla, Uttara, Karnaphuli (Chittagong) and Adamjee (Dhaka). Korean investors are also operating a separate and private EPZ in Chittagong.

Investments that are wholly foreign-owned, joint ventures and wholly Bangladeshi-owned companies are all permitted to operate and enjoy equal treatment in the EPZs. Approximately a dozen U.S. firms — mostly textile producers — are currently operating in Bangladesh EPZs. Investors have begun to view intermittent services and increasing costs as making the EPZs less attractive.

In 2010, Bangladesh enacted the Special Economic Zone Act that allows the creation of privately owned economic zones (EZs) that can produce for export and domestic markets and is still current. The IFC assisted the government to establish an EZ authority, Bangladesh Economic Zones Authority (BEZA), modeled after BEPZA, to implement the new law and oversee the establishment of EZs. BEZA has already started the process to establish the first EZ at Mongla (Khulna).

The government recently announced plans to create up to 100 new EZs and invited private companies to develop the zones. Several EZs are moving forward under this initiative: http://www.beza.gov.bd/ 

However, assurances regarding access to necessary infrastructure and other resources, including gas and power, have not been made.

Performance and Data Localization Requirements

Performance Requirements

The Bangladesh Investment Development Authority (BIDA) has set restrictions for the employment of foreign nationals and the issuance of work permits as follows:

• Nationals of countries recognized by Bangladesh are eligible for employment consideration;
• Expatriate personnel will only be considered for employment in enterprises duly registered with the appropriate regulatory authority;
• Employment of foreign nationals is generally limited to positions for which qualified local workers are unavailable;
• Persons below 18 years of age are not eligible for employment;
• The board of directors of the employing company must issue a resolution for each offers or extension of employment;
• The percentage of foreign employees should not exceed 5 percent in industrial sectors and 20 percent in commercial sectors, including among senior management positions;
• Initial employment of any foreign national is for a term of two years, which may be extended based on merit;
• The Ministry of Home Affairs will issue necessary security clearance certificates.

In response to the high number of expatriate workers in the ready-made garment industry, BIDA has issued informal guidance encouraging industrial units to refrain from hiring additional semi-skilled foreign experts and workers. Overall, the government looks favorably on investments that employ significant numbers of local workers and/or provide training and transfers of technical skills.

The government does not formally mandate that investors use domestic content in goods or technology. However, companies bidding on government procurement tenders are often informally encouraged to have a local partner and to produce or assemble a percentage of their products in country.

Data Storage Requirements

According to a legal overview by the Telenor Group, for reasons of national security or in times of emergency, several regulations and amendments, including the Bangladesh Telecommunication Regulatory Act, 2001 (the “BTRA”), Information and Communication Technology Act 2006 (the “ICT Act”), and the Telegraph Act 1885 (the “1885 Act”), grant law enforcement and intelligence agencies legal authority to lawfully seek disclosure of communications data, and request censorship of communications. A draft Digital Security Act of 2016 (the Digital Security Act” has been approved by the cabinet and is pending review and adoption by parliament.

On the grounds of national security and maintaining public order, the government can authorize relevant government authorities (intelligence agencies, national security agencies, investigation agencies, or any officer of any law enforcement agency) to suspend or prohibit the transmission of any data or any voice call, and record or collect user information relating to any subscriber to a telecommunications service.

Under section 30 of the ICT Act, the government, through the ICT Controller, may access any computer system, any apparatus, data or any other material connected with a computer system, for the purpose of searching for and obtaining any such information or data. The ICT Controller may, by order, direct any person in charge of, or otherwise concerned with the operation of a computer system, data apparatus or material, to provide reasonable technical and other assistance as may be considered necessary. Under section 46 of the ICT Act, the ICT Controller can also direct any government agency to intercept any information transmitted through any computer resource, and may order any subscriber or any person in charge of computer resources to provide all necessary assistance to decrypt relevant information.

There is no direct reference in the BTRA to the storage of metadata. Under the broad powers granted to the BTRA, however, the government, on the grounds of national security and public order, may require telecommunications operators to keep records relating to the communications of a specific user. Telecommunications operators are also required to provide any metadata as evidence if ordered to do so by any civil court.

The ICT Controller enforces the ICT Act and the Bangladesh Telecommunication Regulatory Commission (BTRC) enforces the BTRA. The Ministry of Home Affairs grants approval for use of powers given under the BTRA. The ICT Act also established a Cyber Tribunal to adjudicate cases. If approved, the Digital Act would create a Digital Security Agency (DSA) empowered to monitor and supervise digital content. Also under the Digital Act, for reasons of national security or maintenance of public order, the Director General (DG) of the DSA would be authorized to block communications and to require that service providers facilitate the interception, monitoring and decryption of a computer or other data source.

Real Property

Although land, whether for purchase or lease, is often critical for investment and as security against loans, antiquated real property laws and poor record-keeping systems can complicate land and property transactions. Instruments take effect from the date of execution, not the date of registration, so a bona fide purchaser can never be certain of title. Land registration records have been historically prone to competing claims. Land disputes are common, and both U.S. companies and citizens have filed complaints about fraudulent land sales. For example, sellers fraudulently claiming ownership have transferred land to good faith purchasers while the actual owners were living outside of Bangladesh. In other instances, U.S.-Bangladeshi dual citizens have purchased land from legitimate owners only to have third parties make fraudulent claims of title to extort settlement compensation.

Property owners can obtain mortgages, but parties generally avoid registering mortgages, liens, and encumbrances due to the high cost of stamp duties (i.e., transaction taxes based on property value) and other charges.

Article 42 of the Bangladesh Constitution guarantees right to property for all citizens, but property rights are often not protected due to a weak judiciary system. The Transfer of Property Act of 1882  and the Registration Act of 1908  are the two main laws that regulate transfer of property in Bangladesh, but these laws do not have any specific provisions covering foreign and/or non-resident investors. Currently, foreigners and non-residents can incorporate a company with the Registrar of Joint Stock Companies and Firms. The company would be considered a local entity and would be able to buy land in its name.

Intellectual Property Rights

Counterfeit goods are readily available in Bangladesh. The government has limited resources for intellectual property rights (IPR) protection. Industry estimates that 90 percent of business software is pirated. A number of U.S. firms, including film studios, manufacturers of consumer goods, and software firms, have reported violations of their intellectual property rights. Investors note police are willing to investigate counterfeit goods producers when informed but are unlikely to initiate independent investigations.

BSA, the Software Alliance, established a Bangladesh office in early 2014 as a platform to improve IPR protection in Bangladesh. Public awareness of intellectual property rights is growing, thanks in part to the efforts of the Intellectual Property Rights Association of Bangladesh: http://www.ipab.org.bd/ . Bangladesh is not currently listed in the U.S. Trade Representative’s Special 301 or Notorious Markets reports. Bangladesh is a member of the World Intellectual Property Organization (WIPO) and acceded to the Paris Convention on Intellectual Property in 1991.

Bangladesh has slowly made progress toward bringing its legislative framework into compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The government enacted a Copyright Law in July 2000 (amended in 2005), a Trademarks Act in 2009, and Geographical Indication of Goods (Registration and Protection) Act in 2013. The Department of Patent, Designs and Trademarks (DPDT) drafted a new Patent Act in 2014 prepared in compliance with the requirements of the TRIPS Agreement. The draft act remains under Ministry of Industries review, and this effort has not made measurable progress during the past year.

A number of government agencies are empowered to take action against counterfeiting, including the NBR/Customs, Mobile Courts, the Rapid Action Battalion (RAB) and local Police. The Department of National Consumer Rights Protection (DNCRP) is charged with tracking and reporting on counterfeit goods and the NBR/Customs tracks counterfeit goods seizures at ports of entry. Reports are not publicly available.

Capital Markets and Portfolio Investment

Capital markets in Bangladesh are still developing and the financial sector remains highly dependent on bank lending. Current government policy inhibits the creation of reliable benchmarks for long-term bonds and prevents the development of a tradable bond market.

Bangladesh is home to the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE). The Bangladesh Securities and Exchange Commission (BSEC), a statutory body formed in 1993 and attached to the Ministry of Finance, regulate both. As of March 2016, the DSE market capitalization stood at $41 billion.

Although the Bangladesh government has a positive attitude towards foreign portfolio investors, participation remains low due to limited liquidity and the lack of publicly available and reliable company information. The DSE has attracted some foreign portfolio investors to the country’s capital market; however, the volume of foreign investment in Bangladesh has remained a small fraction of total market capitalization. As a result, foreign portfolio investment has had limited influence on market trends and Bangladesh’s capital markets have been largely insulated from the volatility of international financial markets. Bangladeshi markets continue to rely primarily on domestic investors, and Bangladeshi firms increasingly rely on capital markets to finance investment projects. In March 2017, the government relaxed investment rules making it possible for foreign investors to use local currency to invest in directly local companies through the purchase of corporate shares.

BSEC has formed separate committees to establish a central clearing and settlement company, allow venture capital and private equity firms, launch derivatives products, and activate the bond market. In December 2013, BSEC became a full signatory of International Organization of Securities Commissions (IOSCO) Memorandum of Understanding and was elevated to the ‘A’ category of regulators.

BSEC has taken steps to improve regulatory oversight including installing a modern surveillance system, the “Instant Market Watch”, that provides real time connectivity with exchanges and depository institutions. As a result, the market abuse detection capabilities of BSEC have increased significantly. A new mandatory Corporate Governance Code for listed companies was introduced in August 2012. Demutualization of both the DSE and CSE was completed in November 2013 to separate ownership of the exchanges from trading rights. A majority of the members of the Demutualization Board, including the Chairman, are independent directors. Apart from this, a separate tribunal has been established to resolve capital market-related criminal cases expeditiously. All these reforms target a disciplined market with better infrastructure so that entrepreneurs can raise capital and attract foreign investors.

According to the International Monetary Fund (IMF), Bangladesh is an Article VIII member and maintains restrictions on the unapproved exchange, conversion, and/or transfer of proceeds of international transactions into non-resident taka-denominated accounts. Since 2015, authorities have relaxed restrictions by allowing some debits of balances in such accounts for outward remittances, but there is currently no established timetable for the complete removal of the restrictions.

Money and Banking System
According to the Asian Development Bank Institute, four types of banks operate in formal financial markets — public sector commercial banks (PSCBs), development financial institutions (DFIs), private commercial banks (PCBs), and foreign commercial banks (FCBs). Some 56 banks including four PSCBs, four DFIs, 39 PCBs, and nine FCBs operate in Bangladesh within a network of 8,794 total branch offices as of the end June 2014. Microfinance institutions (MFIs) remain the dominant players in rural financial markets and, as of 2016, there were 692 licensed micro-finance institutions operating a network of 17,241 branches with 33.17 million members. A 2014 Institute of Microfinance survey study showed that around 40 percent of the adult population and 75 percent of households had access to financial services in Bangladesh.

The banking sector has had a mixed record of performance over the past several years, but the sector has maintained overall healthy growth. Total assets in the banking sector stood at 65.2 percent of gross domestic product through September 2016. The gross non-performing loan (NPL) ratio was 10.3 percent through September 2016, with NPLs concentrated in six banks, each holding double-digit NPL rates in 2016.

The Bangladesh Bank acts as the Central Bank of Bangladesh (BB), which was established on December 16, 1971 through the enactment of the Bangladesh Bank Order-1972. General supervision and strategic direction of BB has been entrusted to a 9-member Board of Directors, which is headed by the BB Governor. BB has 45 departments and 10 branch offices.

Foreign Exchange and Remittances

Foreign Exchange

Free repatriation of profits is legally allowed for registered companies and profits are generally fully convertible on the current account. However, companies report that the procedures for repatriation of foreign currency are lengthy and cumbersome. The Foreign Investment Act guarantees the right of repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees for businesses. The central bank’s exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (in force since 1989) provide similar investment transfer guarantees. The Bangladesh Investment Development Authority may need to approve repatriation of royalties and other fees.

According to the IMF, Bangladesh maintains a de jure floating exchange rate regime. Effective February 2013, the de facto regime was reclassified from “other managed” to a “stabilized arrangement”. The Bangladesh currency, the taka, is approaching full convertibility for current account transactions, such as imports and travel, but not for capital account transactions, such as investing, currency speculation, or e-commerce. The Bangladesh taka has been relatively stable vis-à-vis the U.S. dollar from 2013-2016, largely trading between 76 and 78.5 taka for each U.S. dollar.

Remittance Policies

There are no set time limitations or waiting periods for remitting all types of investment returns. Remitting dividends, returns on investments, interest, and payments on private foreign debts do not require approval from the central bank and transfers are done within one to two weeks. For repatriating lease payments, royalties and management fees, some central bank approval is required, and this process can take between two and three-weeks. If a company fails to submit all the proper documents for remitting, it may take up to 60 days. Foreign investors have reported difficulties in transferring funds to overseas affiliates and making payments for certain technical fees without the government’s prior approval to do so. Additionally, some regulatory agencies have reportedly blocked the repatriation of profits due to sector-specific regulations. The U.S. Embassy also received complaints of American citizens not being able to transfer the proceeds from the sale of their properties. There is no mechanism in place for foreign investors to repatriate through government bonds issued in lieu of foreign currency payments. Bangladesh is not involved in currency manipulation tactics.

The Financial Action Task Force (FATF) notes that Bangladesh has established the legal and regulatory framework to meet its Anti-Money Laundering/Counterterrorism Finance commitments. The Asia/Pacific Group on Money Laundering (APG), an independent and collaborative international organization based in Bangkok, conducted its Mutual Evaluation of Bangladesh’s AML/CTF regime in September 2016 and found that Bangladesh had made significant progress since the last Mutual Evaluation Report (MER) in 2009, but that Bangladesh still faces significant money laundering and terrorism financing risks. The APG report is available online: http://www.apgml.org/mutual-evaluations/documents/default.aspx 

Sovereign Wealth Funds

The Bangladeshi Finance Ministry announced in 2015 that it is exploring the possibility of establishing a sovereign wealth fund for the purposes of investing a portion of Bangladesh’s foreign currency reserves. In February 2017, the Cabinet gave initial approval for the “Bangladesh Sovereign Wealth Fund,” (BSWF) which will be created with funds from the excess foreign exchange reserves. The government claims the BSWF will be used to invest in “public interest” projects. Bangladesh does not currently follow the Santiago Principles, a voluntary set of 24 principles and practices designed to maintain an open and stable investment climate.

The government privatized 74 state-owned enterprises (SOEs) during the past 20 years, but many SOEs retain an important role in the economy, particularly in the financial and energy sectors. Out of the 75 SOEs, 54 were privatized through outright sale and 20 through offloading of shares. The Privatization Commission (PC) has slowed its rate of privatization activities and in 2016, the PC merged with the Board of Investment (BOI) to form a new Bangladesh Investment Development Authority (BIDA). The 54 non-financial public enterprises in the country have been categorized into 7 sectors following the Bangladesh Standard Industrial Classification (BSIC) and their economic and financial performances are analyzed in the government budget.

Bangladesh’s 45 non-financial SOEs are spread among seven sectors – industrial; power, gas and water; transport and communication; trade; agriculture; construction; and services. The list of non-financial SOEs is published in Bangla in the Ministry of Finance’s SOE Budget Summary 2016-17.

List of Non-Financial State Owned Enterprises

* Source: Ministry of Finance, SOE Annual Budget
Assets and Revenue of Non-financial State Owned Enterprises (millions of taka)

* Source: Ministry of Finance, SOE Annual Budget

The current government has taken steps to restructure several SOEs to improve their competitiveness. The government converted Biman Bangladesh Airline, the national airline, into a public limited company that initiated a rebranding and fleet renewal program, including the purchase of ten aircraft from Boeing, six of which were delivered by March 2016. Three nationalized commercial banks (NCBs) — Sonali, Janata and Agrani — have been converted to public limited companies. The government also liberalized the telecommunications sector during the last decade, which led to the development of a competitive cellular phone market.

The contribution of SOEs to gross domestic product (GDP), value addition, employment generation and revenue earning is substantial. SOEs usually report to the ministries, though the government has allowed some enhanced autonomy for certain SOEs, such as Biman Bangladesh Airline. SOEs maintain control of rail transportation whereas private companies compete freely in air and road transportation. The corporate governance structure of SOEs in Bangladesh has been restructured as per the guidelines published by the Organization for Economic Cooperation and Development (OECD), but the country’s practices are still not quite up to OECD standards. There are no guidelines regarding ownership of SOEs, and while SOEs are required to prepare annual reports and make financial disclosures, disclosure documents are often unavailable to the public. Each SOE has an independent board of directors composed of both government and private sector nominees. The boards report to the relevant regulatory ministry. Most SOEs have strong ties with the government, and the ruling government party nominates most SOE leaders. As the government controls most of the SOEs, domestic courts tend to favor the SOEs in investment disputes.

The Bangladesh Petroleum Act of 1974 grants authority for the government to award natural resources contracts and the Bangladesh Oil, Gas and Mineral Corporation Ordinance of 1984 gives Petrobangla, the state-owned oil and gas company, authority to assess and award natural resource contracts and licenses, to both SOEs and private companies. Currently, oil and gas firms can pursue exploration and production ventures only through production sharing agreements with Petrobangla.

Privatization Program

Since 2010, the government’s privatization drive has slowed. Previous privatization drives were plagued with allegations of corruption, undervaluation, political favoritism, and unfair competition. Nonetheless, the government has publicly stated its goal of continuing the privatization drive. As of January 2010, 22 SOEs were included in the Privatization Commission’s (now the Bangladesh Investment Development Authority’s) program for privatization. These are:

• Procurement & Sales Organization, Kaptai, Rangamati;
• Lumber Processing Complex, Kaptai, Rangamati;
• Karnafuli Timber Extraction Unit, Kaptai, Rangamati;
• Arco Industries Ltd., Chittagong;
• SAF Industries Ltd., Noapara, Jessore;
• Rangamati Textiles Mills Ltd., Ghagra, Rangamati;
• Tangail Cotton Mills Ltd., Gorai, Tangail;
• Magura Textile Mills Ltd., Magura;
• Rajshahi Silk Factory, Rajshahi;
• Thakurgaon Silk Factory, Thakurgaon;
• Dhaka Leather Company Ltd., Nayarhat, Savar, Dhaka;
• North Bengal Paper Mills Ltd., Pakshi, Pabna;
• Chittagong Chemical Complex, Chittagong;
• Karnafuli Rayon & Chemical Ltd., Kaptai, Rangamati;
• Bangladesh Can Company Ltd., Chittagong;
• Monowar Jute Mills Ltd., Siddirganj, Narayanganj;
• Aroma Tea Ltd., Fauzdarhat, Chittagong;
• Handloom Facilities Center (HFC), Raypura, Narsingdi;
• Fish Landing Center & Wholesale Fish Market, Daburghat, Sunamganj;
• Dhaka Match Factory;
• Salatin Syndicate, Dhaka;
• Tiger Wire Products.

SOEs can be privatized through a variety of methods including: sales through international tender; sales of government shares in the capital market; transfers of some portion of the shares to the employees of the enterprises when shares are sold through the stock exchange; sale of government shares to a private equity company (restructuring); mixed sales methods; management contracts; leasing; and direct asset sales (liquidation).

The business community is increasingly aware and engaged in responsible business conduct (RBC) activities with multinational firms leading the way. While many firms in Bangladesh fall short on RBC activities and instead often focus on philanthropic giving, some of the leading local conglomerates have begun to incorporate increasingly rigorous environmental and safety standards in their workplaces. U.S. companies present in Bangladesh maintain diverse RBC activities. Consumers in Bangladesh are generally less aware of RBC, and consumers and shareholders exert little pressure on companies to engage in RBC activities.

While many international firms are aware of OECD guidelines and international best practices in RBC, many local firms have limited familiarity with international standards. Two RBC NGOs are currently active that work with the private sector, Bangladesh Bank and the United Nations: 1) CSR Bangladesh, http://www.csrbangladesh.org/about.html ; and 2) CSR Centre Bangladesh, http://www.csrcentre-bd.org . Along with the Bangladesh Enterprise Institute (BEI), the CSR Centre is the joint focal point for United Nations Global Compact (UNGC) and its principles in Bangladesh. The UN Global Compact is the world’s largest corporate citizenship and sustainability initiative. The Centre is a member of a regional RBC platform called the South Asian Network on Sustainability and Responsibility (SANSAR). Currently, SANSAR has five member countries including Afghanistan, Bangladesh, India, Nepal, and Pakistan.

While several NGOs have proposed National Corporate Social Responsibility Guidelines, the Government of Bangladesh has yet to adopt any national standards for RBC. As a result, the government encourages enterprises to follow generally accepted RBC principles and does not mandate any specific guidelines.

Bangladesh has natural resources, but it has not joined the Extractive Industries Transparency Initiative (EITI). The country does not adhere to the Voluntary Principles on Security and Human Rights.

Corruption remains a serious impediment to investment and economic growth in Bangladesh. While the government has established legislation to combat bribery, embezzlement and other forms of corruption, enforcement is inconsistent. The Anti-Corruption Commission (ACC) is the main institutional anti-corruption watchdog. With recent amendments to the Money Prevention Act, the ACC is no longer the sole authority to probe money-laundering offenses. Although it still has primary authority for bribery and corruption, other agencies will now investigate related offenses.

• Bangladesh Police (Criminal Investigation Department) – Most predicate offenses.
• NBR – VAT, taxation, and customs offenses.
• Department of Narcotics Control – Drug related offenses.

The current Awami League-led government has publicly underscored its commitment to anticorruption efforts and reaffirmed the need for a strong ACC. Efforts to ease public procurement rules and a recent constitutional amendment that reduced the independence of the ACC, however, may undermine institutional safeguards against corruption. Bangladesh is a party to the UN Anticorruption Convention, but it has still not joined the OECD Convention on Combating Bribery of Public Officials.

Corruption is common in public procurement, tax and customs collection, and regulatory authorities. Corruption, including bribery, raises the costs and risks of doing business. By some estimates, off-the-record payments by firms may result in an annual reduction of two to three percent of GDP. Corruption has a corrosive impact on the broader business climate market and opportunities for U.S. companies in Bangladesh. It also deters investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Bangladesh has signed and ratified the UN Anticorruption Convention. Bangladesh is currently not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Md. Badiuzzaman
Chairman, Anti-Corruption Commission, Bangladesh
1, Segun Bagicha, Dhaka 1000
+88-02-8333350
chairman@acc.org.bd

Contact at “watchdog” organization:
M. Hafizuddin Khan
Chairman, Transparency International Bangladesh (TIB)
House #141, Block-E, Road # 12 Banani, Dhaka -1213
+880 2 988 7884, 882 6036
edtib@ti-bangladesh.org

Clashes between supporters of rival political parties and their student and youth wings and even factions within the same party are frequent occurrences, particularly in the run-up to elections. General strikes and blockades called by political parties affect businesses by keeping workers away with threats of violence and by blocking transport, resulting in increased costs and productivity losses. Vehicles and other property are at risk from vandalism or arson during such events, and looting of shops has occurred. There were significant periods of political violence and unrest for the first few months in both 2014 and 2015, but this type of violence has diminished significantly in 2016.

Starting in September and October 2015, a new threat stream emerged, culminating in attacks against foreigners, religious minorities and law enforcement personnel. Militants claiming to be affiliated with the Islamic State of Iraq and ash Sham / Islamic State of Iraq and the Levant (ISIS) and Al Qaeda in the Indian Subcontinent (AQIS) claimed responsibility for these attacks, including the murders of two foreign nationals, an Italian and a Japanese, and several attacks on religious minorities and government military installations.

On July 1, 2016, terrorists killed more than 20 people, including one U.S. citizen, in a restaurant frequented by foreigners in Dhaka’s diplomatic enclave. In October 2016, ISIS threatened to target “expats, tourists, diplomats, garment buyers, missionaries, and sports teams” in the most “secured zones” in Bangladesh.

The U.S. government considers the potential threat to U.S. government personnel in Bangladesh to be serious enough to require them to live, work, and travel under strict security guidelines. The internal security policies of the U.S. Mission in Bangladesh may be changed or adjusted at any time and without advance notice.

New security guidelines encourage U.S. citizens to take stringent security measures, remain vigilant, and to be alert to local security developments. U.S. government officials currently are not permitted to:

• Visit public establishments or places in Bangladesh
• Travel on foot, motorcycle, bicycle, rickshaw, or other uncovered means on public thoroughfares and sidewalks in Bangladesh
• Attend large gatherings in Bangladesh

For further information, see the State Department’s travel website for the Worldwide Caution, Travel Warnings, Travel Alerts, and Bangladesh Country Specific Information.

Bangladesh has a population of approximately 156 million people and a working age population (15 years or older) of 106.3 million, of whom 58 million are employed and 2.6 million meet the definition of unemployed. Of the employed population, 37 percent (21.5 million) were between the ages of 15-29 years old. The 2013 Bangladesh Bureau of Statistics Survey indicates 45 percent of the employed labor force works in agriculture, 34.1 in services and 20.8 percent in the industrial sector. It estimates 86.9 percent of the employed workers are in the informal sector.

Bangladesh’s comparative advantage in cheap labor for manufacturing is partially offset by lower productivity due to lack of skills development, poor management, pervasive corruption, and inefficient infrastructure. Bangladeshi workers have a strong reputation for hard work, entrepreneurial spirit, and a positive and optimistic attitude. With an average age in Bangladesh of 26 years, the country boasts one of the largest and youngest labor forces in the world.

Bangladesh has labor laws that specify employment conditions, working hours, minimum wage levels, leave policies, health and sanitary conditions, and compensation for injured workers. Freedom of association and the right to join unions are guaranteed in the constitution. In practice, compliance and enforcement of labor laws are inconsistent, and companies frequently discourage the formation of labor unions. Export Processing Zones (EPZs), which currently do not allow trade union participation, are a notable exception to the national labor law (see below). Historically, unions have been heavily politicized and labor-management relations contentious. After the highly publicized collapse of the Rana Plaza garment factory building in 2013, which killed more than 1,100 people, international pressure forced the government to amend the country’s labor laws, although there remain some deviations from international standards.

The Ministry of Labor and Employment (MOLE) reports that there are 7,659 trade unions in Bangladesh, covering nearly 3 million workers, with 507 unions in the garment sector, including 375 new unions registered since 2013. MOLE reported that there were 16 unions in the shrimp sector and 13 unions in the leather and tannery sector.

The Joint Directorate of Labor is the body responsible for approving union applications and has broad authority in this regard. Since July 2013, following the establishment of the U.S. GSP Action Plan for Bangladesh to work toward regaining suspended GSP benefits, more than 300 unions have been registered, although reports of problems with the registration process are on the rise. Despite international efforts to support the registration of unions and to investigate unfair labor practices, threats and harassment of union leaders continue to be reported. In a sector with more than 3,500 factories, approximately only a dozen have collective bargaining agreements.

The Bangladesh Labor Act (BLA) was amended in 2013, and its implementing rules and regulations published in October 2015. The Rules provided much awaited clarification on key issues, such as the process to form occupational safety and health committees. The Rules also include regulations for outsourcing companies, requiring them to register with the Ministry of Labor and Employment.

Under the BLA, legally registered unions are entitled to submit charters of demands and bargain collectively with employers, but this has rarely occurred in practice. The law provides criminal penalties for unfair labor practices such as retaliation against union members for exercising their legal rights. Labor organizations reported that in some companies, workers did not exercise their collective bargaining rights due to fear of reprisal, but also because their unions’ found success addressing grievances with management informally.

The government does not consistently and effectively enforce applicable labor law. For example, the law establishes mechanisms for conciliation, arbitration, and dispute resolution by a labor court and workers in a collective-bargaining union have the right to strike in the event of a failure to reach a settlement. In practical terms, few strikes followed the cumbersome and time consuming legal requirements for settlements, and strikes or walkouts often occurred spontaneously.

In July 2004, parliament enacted a law for export processing zones (EPZs). The 2004 EPZ law does not currently guarantee freedom of association for workers within the EPZs. Parliament has continued to defer action on a draft EPZ law, and according to the ILO, neither the draft EPZ law nor the BLA meet international labor standards. The Parliamentary Standing Committee on Law, Justice, and Parliamentary Affairs held several hearings on the draft law, including one on September 29 at which the committee solicited feedback from the international community. Following the September 29 meeting, the committee chair assigned a subcommittee the task of reviewing comparable practices in neighboring countries. The subcommittee had not submitted its report to the committee chair as of the end of 2016.

The BLA guarantees workers the right to conduct lawful strikes, but with many limitations. For example, the government may prohibit a strike deemed to pose a “serious hardship to the community” and may terminate any strike lasting more than 30 days. The BLA also prohibits strikes at factories in the first three years of commercial production, and at factories owned by foreign investors or built with foreign investment funds. Starting in December 2016, 59 factories in Ashulia, an industrial suburb of Dhaka, experienced work stoppages when thousands of workers went on strike to demand wage increases. Although the country’s major labor federations did not organize the strike, at least 25 labor leaders and workers were detained and charged by local authorities for a range of allegations, including charges under the Special Powers Act of 1974. Following reported harassment from the industrial police, several labor federations operating in Ashulia and other areas closed their offices.

In the aftermath of the 2013 Rana Plaza building collapse that killed 1,138 workers and injured more than 2,500, private companies, foreign governments, and international organizations worked with the government to inspect more than 3,660 garment factories, leading to 39 full and 42 partial closures of factories for imminent danger to human life as of August 2016. Many factories began to take action to improve safety conditions, although remediation efforts have proceeded slowly due to a range of factors, including inadequate financing for factories.

The U.S. Overseas Private Investment Corporation (OPIC) is not currently authorized for operation in Bangladesh. Investors should check OPIC’s website for updates: https://www.opic.gov/doing-business-us/OPIC-policies/where-we-operate 

OPIC and the Government of Bangladesh signed an updated bilateral agreement in May 1998: https://www.opic.gov/sites/default/files/docs/asia/bangladeshbilateral.pdf 

More information on OPIC services can be found at: www.opic.gov 

Bangladesh is also a member of the Multilateral Investment Guarantee Agency (MIGA): http://www.miga.org 

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

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Data from the Bangladesh Bank, the country’s central bank, showed the United States was the highest net contributor of foreign direct investment (FDI) to Bangladesh during fiscal year 2016, which ended June 30. Net FDI from the United States doubled from $225 million in FY2015 to $450 million in FY2016. However, gross FDI inflows from the United States were down slightly to $456.1 million in FY2016 from $479 million in FY2015. U.S. FDI in Bangladesh was concentrated in the energy sector.

Bangladesh’s net FDI reached $2 billion in FY2016, a 9 percent year-on-year increase. Following the United States, the United Kingdom, South Korea, Singapore, and Hong Kong rounded out the top five contributors of FDI in Bangladesh. Over the past five years, the country has also seen a notable increase in FDI from Southeast Asia with Singapore, Malaysia, and Thailand accounting for nearly 15 percent of net FDI inflows in FY 2016 compared to only 5 percent in FY2012.

The Bangladesh Bank report also showed the United States has the largest cumulative investments (FDI stock) in Bangladesh, $3.2 billion, over twice as much as the next country, the United Kingdom with $1.53 billion. Of the United States’ total $3.2 billion in FDI stock, 83 percent was in the gas and petroleum sector followed by the banking and “other” sectors. Overall, Bangladesh’s FDI stock reached record levels growing 7.56 percent to $13.4 billion in FY2016. Gas and petroleum, textiles and garments, and banking constituted the top three sectors overall.

Commercial Section
Embassy of the United States of America
Madani Avenue, Baridhara
Dhaka — 1212
+880 2 5566-2000
USTC-Dhaka@state.gov

Policies Towards Foreign Direct Investment

In general, Bolivia remains open to foreign direct investment. The 2014 investment law guarantees equal treatment for national and foreign firms, however it also stipulates that public investment has priority over private investment (both national and foreign) and that the Bolivian Government will determine which sectors require private investment.

U.S. companies interested in investing in Bolivia should note that Bolivia has abrogated the Bilateral Investment Treaties (BIT) it signed with the United States and a number of other countries. The Bolivian Government claimed the abrogation was necessary for Bolivia to comply with the 2009 Constitution. Companies that invested under the U.S. –Bolivia BIT will be covered until June 10, 2022, but investments made after June 10, 2012 are not covered.

Pursuant to Article 320 of the 2009 Constitution, Bolivia no longer recognizes international arbitration forums. The parties also cannot settle the dispute in an international court. However, the implementation of this Article is still uncertain.

Specifically, Article 320 of the Bolivian Constitution states:

• Bolivian investment takes priority over foreign investment.
• Every foreign investment will be subject to Bolivian jurisdiction, laws, and authorities, and no one may invoke a situation for exception, nor appeal to diplomatic claims to obtain more favorable treatment.
• Economic relations with foreign states or enterprises shall be conducted under conditions of independence, mutual respect and equity. More favorable conditions may not be granted to foreign states or enterprises than those established for Bolivians.
• The state makes all decisions on internal economic policy independently and will not accept demands or conditions imposed on this policy by states, banks or Bolivian or foreign financial institutions, multilateral entities or transnational enterprises.
• Public policies will promote internal consumption of products made in Bolivia.

Article 262 of the Constitution states: “The fifty kilometers from the borderline constitute the zone of border security. No foreign person, individual, or company may acquire property in this space.”

Article 129 of the Bolivian Arbitration Law No. 708, established that all controversies and disputes that arise regarding investment in Bolivia will have to be addressed inside Bolivia under Bolivian Laws. Consequently, international arbitration is not allowed. See Section 3 on the Legal Regime.

Bolivia does not currently have an investment promotion agency to facilitate foreign investment. However, the government said that it is working to create an investment promotion agency in order to attract investment in the non-traditional and industrial sectors. The government does maintain ongoing dialogue with the private sector through several working groups, one of which addresses the investment climate.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is a right for foreign and domestic private entities to establish and own business enterprises and engage in remunerative activity.

There are some areas where investors may judge that special treatment is given to their Bolivian competitors, for example in key sectors where private companies compete with state owned enterprises. Additionally, foreign investment is not allowed in matters relating directly to national security. And only the government can own natural resources.

The Constitution specifies that all hydrocarbon resources are the property of the Bolivian people and that the state will assume control over their exploration, exploitation, industrialization, transport, and marketing (Articles 348 and 351). The state-owned and operated company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) manages hydrocarbons transport and sales and is responsible for ensuring that the domestic market demand is satisfied at prices set by the hydrocarbons regulator before allowing any hydrocarbon exports. YPFB benefitted from government action in 2006 that required operators to turn over their production to YPFB and to sign new contracts that gave YPFB control over the distribution of gasoline, diesel, and liquid petroleum gas (LPG) to gas stations. The law allows YPFB to enter into joint venture contracts for limited periods with national or foreign individuals or companies wishing to exploit or trade hydrocarbons or their derivatives. For companies working in the industry, contracts are negotiated on a service contract basis and there are no restrictions on ownership percentages of the companies providing the services.

The Constitution (Article 366) specifies that every foreign enterprise that conducts activities in the hydrocarbons production chain will submit to the sovereignty of the state, and to the laws and authority of the state. No foreign court case or foreign jurisdiction will be recognized, and foreign investors may not invoke any exceptional situation for international arbitration, nor appeal to diplomatic claims.

According to the Constitution, no concessions or contracts may transfer the ownership of natural resources or other strategic industries to private interests. Instead temporary authorizations to use these resources may be requested at the pertinent ministry (mining, water and environment, public works, etc.). The Bolivian Government is still renegotiating commercial agreements related to forestry, mining, telecommunications, electricity, and water services, in order to comply with these regulations.

The Telecommunications, Technology and Communications General Law (Law 164, Article 28) stipulates that the licenses for radio broadcasts will not be given to foreign persons or entities. Further, in the case of broadcasting associations, the share of foreign investors cannot exceed 25percent of the total investment, except in those cases approved by the state or by international treaties.

The Central Bank of Bolivia is responsible for registering all foreign investments. According to the 2014 investment law, any investment will be monitored by the ministry related to the particular sector. For example, the Mining Ministry is in charge of overseeing all public and private mining investments. Each Ministry should assess industry compliance with the incentive objectives. To date, only the Ministry of Hydrocarbons and Energy has enacted a Law (N 767) to incentivize the exploration and production of hydrocarbons.

Other Investment Policy Reviews

The government has not undergone any third-party investment policy reviews during the past three years.

Business Facilitation

According to the World Bank’s Doing Business rankings, Bolivia ranks 149 out of 190 countries on the ease of doing business, much lower than most countries in the region. Bolivia ranks 177 out of 190 on the ease of starting a business.

Fundempresa is a mixed public/private organization authorized by the central government to register and certify new businesses. Its website is www.fundempresa.org.bo  and the business registration process is laid out clearly within the tab labeled “processes, requirements and forms,” however the registration cannot be completed entirely online. A user can download the required forms from the site and can fill them out online, but would then have to mail the completed forms or deliver them to the relevant offices. A foreign applicant would be able to use the registration forms. The forms do ask for a “cedula de identidad,” which is a national identification document; however foreign users instead usually enter the data for their passports.

The steps to register a business are: (1) register and receive a certificate from Fundempresa; (2) register with the Bolivian Internal Revenue institution and receive a tax identification number; (3) register and receive authorization to operate from the municipal government in which the company will be established; (4) if the company has employees, it must register with the national health insurance service and the national retirement pension agency in order to contribute on the employees’ behalf; and (5) if the company has employees, it must register with the Ministry of Labor. According to Fundempresa, the process should take 30 days from start to finish. All steps are required and there is no simplified business creation regime.

Outward Investment

The Bolivian Government does not promote or incentivize outward investment. Nor does the government restrict domestic investors from investing abroad.

Government policy changes stemming in part from the adoption of the 2009 Constitution have raised concerns among foreign investors. Although the new Constitution has yet to be fully implemented, it limits foreign companies’ access to international arbitration in cases of conflicts with the government. It also states that all bilateral investment treaties (BIT) must be renegotiated to adjust to this and other new constitutional provisions.

Citing these provisions, the Bolivian Government terminated the BIT with the United States in June 2012. Existing investors in Bolivia at the time of termination continue to be protected by the U.S. BIT’s provisions for ten years. The BIT with Bolivia was the first to be terminated by a U.S. treaty partner. In a related action, in October 2007, Bolivia became the first country to withdraw from the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). Bolivia has had a signed BIT with Peru since 1993.

Bolivia does not have a bilateral taxation treaty with the United States. According to Bolivia’s Tax Service, Bolivia subscribed to the Andean Community’s taxation decision (No. 578). Bolivia also has bilateral tax agreements with Argentina, Germany, the United Kingdom, Sweden, France, and Spain. The Bolivian Government recently raised taxes on the banking sector by three percent, increasing the tax burden on bank profits to 50 percent.

Transparency of the Regulatory System

Bolivia has no laws or policies that directly foster competition on a non-discriminatory basis. However, Article 66 of the Commercial Code states that unfair competition, such as maintaining an import, production, or distribution monopoly, should be penalized according to criminal law. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

Regulatory authority regarding investment exists at the national level in Bolivia.

The Commercial Code requires that all companies keep adequate accounting records and legal records for transparency. However, there is a large informal sector that does not follow these practices. Most accounting regulations follow international principles, but the regulations do not always conform to international standards. Large private companies and some government institutions, such as the Central Bank and the Banking Supervision Authority, have transparent and consistent accounting systems.

Formal bureaucratic procedures are lengthy, difficult to manage and navigate, and considered by some to be debilitating. Many firms complain that a lack of administrative infrastructure, corruption, and political motives impede their ability to perform. The one exception is when registering a new company in Bolivia. Once a company submits all documents required to the Bolivian entity charged with registration of new enterprises (FUNDEMPRESA) the process takes between 2-4 working days.

There is no established public comment process allowing social, political, and economic interests to provide advice and comment on new laws and decrees. However, the government generally — but not always — discusses proposed law with the relevant sector. The lack of laws to implement the 2009 Constitution creates legal discrepancies between constitutional guarantees and the dated policies currently enforced and an uncertain investment climate. Draft text or summaries are usually published on the National Assembly’s website.

Environmental regulations can slow projects due to the constitutional requirement of “prior consultation” for any projects that could affect local communities. This has affected projects related to the exploitation of natural recourses, both renewable and nonrenewable, as well as public works projects. Issuance of environmental licenses has been slow and subject to political influence corruption.

In 2010, the new pension fund was enacted; it increased the contributions that companies have to pay from 1.71 percent of payroll to 4.71 percent.

The judicial system faces a huge backlog of cases, is short staffed, lacks resources, and has problems with corruption. Swift resolution of cases, either initiated by investors or against them, is unlikely. The Marcelo Quiroga Anti-Corruption law of 2010 makes companies and their signatories criminally liable for breach of contract with the government, and the law can be applied retroactively. Authorities can use this threat of criminal prosecution to force settlement of disputes. Commercial disputes can often lead to criminal charges. Cases are processed slowly, and suspects can be held legally for 18 months without formal charge as a case is investigated, and for 36 months before their case is resolved by a judge. Foreigners are more likely to be deemed a flight risk than Bolivian nationals and, as such, may not receive bail in lieu of pretrial incarceration. See the U.S. Human Rights Report as background on the judicial system, labor rights and other important issues.

International Regulatory Considerations

Bolivia is a full member of the Andean Community of Nations (CAN), comprised of Bolivia, Colombia, Ecuador, and Peru. Bolivia is also in the process of joining the Southern Common Market (MERCOSUR) as a full member. The CAN’s norms are considered supranational in character and have automatic application in the regional economic block’s member countries. The government notifies the World Trade Organization (WTO) Committee on Technical Barriers to Trade regarding draft technical regulations.

Legal System and Judicial Independence

Property and contractual rights are enforced in Bolivian courts under a civil law system, but the legal process is time consuming and may be subject to political influence and corruption. Although many of its provisions were modified and supplanted by more specific legislation, Bolivia’s Commercial Code (Law 14379, 1977) continues to provide general guidance for commercial activities. Still, the Commercial Code is irregularly applied. The constitution has precedence over international law and treaties (Article 410), and stipulates that the state will be directly involved in resolving conflicts between employers and employees (Article 50). There are allegations of corruption within the judiciary in high profile cases.

Laws and Regulations on Foreign Direct Investment

No major laws, regulations, or judicial decisions impacting foreign investment came out in the past year. There is no primary one-stop-shop for investment that provides all the relevant information to investors.

Competition and Anti-Trust Laws

Bolivia does not have a competition law. However, Article 314 of the 2009 Constitution prohibits private monopolies. Based on this article, in 2009 the Bolivian Government created an office to supervise and control private companies (http://www.autoridadempresas.gob.bo/).  Among its most important goals are: regulating, promoting, and protecting free competition; trade relations between traders; implementing control mechanisms and social projects, and voluntary corporate responsibility; corporate restructuring, supervising, verifying and monitoring companies with economic activities in the country in the field of commercial registration and seeking compliance with legal and financial development of its activities; and qualifying institutional management efficiency, timeliness, transparency and social commitment to contribute to the achievement of corporate goals.

Expropriation and Compensation

The Bolivian Constitution allows the central government or local governments to expropriate property for the public good or when the property does not fulfill a “social purpose” (Article 57). In the case of land, this social purpose (FES) is understood as “sustainable land use to develop productive activities, according to its best use capacity, for the benefit of society, the collective interest and its owner.” In all other cases where this article is applied, the Bolivian Government has no official definition of collective interest and makes decisions on a case-by-case basis. Noncompliance with the social function of land, tax evasion, or the holding of large acreage is cause for reversion, at which point the land passes to “the Bolivian people” (Article 401). In cases where the expropriation of land is deemed a necessity of the state or for the public good, such as when building road or laying electricity lines, payment of just indemnification is required, and the Bolivian Government has paid for the land taken in such cases. However, in cases where there is non-compliance, or accusations of such, the Bolivian Government is not required to pay for the land and the land title reverts to the state.

The constitution also gives workers the right to reactivate and reorganize companies that are in the process of bankruptcy, insolvency, or liquidation, or those closed in an unjust manner, into employee-owned cooperatives (Article 54). The mining code of 1997 (last updated in 2007) and hydrocarbons law of 2005 both outline procedures for expropriating land to develop underlying concessions.

Between 2006 and 2014, the Bolivian Government nationalized companies that were previously privatized in the 1990s. The government nationalized the hydrocarbons sector, the majority of the electricity sector, some mining companies (some mines and a tin smelting plant), and a cement plant. To take control of these companies, the government forced private entities to sell shares to the government, and often at below market prices. Some of the affected companies have cases pending with international arbitration bodies. All outsourcing private contracts were canceled and assigned to public companies (such as airport administration and water provision).

There are still some former state companies that are under private control, including the railroad, and some electricity transport and distribution companies. The first company not previously owned by the government was nationalized in December of 2012. Government nationalizations did not discriminated by country; some of the countries affected were the United States, France, the United Kingdom, Spain, Argentina, and Chile, amongst others. In numerous cases the Bolivian Government has nationalized private interests in order to appease social groups protesting within Bolivia.

Dispute Settlement

ICSID Convention and New York Convention

On May 1, 2007, Bolivia sent the World Bank a written notice of denunciation of the Convention on the Settlement of Investment Dispute between States and Nationals of Other States (the ICSID Convention). Bolivia acted pursuant to Article 71 of the ICSID Convention. The denunciation took effect six months after receipt of the notice.

In August 2010, the Bolivian Minister of Legal Defense of the State said that the Bolivian Government would not accept International Centre for Settlement of Investment Disputes (ICSID) rulings in the cases brought against Bolivia by the Chilean company Quiborax and Italian company Euro Telcom. However, the Bolivian Government agreed to pay USD 100 million to Euro Telecom for its nationalization; this agreement was ratified by a Supreme Decree 692 on November 3, 2010. Additionally, in 2014, a British company that owned the biggest electric generation plant in Bolivia (Guaracachi) won an arbitration case against Bolivia for USD 41 million. In 2014, an Indian company won a USD 22.5 million international arbitration award in a dispute over the development of an iron ore project. The Bolivian Government has appealed that award.

In another case, a Canadian mining company with significant U.S. interests failed to complete an investment required by its contract with the state-owned mining company. The foreign company asserts it could not complete the project because the state mining company did not deliver the required property rights. The foreign company entered into national arbitration (their contract does not allow for international arbitration) and in January 2011, the parties announced a settlement of USD 750,000, which the company says will be used to pay taxes, employee benefits, and pending debts — essentially leaving them without compensation for the USD 5 million investment they had made. They also retained responsibility for future liabilities.

Investor-State Dispute Settlement

Conflicting Bolivian law makes international arbitration challenging. Previous investment contracts between the Bolivian Government and the international companies granted the right to pursue international arbitration in all sectors and stated that international agreements, such as ICSID and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, must be honored. However, these rights conflict with the 2009 Constitution, which states (Articles 320 and 366) that international arbitration is not recognized in any case and cannot proceed under any diplomatic claim, and specifically limits foreign companies’ access to international arbitration in the case of conflicts with the government. The 2009 Constitution also states that all bilateral investment treaties must be renegotiated to incorporate relevant provisions of the new constitution. The Investment Law of 2014 was enacted in late 2015. Under the 2015 Arbitration Law (Law 708), international arbitration is not permitted when the dispute is against the government or a state-owned company.

A variety of companies of varying nationality were affected by the government’s nationalization policy between 2006 and 2014. In 2014, President Morales announced there would be no more nationalization. The same year, one Brazilian company was nationalized but that had been previously agreed to with the owner under the previous nationalization policy.

International Commercial Arbitration and Foreign Courts

In Bolivia, two institutions have arbitration bodies: the National Chamber of Commerce and the Chamber of Industry and Commerce of Santa Cruz (CAINCO). In order to utilize these domestic arbitration bodies, private parties must include arbitration within their contracts. Depending on the contract between the parties, The United Nations Commission on International Trade Law (UNCITRAL) model law or Bolivia’s Arbitration Law (No. 708) may be used. Local courts recognize and enforce foreign arbitral awards and judgments, however, the judgments can be appealed in Bolivian court. There are no statistics available regarding SOE involvement in investment disputes.

Bankruptcy Regulations

The average time to complete bankruptcy procedures to close a business in Bolivia is 20 months. The Bolivian Commercial Code (Article 1654) includes three different categories of bankruptcy:

1. No Fault Bankruptcy – when the owner of the company is not directly responsible for its inability to pay its obligations.
2. At- Fault Bankruptcy – when the owner is guilty or liable due to the lack of due diligence to avoid harm to the company.
3. Bankruptcy due to Fraud – when the owner intentionally tries to cause harm to the company.

In general, the application of laws related to commercial disputes and bankruptcy are inconsistently applied and allegations of corruption are common. Foreign creditors often have little redress beyond Bolivian courts, and judgments are generally more favorable to local claimants than international ones. If a company declares bankruptcy, the company must pay employee benefits before other obligations. Workers have broad-ranging rights to recover pay and benefits from foreign firms in bankruptcy, and criminal actions can be taken against individuals the Bolivian Government deems responsible for failure to pay in these matters.

Investment Incentives

In an effort to attract more investment, the government enacted an investment law in 2014, which says that each Ministry will provide incentives for sector-specific investment.

Article 14 of the 2014 investment law requires technology transfer from foreign companies operating in Bolivia to Bolivian workers and institutions. The law also specifies that Bolivians should work in operational, administrative, and executive offices of foreign companies. In addition, companies investing in Bolivia should donate equipment and machinery to universities and technical schools in the same area as the investment, and conduct research activities that will find solutions that contribute to public welfare.

Article 21 of the investment law stipulates that the government can incentivize investment in certain sectors that contribute to the economic and social development of the country.

Law 767 from 2015 aims to promote investments in the exploration and exploitation of hydrocarbons. However, many companies considered this regulation as skewed to production and insufficient to incentivize new exploration. In 2016, Supreme Decree 2830 was issued, providing a 12percent reduction in the payment of the direct tax on hydrocarbons and other incentives in order to better incentive exploration.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are eleven free trade zones in Bolivia, more than half of which are in cities along the Bolivian borders. The free trade zones were created to facilitate commercial and industrial operations for national and international companies. Any transaction that takes place inside a free trade zone is exempt from tariffs and national taxes. Private companies with 40-year contracts administer the free trade zones. The National Council on Free Trade Zones (CONZOF) oversees all industrial and commercial free trade zones and authorizes operations. Currently, free trade zones and free industrial zones are located in La Paz, Santa Cruz, and Oruro.

In 2016, Supreme Decree 2779 was enacted, approving regulations for a new system of free trade zones in Bolivia. The decree establishes a period of one year for existing free trade zones to transform into free industrial zones.

Performance and Data Localization Requirements

Bolivian labor law requires businesses to limit foreign employees to 15% of their total work force and requires that such foreign hires be part of the technical staff. These workers require a work visa that can be obtained at any Bolivian consulate, and in the case that they work for a Bolivian company, both the company and the workers should also contribute to the Bolivian Pension System (Pension Law Article 104.1)

Supreme Decree 27328 regulates national and local level government procurement, which give priority to national sourcing. If an item required is not produced in Bolivia, buying decisions are made based on price. Supreme Decree 28271 (Article 10), establishes the following preference margins for sourcing with Bolivian products:

• Except for national tenders, ten percent preference margin for Bolivian products regardless of the origin of materials.
• For national public tenders, if the cost of Bolivian materials represents more than 50 percent of the total cost of the product, the producers receive a ten percent preference margin over other sellers.
• In national and international public tenders, if Bolivian inputs and labor represent more than the 50 percent of the total cost of the product, the seller receives a 25 percent preference margin over other sellers. If the Bolivian inputs and labor represent between 30 percent and 50 percent of the total cost of the product, the seller receives a 15 percent preference margin over other sellers.

Under the Bolivian Criminal Code (Article 226), it is a crime to raise or lower the price of a product based on false information, interests, or actions. For those caught doing so, punishment is six months to three years in prison. It is also a crime to hoard or conceal products in order to raise prices. The Bolivian Government has aggressively applied these provisions in a number of cases, applying regulations that allow them to request accounting records and audit companies’ financial actions looking for evidence of speculation.

Real Property

Property rights are legally protected and registered in the Real Estate Office, where titles or deeds are recorded and mortgages/liens are registered. The recording system is reliable, although there are complaints regarding the amount of time required to register a property.

The Office of Property Registry oversees the acquisition and disposition of land, real estate, and mortgages. Mortgages are easy to obtain, taking usually no more than 60 days to obtain a standard loan. However, challenges to land titles are common due to bureaucratic delays encountered while registering properties, especially in rural areas. Competing claims to land titles and the absence of a reliable dispute resolution process create risk and uncertainty in real property acquisition. Nevertheless, illegal occupation of rural private property is decreasing since the passage of Law 477 combatting land seizures.

The Bolivian Constitution grants citizens and foreigners the right to private property but stipulates that the property must serve a social or economic function. If the government determines that a given property is not sufficiently useful (according to its own unclear criteria), the constitution allows the property to be expropriated. The agricultural sector has been most hard hit by this policy due to uncertainty from year to year about whether farm land would be productive. In 2013, the government granted amnesty from the productive requirement to farmers who were impacted by forest fires; and in 2015, the government agreed to do away with the annual productivity inspections and reduce their frequency from every two to every five years, though the Congress has yet to pass these modifications. There are other laws that limit access to land, forest, water and other natural resources by foreigners in Bolivia.

The constitution grants formal, collective land titles to indigenous communities, in order to restore their former territories (Article 394.3), stating that public land will be granted to indigenous farmers, migrant indigenous communities, Afro-Bolivians, and small farmer communities that do not possess or who have insufficient land (Article 395). Under law 3545, passed in 2006, the government will not grant public lands to non-indigenous people or agriculture companies. The Mother Earth Integral Development Law to Live Well (Mother Earth Law, or Law #300) passed in October 2012 specifies that the state controls access to natural resources, particularly when foreign use is involved. In action, the law limits access to land, forest, water and other natural resources by foreigners in Bolivia.

Intellectual Property Rights

The Bolivian Intellectual Property Service (SENAPI) reviews patent registrations for form and substance and publishes notices of proposed registrations in the Official Gazette. If there are no objections within 30 working days, the organization grants patents for a period of 20 years. The registration of trademarks parallels that of patents. Once obtained, a trademark is valid for a 10-year renewable period. It can be cancelled if not used within three years of the date of grant.

The existing copyright law recognizes copyright infringement as a public offense and the 2001 Bolivian Criminal Procedures Code provides for the criminal prosecution of IPR violations. However, the enforcement of intellectual property rights remains insufficient. Prosecutors rarely file criminal charges, and civil suits, if pursued, face long delays. Criminal penalties carry a maximum of five years in jail, and civil penalties are restricted to the recovery of direct economic damages. SENAPI has established a conciliation process to solve IPR controversies in order to prevent parties from going to trial.

Bolivia does not have an area of civil law specifically related to industrial property, but has a century-old industrial privileges law still in force. Bolivia is a signatory of the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). SENAPI is aware of Bolivia’s obligations under the TRIPS Agreement and it sets out the minimum standards of IPR protection in compliance with this agreement. SENAPI sustains its position that Bolivia complies with the substantive obligations of the main conventions of the World Intellectual Property Organization (WIPO), the Paris Convention for the Protection of Industrial Property (Paris Convention), and the Berne Convention for the Protection of Literary and Artistic Works (Berne Convention) in their most recent versions. According to SENAPI, Bolivia complies with WTO’s dispute settlement procedures in accordance with its TRIPS obligations. However, Bolivia falls short on the implementation of domestic procedures and providing legal remedies for the enforcement of intellectual property rights.

Bolivia is a signatory country of the 1996 WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty; however, it did not ratify any of those treaties domestically. Bolivia is not a member of the Madrid Protocol on Trademarks, the Hague Agreement Concerning the International Registration of Industrial Designs, or the Patent Law Treaty.

Bolivia is a signatory of Andean Community (CAN) Decision 486, which deals with industrial property and trade secrets and is legally binding in Bolivia. Decision 486 states that each member country shall accord the Andean Community countries, the World Trade Organization, and the Paris Convention for the Protection of Industrial Property, treatment no less favorable than it accords to its own nationals with regard to the protection of intellectual property. Besides its international obligations, Bolivia has not passed any domestic laws protecting trade secrets.

In 2015, SENAPI put forward a bill to modernize industrial property legislation which has not yet been approved by the legislature. SENAPI maintains and regularly updates a complete set of IPR regulations currently in force. This list is available on SENAPI’s webpage at: http://www.senapi.gob.bo/MarcoLegal.asp?lang=ES .

Bolivian customs authorities continue to try to intercept counterfeit goods shipments at international borders, but the customs service lacks the human and financial resources needed to be effective. Rather than incorporating IPR engagement into its normal routine, Bolivian customs usually acts on these matters as a result of complaints filed by industries trying to protect their brands from counterfeit imports. Additionally, importers seem to be unaware that counterfeit products are illegal and that the payment of customs fees does not “legalize” the sale of pirated goods. Moreover, there is a sense of unregulated capitalism with regard to the sale of goods in the informal sector. That is, sellers either do not know about or do not take into consideration intellectual property rights, particularly in the textile, electrical appliances, and CD/DVD/Blu-ray markets. For example, large quantities of misbranded electrical appliances imported from China with labels denoting “Sony,” “Panasonic,” and “General Electric” are available for purchase in local markets. While most counterfeit items come with the illegal brand already attached, brands and logos are available for purchase on the street and can easily be affixed to goods.

Although court actions against those infringing upon IPR are infrequent, there have been some significant cases. The Industrial Property Director at SENAPI reported that the number of indictments related to counterfeit products increased steadily over the years. In 2010 there were only 20 such cases. In 2011 they increased to 27. In 2012, 48 cases were reported. In 2013, cases dipped slightly to 43, sharply rose to 60 in 2014 and then to 65 in 2015 (2016 data has not yet been released). According to SENAPI’s director, this does not necessarily represent an increase in counterfeit products. Rather, the increase in indictments is due to SENAPI’s increased enforcement efforts and the public’s greater awareness of IPR rights. Bolivian customs did not report to the press any major seizing of counterfeit products in 2016, but the Chilean and Peruvian customs did report large confiscations of containers with counterfeit clothes, sport shoes, cigarettes, and toys destined for the Bolivian market. SENAPI reported 41 requests from private stakeholders for “border measures,” ten times more requests than requests registered in 2011. Border measures are actions taken by customs and police to stop the transit of counterfeit products.

Bolivia is listed in the 2016 USTR’s Special 301 report’s watch list. Bolivia is not listed in the 2016 notorious market report.

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

Capital Markets and Portfolio Investment

The government’s general attitude toward foreign portfolio investment is neutral. Established Bolivian firms may issue short or medium-term debt in local capital markets, which act primarily as secondary markets for fixed-return securities. Bolivian capital markets have sought to expand their handling of local corporate bond issues and equity instruments. Over the last few years, several Bolivian companies and some foreign firms have been able to raise funds through local capital markets. However, the stock exchange is small and is highly concentrated in bonds and debt instruments (more than 95 percent of transactions). The amount of total transactions per year generally hovers at around one-third of GDP.

Since 2008, the financial markets experienced high liquidity, which led to historically low interest rates. The Bolivian financial system is not well integrated with the international system and there is only one foreign bank among the top ten banks of Bolivia.

In October 2012, Bolivia returned to global credit markets for the first time in nearly a century, selling USD 500 million worth of 10-year bonds at the New York stock exchange. The sovereign bonds were offered with an interest rate of 4.875 percent and demand for the bonds well surpassed the offer, reaching USD 1.5 billion. U.S. financial companies Bank of America, Merrill Lynch, and Goldman Sachs were the lead managers of the deal. In 2013, Bolivia sold another USD 500 million at 5.95 percent for ten years. HSBC, Bank of America, and Merrill Lynch were the lead managers of the deal. In 2017, Bolivia sold another USD one billion at 4.5 percent for ten years, with Bank of America and JP Morgan managing the deal. According to the Ministry of Economy, the resources gained from the sales will be used to finance infrastructure projects.

The government and central bank respect their obligations under IMF Article VIII, as the exchange system is free of restrictions on payments and transfers for international transactions.

Foreign investors legally established in Bolivia are able to get credits on the local market. However, due to the size of the market, large credits are rare and may require operations involving several banks. Credit access through other financial instruments is limited to bond issuances in the capital market. A recent financial services law directs credit towards the productive sectors and caps interest rates.

Money and Banking System

The Bolivian banking system is small, composed of 12 banks, three private financial funds, and 34 savings and credit cooperatives. Of the total number of personal deposits made in Bolivia through December 2016 (USD 22.5 billion), the banking sector accounted for 80 percent of the total financial system. Similarly, of the total loans and credits made to private individuals (USD 19.9 billion) through December 2016, 80 percent were made by the banking sector, while private financial funds and the savings and credit cooperatives accounted for the other 20 percent.

Bolivian banks have developed the capacity to adjudicate credit risk and evaluate expected rates of return in line with international norms. The banking sector is stable and healthy with delinquency rates at less than three percent.

In 2013, the financial services bill became a law. This new law enacted major changes to the banking sector, including deposit rate floors and lending rate ceilings, mandatory lending allocations to certain sectors of the economy and an upgrade of banks’ solvency requirements in line with the international Basel standards. The law also requires banks to spend more on improving consumer protection, as well as providing increased access to financing in rural parts of the country.

Credit is now allocated on government-established rates for productive activities, but foreign investors may find it difficult to qualify for loans from local banks due to the requirement that domestic loans be issued exclusively against domestic collateral. Since commercial credit is generally extended on a short-term basis, most foreign investors prefer to obtain credit abroad. Most Bolivian borrowers are small and medium-sized enterprises (SMEs).

In 2007, the government created a Productive Development Bank to boost the production of small, medium-sized and family-run businesses. The bank was created to provide loans to credit institutions which meet specific development conditions and goals, for example by giving out loans to farmers, small businesses, and other development focused investors. The loans are long term and have lower interest rates than private banks can offer in order to allow for growth of investments and poverty reduction.

In September 2010, the Bolivian Government bought the local private bank Banco Union as part of a plan to gain control of part of the financial market. Banco Union is one of the largest banks, with a share of 17.5 percent of total national credits and 16 percent of the total deposits; one of its principal activities is managing public sector accounts. Bolivian Government ownership of Banco Union was illegal until December 2012, when the government enacted the State Bank Law, allowing for state participation in the banking sector.

There is no strong evidence of “cross-shareholding” and “stable-shareholding” arrangements used by private firms to restrict foreign investment, and the 2009 Constitution forbids monopolies and supports antitrust measures. In addition, there is no evidence of hostile takeovers (other than government nationalizations).

The Financial sector is regulated by the Supervising Authority of Financial Institutions (ASFI), a decentralized institution that is under the Ministry of Economy. The Central Bank of Bolivia (BCB) oversees all financial institutions, provides liquidity when necessary, and acts as lender of last resort. The BCB is the only monetary authority and is in charge of managing the payment system, international reserves, and the exchange rate.

Foreign Exchange and Remittances

Foreign Exchange

The Banking Law (#393, 2013) establishes regulations for foreign currency hedging and authorizes banks to maintain accounts in foreign currencies. A significant, but dropping, percentage of deposits are denominated in U.S. dollars (currently less than 16 percent of total deposits). Bolivian law currently allows repatriation of profits, with a 12.5 percent withholding tax. However, a provision of the 2009 Constitution (Article 351.2) requires reinvestment within Bolivia of private profits from natural resources. Until specific implementing legislation is passed, it is unclear how this provision will be applied. In addition, all bank transfers in U.S. dollars within the financial system and leaving the country must pay a Financial Transaction Tax (ITF) of .03 percent. This tax applies to foreign transactions for U.S. dollars leaving Bolivia, not to money transferred internally.

Any banking transaction above USD10,000 (in one operation or over three consecutive days) requires a form stating the source of funds. In addition, any hard currency cash transfer from or to Bolivia equal to or greater than USD 10,000 must be registered with the customs office. Amounts between USD 50,000 and USD 500,000 require authorization by the Central Bank and quantities above USD 500,000 require authorization by the Ministry of the Economy and Public Finance. The fine for underreporting any cash transaction is equal to 30 percent of the difference between the declared amount and the quantity of money found. The reporting standard is international, but many private companies in Bolivia find the application cumbersome due to the government requirement for detailed transaction breakdowns rather than allowing for blanket transaction reporting.

Administrative Resolution 398/10 approved in June 2010 forces Bolivian banks to reduce their investments and/or assets outside the country to an amount that does not exceed 50 percent of the value of their net equity.

The Central Bank charges a fee for different kinds of international transactions related to banking and trade. The current list of fees and the details can be found at: https://www.bcb.gob.bo/webdocs/01_resoluciones/RD%20018%202016.pdf .

Of the less favorable laws for foreign investments, Law 843 on tax reform directly affects the transfer of all money to foreign countries. All companies are charged 25 percent tax, except for banks which can be charged 37.5 percent, on profits under the Tax Reform Law, but when a company sends money abroad, the presumption of the Bolivian Tax Authority is that 50 percent of all money transmitted is profit. Under this presumption, the 25 percent tax is applied to half of all money transferred abroad, whether actual or only presumed profit. In practical terms it means there is a payment of 12.5 percent as a transfer tax.

Currency is freely convertible at Bolivian banks and exchange houses. The Bolivian Government describes its official exchange system as an “incomplete crawling peg.” Under this system, the exchange rate is fixed, but undergoes micro-readjustments which are not pre-announced to the public. There is a spread of ten basis points between the exchange rate for buying and selling U.S. dollars. The Peso Boliviano (Bs) has remained fixed at 6.96 Bs to the USD for selling and 6.86 Bs to the USD for buying since October 2011. The parallel rate closely tracks the official rate, suggesting the market finds the Central Bank’s policy acceptable. In order to avoid distortions in the exchange rate market, the Central Bank requires all currency exchange to occur at the official rate ±1 basis point.

Remittance Policies

The Bolivian Government has a lax remittance policy. Each remittance transaction from Bolivia to other countries has a USD 2,500 limit per transaction, but there is no limit to the number of transactions that an individual can remit. The volume of remittances sent to and from Bolivia has increased considerably in the past five years, and the central bank and banking regulator are currently analyzing whether to impose more regulations sometime in the future. Foreign investors are theoretically able to remit through a legal parallel market utilizing convertible, negotiable instruments, but, in practice, the availability of these financial instruments is limited in Bolivia. For example, the Bolivian Government mainly issues bonds in Bolivianos and the majority of corporate bonds are also issued in Bolivianos.

Bolivia utilizes a single exchange rate which does not allow room for a parallel market. The government allows account holders to maintain bank accounts in Bolivianos or dollars and make transfers freely between them. Business travelers may bring up to USD 10,000 in cash into the country. For amounts greater than USD 10,000, government permission is needed.

Sovereign Wealth Funds

Neither the Bolivian Government nor any government-affiliated entity maintains a sovereign wealth fund.

The Bolivian Government set up companies in sectors it considers vital to the national interest and social well-being, and stated that it plans to do so in every sector it considers strategic or where there is either a monopoly or oligopoly. Many of these public companies are less efficient than their private counterparts.

The Bolivian Government owns and operates more than fifty businesses including a sugar factory, an airline, a supermarket chain, a packaging plant, a cement plant, paper and cardboard factories, and milk and Brazil nut processing factories. In 2005, income from state-owned business in Bolivia other than gas exports represented only a fraction of a percent of Gross Domestic Product (GDP). As of 2015, public sector contribution to GDP (including SOEs, investments, and consumption of goods and services) has risen to over 40 percent of GDP.

The largest SOEs are able to acquire credit from the Central Bank at very low interest rates and convenient terms. Some private companies complain that it is impossible for them to compete with this financial subsidy. Moreover, SOEs appear to benefit from easier access to licenses, supplies, materials and land; however, there is no law specifically providing SOEs with preferential treatment in this regard.

Budget constraints have not been a problem for SOEs. The government registered budget surpluses from 2006 until 2013, but recently began experiencing budget deficits. SOE budgets remain largely unaffected. According to the 2009 Constitution, all SOEs are required to publish an annual report and are subject to financial audits. Additionally, SOEs are required to present an annual testimony in front of civil society and social movements, a practice known as social control.

Privatization Program

There are currently no privatization programs in Bolivia.

Bolivia has laws that regulate aspects related to corporate social responsibility (CSR) practices, but they are rarely enforced by the Bolivian authorities. Article 8 of the Bolivian Constitution promotes a nation of “common well-being, responsibility, social justice, distribution and redistribution of the products and social assets, to live well,” but even the government does not fulfill the regulations focused on accomplishing these objectives.

Both producers and consumers in Bolivia are generally aware of RBC, but consumer decisions are ultimately based on price and quality. Because the Bolivian Constitution stipulates that economic activity cannot damage the collective good (Article 47), RBC activities are generally looked upon favorably by the Bolivian Government. However, during pre-electoral periods, government officials occasionally accuse companies of using RBC practices as political tools against the government and suggest that the government pioneer tighter RBC regulations.

Though Bolivia is not part of the Organization for Economic Cooperation and Development (OECD), it has participated in several Latin American Corporate Governance Roundtables since 2000. Neither the Bolivian Government nor its organizations use the OECD Guidelines for RBC and corporate social responsibility (CSR). Instead, Bolivian companies and organizations are focused on trying to accomplish the UN’s Millennium Development Goals, and they use the Global Reporting Initiative (GRI) methodology in order to show economic, social and environmental results. While the Bolivian Government, private companies, and non-profits are focused on the UN’s Millennium Development Goals, only a few private companies and NGOs focus on following the UN standard ISO 26000 guidelines and methodologies. Another methodology widely accepted in Bolivia is the one developed by the ETHOS Institute, which provides measurable indicators accepted by PLARSE (Programa Latinoamericano de Responsabilidad Social Corporativa, the Latin American Program for CSR).

The 1942 General Labor Law is the basis for employment rights in Bolivia, but this law has been modified more than 2,000 times via 60 supreme decrees since 1942. As a result of these modifications, the General Labor Law has become a complex web of regulations that is difficult to enforce. An example of the lack of enforcement is the Comprehensive System for Protection of the Disabled (Law 25689) which stipulates that at least four percent of the total work force in public institutions, state owned enterprises, and private companies should be disabled. Neither the public nor private sectors are close to fulfilling this requirement, and most buildings lack even basic access modifications to allow for disabled workers.

In support of consumer protection rights, the Vice Ministry of Defense of User and Consumer Rights was created in 2009 (Supreme Decree 29894) under the supervision of the Ministry of Justice. This same year the Consumer Protection Law (Supreme Decree 0065) was enacted, which gave the newly created Vice Ministry the authority to request information, verify and follow up on consumer complaints. Though the Vice Ministry has yet to report on its activities, an example of its work can be seen in local airports and bus stations, where customers can make a complaint on service or other matters to a representative of the Vice Ministry and receive compensation from the transport company if deemed appropriate.

The Mother Earth Law (Law 071) approved in October,2012 promotes some RBC elements as part of its principles (Article 2), such as collective good, harmony, respect and defense of rights. The Ministry of Environment and Water is in charge of overseeing the implementation of this law, but the implementing regulations and new institutions needed to enforce this law are still incomplete.

Even though Bolivia promotes the development of RBC practices in its laws, the government gives no advantage to businesses that implement these practices. Instead, businesses implement CSRs in order to gain the public support necessary to pass the prior consultation requirements or strengthen their support when mounting a legal defense against claims that they are not using land to fulfill a socially valuable purpose, as defined in the Community Land Reform laws (# 1775 and #3545).

In April, 2009 the Bolivian Government reorganized the supervisory agencies of the government (formerly Superintendencias) to include social groups, thus creating the “Authorities of Supervision and Social Control” (Supreme Decree 0071). This new authority now controls and supervises the following sectors: telecommunications and transportation, water and sanitation, forests and land, pensions, electricity, and enterprises. Each sector has an Authority of Supervision and Social Control assigned to its oversight, and each Authority has the right to audit the activities in the aforementioned sectors and the right to request the public disclosure of information, ranging from financial disclosures to investigation of management decisions.

Bolivian law stipulates criminal penalties for corruption by officials, but the government does not implement the law effectively, and officials often engage in corrupt practices with impunity. Governmental lack of transparency, and police and judicial corruption remain significant problems. The Ministry of Anticorruption and Transparency and the Prosecutor’s Office are both responsible for combating corruption. In September 2014, former Transparency Minister Nardy Suxo reported that the Ministry was investigating 388 complaints against public servants. The Ministry has obtained 97 convictions since 2006. Cases involving allegations of corruption against the president and vice president require congressional approval before prosecutors may initiate legal proceedings, and cases against pro-government public officials are rarely allowed to proceed. Despite the fact that the courts found that the awarding of immunity for corruption charges is unconstitutional, their rulings were ignored by the government.

Police corruption remains a significant problem. In March 2014, U.S. authorities convicted police officer Fabricio Ormachea Aliaga in Miami on two counts of extortion. Ormachea, an investigator in the police anticorruption unit, allegedly promised to suspend a pending investigation involving a Bolivian living in Miami in exchange for approximately 205,000 bolivianos (USD 30,000). There is also widespread corruption in the country’s judiciary.

There is an Ombudsman appointed by Congress charged with protecting human rights and guarding against government abuse. In his 2014 annual report, the Ombudsman cited the judicial system, the attorney general’s office, and the police as the most persistent violators of human rights due to widespread inefficiencies and corruption. Public opinion reflected the Ombudsman’s statements. The 2015 Transparency International Corruption Perception Index found that Bolivian citizens believe the most corrupt institutions in Bolivia are the judiciary, political parties, parliament and legislature, and the police.

Bolivia signed the UN Anticorruption Convention in December 2003 and ratified it in December 2005. Bolivia is also a party to the Organization of American States Inter-American Convention against Corruption. Bolivia is not a signatory of the OECD Convention on Combating Bribery of Foreign Public Officials.

Resources to Report Corruption

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

Gonzalo Trigoso
Vice Minister of Justice and the Fight Against Corruption
Ministry of Justice
Calle Capitán Ravelo 2101, La Paz
+591-2-115773
http://www.transparencia.gob.bo/ 

Bolivia is prone to social unrest that includes violence such as road blockades, demonstrations and marches that sometimes damage public and private property In 2016, a Vice Minister was beaten to death after being kidnapped by a group of protesting miners. Given the country’s reliance on a few key thoroughfares, conflict often disrupts transportation and distribution networks. The majority of civil disturbances are related to domestic issues, usually workers pressuring the government for concessions by marching or closing major transportation arteries. Over the past year, there was no political violence that targeted foreigners. While protests and blockades are frequent, they only periodically affect commerce. Less than a half-dozen conflicts in the capital La Paz directly affected distribution of essential services or travel in and out of the city for periods greater than 24 hours during 2016. However, numerous others caused businesses to close for short periods or impeded business operations.

Approximately two-thirds of Bolivia’s population is considered “economically active.” Between 60 percent and 70 percent of workers participate in the informal economy, where no contractual employer-employee relationship exists. Relatively low education and literacy levels limit labor productivity, a fact reflected in wage rates. Unskilled labor is readily available, but skilled workers are often harder to find.

Article 3 of the Labor Code limits the number of foreign nationals that can be employed by any business to 15 percent. Due to the limited number of labor inspectors, enforcement of the law is uneven.

The 2009 Constitution specifies that unjustified firing from jobs is forbidden and that the state will resolve conflicts between employers and employees (Articles 49.3 and 50). Bolivian labor law guarantees workers the right of association and the right to organize and bargain collectively. Most companies are unionized, and nearly all unions belong to the Confederation of Bolivian Workers (COB).

Labor laws, including related regulations and statutory instruments, provide for the freedom of association, the right to strike, and the right to organize and bargain collectively. The law prohibits antiunion discrimination and requires reinstatement of workers fired for union activity. The law does not require government approval for strikes and allows peaceful strikers to occupy business or government offices. General and solidarity strikes are protected by the constitution, as is the right of any working individual to join a union.

Workers may form a union in any private company of 20 or more employees, but the law requires that at least 50 percent of the workforce be in favor of forming a union. The law requires prior government authorization to establish a union and confirm its elected leadership, permits only one union per enterprise, and allows the government to dissolve unions by administrative fiat. The law also requires that members of union executive boards be Bolivian by birth. The labor code prohibits most public employees from forming unions, but some public-sector workers (including teachers, transportation workers, and health-care workers) were legally unionized and actively participated as members of the Bolivian Workers’ Union without penalty.

Freedom of association is limited by the government and under-resourced labor courts. Moreover, the 20-worker threshold for forming a union proved an onerous restriction, as an estimated 72 percent of enterprises had fewer than 20 employees. Labor inspectors may attend union meetings and monitor union activities. Collective bargaining and voluntary direct negotiations between employers and workers without government participation was limited. Most collective bargaining agreements were restricted to addressing wages.

The National Labor Court handles complaints of antiunion discrimination, but rulings generally take a year or more. In some cases, the court rules in favor of discharged workers and requires their reinstatement. Union leaders state that problems are often resolved or are no longer relevant by the time the court rules. For this reason, government remedies and penalties are often ineffective and insufficient to deter violations.

Violence during labor demonstrations continues to be a serious problem. In August 2016, striking miners kidnapped and murdered Vice Minister Rodolfo Illanes during a conflict between miners and the government on the La Paz-Oruro highway. Several miners were also shot and killed.

In 2014, Vice President Garcia Linera signed a new child and adolescent code that permits children as young as 10 to work legally. The law states that the minimum working age is 14; however, the Child and Adolescent Office may permit children as young as ten to work if the child chooses to do so voluntarily and he or she works independently or with the family. The child must also obtain permission from his or her parent(s). Children as young as 12 can work for outside employers provided the same permissions are obtained. The law states that work should not interfere with a child’s right to education and should not be dangerous or unhealthy, which includes work in sugar cane and brazil nut harvest, mining, brick making, hospital cleaning, selling alcoholic beverages, and working after 10 P.M., among other conditions. A request to the Child Office must be answered within 72 hours. The Ministry of Labor is responsible for authorizing work activity for adolescents over 14 years of age who work for a third-party employer. The new code establishes that the Ministry of Justice is responsible for organizing a committee to enforce child labor laws, including laws pertaining to the minimum age and maximum hours for child workers, school completion requirements, and health and safety conditions for children in the workplace.

OPIC’s programs are not currently available in Bolivia.

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

*Source: National Bureau of Statistics INE
Table 3: Sources and Destination of FDI

Source: International Monetary Fund
Table 4: Sources of Portfolio Investment

Brent Corby
Economic and Commercial Officer
Av. Arce 2780, Casilla 425, La Paz, Bolivia
+591-2-216-8210
commercelapaz@state.gov

Policies Toward Foreign Direct Investment

The government actively encourages Foreign Direct Investment (FDI) and is committed to doubling foreign investment over the next several years. Foreign companies are free to invest and list on the regional stock exchange (BRVM), which is based in Abidjan and dominated by Ivoirian and Senegalese firms. With the inception of the regional exchange, the West African Economic and Monetary Union (WAEMU) members established the Regional Council for Savings and Investment, a regional securities regulatory body.

In most sectors, there are no laws that limit foreign investment. There are, however, restrictions on foreign investment in the health sector, law and accounting firms, and travel agencies, particularly in terms of required local licenses. Although there are regulations designed to control land speculation, foreigners own significant amounts of land in urban areas. Free-hold tenure outside of urban areas is difficult to negotiate and inhibits investment. Land tenure disputes exist all over the country, owing to the difficulty of formalizing land ownership. Most businesses, including agribusinesses and forestry companies, circumvent this by acquiring long-term leases. Companies that wish to purchase land must have the property surveyed before obtaining a title. Surveying, which is a tightly controlled monopoly, can cost more than the value of the parcel of land.

CEPICI, Côte d’Ivoire’s investment promotion agency, facilitates foreign investment, and its services are available to all investors. CEPICI provides its services through a one-stop shop to facilitate business creation, operation, and expansion; requests incentives in the investment code and for access to industrial land; promotes and attracts national and foreign investments; has an action plan to improve the business climate; and serves as an exchange platform for the public and private sectors. More information is available at CEPICI’s website: http://www.cepici.gouv.ci/ .

Côte d’Ivoire maintains an ongoing dialogue with investors through various business networks and platforms, such as the investment promotion agency CEPICI, the Ivoirian chamber of commerce (CCI-CI), the business leaders’ association of large enterprises (CGECI), and the bankers’ association (APBF-CI).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally have access to all forms of remunerative activity on terms equal to those enjoyed by Ivoirians. The government encourages foreign investment, including in the privatization of state-owned and public firms, although in most cases the state reserves an equity stake in the new company.

There are no significant limits on foreign investment, nor are there differences in the treatment of foreign and national investors, either in terms of the level of foreign ownership or sector of investment. There are no laws specifically authorizing private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control, and no such practices have been reported.

Banks and insurance companies are subject to licensing requirements, but there are no restrictions designed to limit foreign ownership or to establish subsidiaries of foreign companies in this sector. There are restrictions on foreign investment in the health sector, law and accounting firms, and travel agencies, especially as it pertains to local licensing requirements. Investments in these sectors are subject to prior approval and require appropriate licenses and association with an Ivoirian partner; however, foreign companies operate successfully in all of these service sectors.

The government does not screen investments and has no overall economic and industrial strategy that discriminates against foreign-owned firms

Other Investment Policy Reviews

Côte d’Ivoire has not conducted an investment policy review (IPR) through the OECD.

A Trade Policy Review was last done by the WTO in July 2012 and can be found at https://www.wto.org/english/tratop_e/tpr_e/tp366_e.htm .

UNCTAD does not provide an IPR report for Côte d’Ivoire; however, there are statistics on FDI at http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx 

and a country profile at https://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/384/index.html .

The Government of Côte d’Ivoire provides information about sector policies and business opportunities in various reports. More information can be found at: www.cepici.gouv.ci/en/  or at: www.gcpnd.gouv.ci/ .

Business Facilitation

The government has engaged in significant business facilitation efforts through a series of reforms using the World Bank Doing Business index as a reference to improve the business environment. These include the acceleration of business creation to 24 hours, the issuing of a construction permit in 26 days, the establishment of a one- stop shop for external trade, the establishment of a single tax declaration form, the protection of minority shareholders, and insolvency resolution.

Cote d’Ivoire’s online information portal dedicated to business creation and registration (https://cotedivoire.eregulations.org/ ) is managed by CEPICI. All the necessary documentation for registration is available online. The one stop shop for business registration takes a maximum of 24 hours, and has all the agencies under a single roof, allowing for a more simplified approach to business creation. Online registration documents can be found at:

http://www.cepici.gouv.ci/?tmp=doc&cat=1  (registration forms)

http://www.cepici.gouv.ci/?tmp=doc&cat=4  (codes, decrees and annexes)

The law in Côte d’Ivoire subdivides and defines micro, small, and medium-sized enterprises as follows:

A micro enterprise is an enterprise that continuously employs fewer than 10 people or which has an annual turnover of less than or equal to $50,000 excluding tax.

A small business is defined as an enterprise that continuously employs between 10 and 50 employees, or has an annual turnover (excluding tax) exceeding $50,000.

A medium-sized enterprise is defined as an enterprise that continuously employs between 51 and 200 employees, or has an annual turnover exceeding $250,000 but less than $1.7 million, excluding tax.

Outward Investment

Côte d’Ivoire does not promote or incentivize outward investment. The government does not restrict domestic investors from investing abroad.

There is no bilateral investment treaty between Côte d’Ivoire and the United States currently in force. Côte d’Ivoire has signed Bilateral Investment Treaties (BITs) with the following countries: Belgium, Luxembourg, Canada, China, the EU, Germany, Ghana, Italy, Netherlands, Singapore, Sweden, Switzerland, Tunisia, and the United Kingdom. The Ivoirian government ratified the Economic Partnership Agreement (EPA) with the EU in September 2016, allowing it to access the European market with no tax.

Côte d’Ivoire does not have a bilateral taxation treaty with the United States. However, Côte d’Ivoire has concluded tax treaties with Belgium, Canada, France, Germany, Italy, Norway, and Switzerland. For FY 2017 fiscal measures, the government exonerated from research fees all documents provided by the Tax and Treasury Office. For leasing, the depreciation period of the item is now aligned with the period of the contract and not the lifespan of the item for accounting purposes. A special tax incentive for equipment has been adopted to help business development.

Businesses and foreign investors have expressed some concerns about the level of taxation, but there are currently no U.S. firms involved in ongoing systemic tax disputes.

Transparency of the Regulatory System

The government has taken steps to encourage a more transparent and competitive economic environment, and the IMF, World Bank, EU, and other large donors continue to urge the government to make further reforms. The government aims for transparency in law and policy to foster competition and provide clear rules of the game and a level playing field for domestic and foreign investors.

Côte d’Ivoire’s legal, regulatory, and accounting systems are generally transparent and consistent with international norms. There are no informal regulatory processes managed by non-governmental organizations or private sector associations.

Rulemaking and regulatory authority exists in the telecom, electricity, cocoa, cotton, and cashew sectors. In these sectors the government has established a body which regulates the sector and establishes prices.

Côte d’Ivoire’s accounting, legal, and regulatory procedures are consistent with international norms, though businesses often complain about the system’s lack of clarity and the government’s poor communication. Côte d’Ivoire is a member of the Organization for the Harmonization of African Business Law (OHADA), which is common to 16 countries and adheres to the West African Economic and Monetary Union’s accounting system. Introduced in 1998, the SYSCOA system allows enterprises to use a common accounting system. SYSCOA complies with international norms in force and is a source of economic and financial data.

Draft bills and regulations are not published and made available for public comment. However, the National Assembly debates most legislation, and the government often holds public seminars and workshops to discuss proposed plans with trade and industry associations.

Key regulatory actions are published in the Journal Officiel de la Republique de Côte d’Ivoire. But, each regulatory body provides regulatory actions (laws, decisions, and sanctions) on its website.

Consumers and trade associations, private companies, and individuals have the right to file complaints to ensure that the government follows administrative processes.

There is no centralized online location where regulatory actions or their summaries are published similar to the United States Federal Register. Post does not have knowledge of any recent regulatory system, including enforcement reforms, that has been announced since the last ICS report. Regulatory reforms announced in prior years have been fully implemented.

For any industry or sector, regulations are developed through the relevant ministry. The regulatory enforcement mechanisms are made accountable to the public through the private and public institutions tasked with controlling and regulating these sectors.

Regulation is reviewed on data-driven assessments since regulatory bodies regularly publish and promote access of the business community and development partners to their data. Quantitative analysis and public comments are made available.

International Regulatory Considerations

On August 6, 2009, the government adopted a community framework for public procurement by incorporating West African Economic and Monetary Union (WAEMU) directives 4 and 5 into bidding processes and auditing, as well as into the regulation of public procurement within the union. This new public procurement code aimed to harmonize public procurement policy and comply with WAEMU integration objectives. Changes include the separation of auditing and regulating functions, the transformation from a national to a regional system of procurement for intellectual services, and an increase from 25 to 30 percent of advance payment for the startup of procurement of goods and services. The National Regulatory Authority for Public Procurement regulates public procurement with a view to improve governance and transparency. It may sanction entities which do not comply with public procurement regulations.

Côte d’Ivoire’s laws, codes, professional association standards, and regional directives are incorporated in the country’s regulatory system. Côte d’Ivoire has been a WTO member since 1995 but has not notified all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

Côte d’Ivoire’s legal system is based on a French civil law model. The law guarantees the right to own and transfer private property. The court system enforces contracts.

Côte d’Ivoire is signatory to the Organization for the Harmonization of Corporate Law in Africa (OHADA) that provides common corporate law and arbitration procedures for the 16 member states.

In 2012, the Council of Ministers established the Commercial Court specifically to handle business cases. In 2013, the government endorsed a draft law to consolidate the autonomy and extend the attributions of the Commercial Court to create the Commercial Chamber of the Court of Appeals. In 2014, the government endorsed a draft law on judiciary and conventional mediation, which established mediation throughout the Ivoirian legal framework in addition to the Commercial Court and the Arbitration Tribunal. The IMF has encouraged the government to extend the Commercial Court to the rest of the country, but this expansion has not yet occurred.

Côte d’Ivoire’s judicial system is ostensibly independent, but magistrates are sometimes subject to political or financial influence. Judges sometimes fail to base their decisions on the legal or contractual merits of the case and sometimes are seen to rule against foreign investors in favor of entrenched interests. The most common complaint from investors is the slow process. Cases are often postponed and appealed without a reasonable explanation, moving from court to court for years or even decades. The government, with international assistance, is making an effort to reform the judiciary system to make it more efficient and transparent.

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

Laws and Regulations on Foreign Direct Investment

The major law affecting foreign investment is the 2012 Investment Code. This code offers incentives, including tax reductions and in some cases exemptions from value added taxes (VAT), on equipment for private investors. This code also includes planned industrial zones, which offer benefits to investors such as special tax treatment for periods ranging from 8 to 15 years, depending on the location of the investment. There are also incentives to promote sectors (low-cost housing construction, factories, and infrastructure development) that are critical to the country’s economic development.

The 2014 Mining Code allows a period for holding permits of ten years, with a possibility of extension for two more years; the reduction of the permit area from 1,000 to 400 square kilometers; and a new tax and fee structure. Politicians and government employees with strategic knowledge of the mining sector are prohibited from holding shares in the mining industry for five years after leaving office.

CEPICI provides a one stop website for investment. More information on Côte d’Ivoire’s laws, rules, procedures, and reporting requirements can be found at:

https://guce.gouv.ci/cepici ;

www.apex-ci.org/; 

www.cepici.gouv.ci/ 

The site provides information on investment opportunities with a focus on the business environment and reforms to facilitate business creation and registration.

Competition and Anti-Trust Laws

The Ministry of Commerce, Handicraft and Small Business Promotion through the Commission on Anti-Competition Practices is responsible for reviewing competition–related concerns under the 1991 competition law, which was updated in 2013. The National Authority for the Regulation of Public Tenders is responsible for reviewing the awards of contracts.

No significant competition cases were reported over the past year.

Expropriation and Compensation

Historically, expropriation has not been an issue in Côte d’Ivoire, and the Embassy is not aware of any cases of government expropriation of private property. Côte d’Ivoire’s public expropriation law includes compensation provisions.

There is no history of public expropriations. Private expropriation to force settlement of contractual or investment disputes, however, continues to be a problem. Local individuals or local companies, using what appear to be spurious court decisions, have challenged the ownership of some foreign companies in recent years. On occasion, the government has blocked the bank accounts of U.S. and other foreign companies because of ownership and tax disputes.

In cases of illegal expropriations, Côte d’Ivoire law affords claimants due process. However, perceived corruption and lack of capacity in the judicial and security services have resulted in poor enforcement of private property rights, particularly when the entity in question is foreign and the plaintiff is either Ivoirian or a long-established foreign resident.

Dispute Settlement

ICSID Convention and New York Convention

Côte d’Ivoire is a signatory to the International Center for Settlement of Investment Disputes (ICSID) and a signatory to the 1958 New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards.

In cases where the firm of a national does not meet nationality conditions stipulated by Article 25 of the Convention, the code stipulates that the dispute be resolved within the provisions of the supplementary mechanisms approved by the ICSID.

Investor-State Dispute Settlement

Côte d’Ivoire is a signatory to investment agreements subject to binding international arbitration of investment disputes. Côte d’Ivoire recognizes and has been known to enforce foreign arbitral awards, but enforcement is inconsistent.

In the past 10 years, foreign investors have had investment disputes, which are often resolved through arbitration or an amicable settlement. For example, one U.S. firm was involved in tax and customs disputes over its investment in the cocoa sector. As a result, the U.S. firm chose to divest its holdings. Another ongoing U.S. dispute involves the alleged nonfulfillment of a government sanitation contract. Another U.S. company is in a dispute with its local partner on fulfilling the terms of its joint-development contract.

Côte d’Ivoire has signed the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, which means that local courts must enforce foreign arbitral awards.

The Embassy is not aware of any history of extrajudicial action against foreign investors, including U.S. firms.

International Commercial Arbitration and Foreign Courts

The Abidjan-based regional Joint Court of Justice and Arbitration (CCJA) provides a means of solving contractual disputes. The arbitration tribunal has the ability to enforce awards more quickly, but the use of the tribunal in lieu of the court system has been limited.

Cote d’Ivoire is a member of OHADA, whose provisions of 1999 have replaced domestic law on arbitration. The unified law is based on the UNCITRAL model law.

Judgments of foreign courts are recognized, but are difficult to enforce in local courts. To avoid working through the Ivoirian legal system, some investors stipulate in contracts that disputes must be settled through international commercial arbitration. However, even if stipulated in the contract, decisions reached through international arbitration or through the African regional arbitration body are sometimes not honored by local courts.

Côte d’Ivoire’s domestic courts have no preferential treatment for state-owned enterprises (SOE’s) involved in investment disputes.

Bankruptcy Regulations

As a member of the Organization for the Harmonization of African Business Law (OHADA), Côte d’Ivoire has both commercial and bankruptcy laws that address the liquidation of business liabilities. OHADA is a regional system of uniform laws on bankruptcy, debt collection, and rules governing business transactions. OHADA permits three different types of bankruptcy liquidation: an ordered suspension of payment to permit a negotiated settlement; an ordered suspension of payment to permit restructuring of the company, similar to Chapter 11; and the complete liquidation of assets, similar to Chapter 7. Creditors’ rights, irrespective of nationality, are protected equally by the Act. Bankruptcy is not criminalized. Monetary judgments resulting from a bankruptcy are usually paid out in local currency. Côte d’Ivoire is ranked 68 out of 190 countries for ease of resolving insolvency, according to the World Bank Doing Business Report.

Investment Incentives

Côte d’Ivoire’s 2012 Investment Code offers incentives including tax reductions and in some cases exemption from VAT on equipment for private investors. Under this code, new industrial zones are planned, and investors will benefit from special tax treatment for periods ranging from 8 to 15 years, depending on the location of the investment. The code provides incentives to promote sectors that are key to the country’s economic development, such as low-cost housing construction, the creation of factories, and infrastructure development. The Investment Code, the Petroleum Code, and the Mining Code delineate incentives available to new investors in Côte d’Ivoire.

Foreign Trade Zones/Free Ports/Trade Facilitation

Created in 2008, the free trade zone for information technology and biotechnology (VITIB) is located in the city of Grand Bassam. In 2014, VITIB inaugurated the Mahatma Gandhi technology park at Grand Bassam with a loan of $20 million from India’s EXIM bank. Current plans are to develop a technology corridor on VITIB land in Grand Bassam. Bonded warehouses do exist, and bonded zones within factories are allowed. High port costs and maritime freight rates have inhibited the development of in-bond manufacturing or processing, and there are consequently no general foreign trade zones.

Performance and Data Localization Requirements

The Government generally encourages investors and firms to hire Ivoirian employees, but this is not a requirement. The 2012 Investment Code (Article 14) guarantees the freedom to designate senior management and board members.

Citizens of the Economic Community of West African States (ECOWAS) countries can legally work in Côte d’Ivoire. For other nationalities, visa/work and residence permits are required and CEPICI facilitates their acquisition. The process is not onerous and does not inhibit the mobility of foreign investors and their employees.

There are no government-imposed conditions on permission to invest, including tariff and non-tariff barriers. The government does not follow “forced localization” of domestic content in goods or technology.

There are no general performance requirements applied to investments, nor does the government or the investment authority generally place conditions on location, local content, equity ownership, import substitution, export requirements, host country employment, or technology.

Cellular telephone companies must meet technology and performance requirements to maintain their licenses.

Côte d’Ivoire does not have any known requirements for foreign IT to turn over source code or provide access to encryption.

Data transmission or transfer is subject to prior authorization of the telecom regulatory board ART-CI. Cote d’Ivoire adopted in June 2013 the law on data protection which requests prior declaration or authorization by ART-CI for any data processing. ART-CI is responsible for the oversight of local data storage.

Real Property

Ivoirian civil code provides for enforcement of private property rights and the government has undertaken reform efforts to secure property rights. Secured interests in property are enforced by the Land Registry Office of the Ministry of Finance. In the World Bank’s Doing Business report, Côte d’Ivoire is ranked 113 out of 190 countries for registering property.

Foreign and/or nonresident investors who wish to lease land must obtain a permit for the development of the site, as well as a bylaw from the prefecture or sub-prefecture for the occupation of the site.

In Côte d’Ivoire only four percent of land has a clear title, however the government has committed to securing the remaining portion within 10 years. The government has made efforts to raise awareness on land titling throughout the country and to streamline procedures for obtaining land titles. Still, all land that is to be titled must be professionally surveyed. The surveying, which must be performed by one of the few companies allowed to execute surveys in Côte d’Ivoire, can cost more than the value of the land.

In Cote d’Ivoire, the status of the land from which thousands of refugees were forced to move during the 2011 post-election conflict has not been resolved. Much of that land is now occupied by squatters, many of whom are immigrants or descendants of immigrants from neighboring countries to the north of Côte d’Ivoire, especially Burkina Faso. A lack of titles and a overlap of modern land-tenure law and customary practices hinders resolution of the land tenure issue.

Intellectual Property Rights

The Ivoirian Civil Code protects Intellectual Property (IP) rights; the government’s Office of Industrial Property (OIPI) is charged with ensuring the protection of patents, trademarks, industrial designs, and commercial names. Patents are valid for ten years, with the possibility of two five-year extensions. Trademarks are valid for ten years and are renewable indefinitely, while copyrights are valid for 50 years. The Ivoirian Copyright Office has a labeling system in place to prevent counterfeiting and protect audio, video, literary, and artistic property rights in music and computer programs. However, protection of intellectual property rights in Côte d’Ivoire is weak and the government has limited resources for IPR protection. While Ivoirian IP law is in conformity with standards established by the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), enforcement is weak due to a lack of custom checks at the country’s porous borders.

No IP related laws or regulations have been enacted in the past year.

Parliament approved a law in 2013 to protect intellectual property on exported and imported goods. Customs has the power to seize products imported and equipment installed, detained, marketed, or illegally supplied. Such seizures, generally of counterfeit consumer goods, are routinely publicized on government websites and media outlets, although statistics on seizures are unavailable. BURIDA’s police unit has sometimes held raids against retail outlets and street vendors to confiscate pirated CDs and DVDs and also instituted legal proceedings against counterfeiters. IPR violations are prosecuted and sanctions vary from three months to two years of imprisonment and from $163 to $8,000 fines.

Côte d’Ivoire is not listed in USTR’s Special 301 report.

Côte d’Ivoire is not listed in the notorious market report.

Capital Markets and Portfolio Investment

Government policies generally encourage the free flow of capital and financial resources.

The Regional Stock Exchange (BRVM) in Abidjan trades equity securities. An effective regulatory system exists to facilitate portfolio investment through the West African Central Bank (BCEAO) and the Regional Council for Savings Investments (CREPMF). There is sufficient liquidity in the markets to enter and exit sizeable positions.

Côte d’Ivoire’s financial market allows the free flow of financial resources into the product and factor markets.

The central bank BCEAO respects IMF Article VIII on payment and transfers for current international transactions.

Credit allocation has increased to support the private sector and economic growth, specifically for large businesses. Banks have restarted lending to small businesses, offering short-term and long-term loans and overdraft facilities. Foreign investors can acquire credit on the local market.

Money and Banking System

Banks are expanding their networks, especially in the secondary cities outside Abidjan as domestic investment has increased upcountry. The total number of bank branches has increased from 281 in 2008 to 631 branches in 2016.

Côte d’Ivoire’s commercial banking sector is undergoing privatization, as the government is seeking to reinvigorate the sector. Publicly owned banks pose potential systemic risks to the financial system, as loan quality, solvency, and profitability have deteriorated in recent years due to mismanagement and lack of oversight. The government has at times had to step in to rescue poorly-managed banks.

The central bank BCEAO is common to the eight member states of the West Africa Economic and Monetary Union (WEAMU).

Foreign banks are allowed to establish operations in Côte d’Ivoire. They are subject to prudential measures and regulations of the Banking Commission of the WAEMU.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on the transfer or repatriation of capital and income earned, or on investments financed with convertible foreign currency. Once an investment is established and documented, the government regularly approves remittances of dividends and/or repatriation of capital. The same holds true for requests for other sorts of transactions (e.g. imports, licenses, and royalty fees).

Funds associated with investments funded with convertible currency are freely convertible into any world currency.

Côte d’Ivoire is a member of the West African Economic and Monetary Union (WAEMU), which uses the Franc CFA, a convertible currency. The French Treasury continues to hold the international reserves of WAEMU member states and supports the fixed exchange rate of 655.956 CFA to the Euro.

Remittance Policies

There are no restrictions on the transfer of capital, dividends, and income, or on investments funded with convertible foreign currency. There are no time limitations on remittances. Remittances for Ivoirians were about $300 million in 2015 or 1.1 percent of GDP.

Sovereign Wealth Funds

Côte d’Ivoire does not have a sovereign wealth fund.

Companies owned or controlled by the state are subject to the laws and tax code. The Ivoirian government still holds substantial interests in many firms, including the refinery SIR (49 percent), the public transport firm (60 percent), the national television – RTI (98 percent), the national lottery (80 percent), and the land management agency – AGEF (35 percent).

Of the SOEs, 28 are wholly government owned, 15 are majority owned, eight are with a blocking minority, and 30 are minority owned. Each SOE has an independent board. The government has begun the process of divestiture for some state-owned enterprises, and had targeted 15 for sale during 2015, but the program has not been completed. The Ivoirian government is still an active participant in some economic sectors, such as banking, agri-business, mining, and the telecom industry.

The list of SOEs can be found here: http://budget.gouv.ci/budget/budget-etat .

There are no laws or rules that offer preferential treatment to SOEs. They are subject to tax burdens and policies as private companies.

The Corporate Governance of SOEs in Côte d’Ivoire does not meet the standards of the OECD, but the government has made some efforts to improve it. For example, private and public enterprises compete under the same terms and conditions, and there is no state monopoly in any of these sectors. Senior management of SOEs may report to a ministry or board of directors, whose seats are allocated to senior government officials, political leaders, representatives of civil society, and other public entities. SOEs are required by law to publish annual reports, hold regular meetings of the board of directors, and have financial statements reviewed by certified accountants and private auditors. The courts independently process disputes between SOEs and private firms or organizations.

Privatization Program

In 2014, the Government proposed a program to privatize a quarter of public enterprises including approximately 15 public or semi-public enterprises, banks, the sugar company Sucrivoire (SIFCA), and $232 million of investments the government holds in Industrial Promotion Services (IPS)-Aga Khan Foundation projects. At the urging of the IMF, the government is continuing the privatization of banks including Versus Bank, NSIA Bank, and the housing finance bank BHCI.

No website on privatizations is available.

The private sector, the government, NGOs, and local communities are becoming progressively aware of the importance of Responsible Business Conduct (RBC) regarding environmental, social, and governance issues in Côte d’Ivoire.

Investment projects in energy, infrastructure, agriculture, forestry, waste management, and extractive industries are required by decree to provide an environmental impact study prior to approval. Some companies have complained that the environmental impact study can be very costly. Foreign businesses, particularly in mining, petroleum, and the cocoa industries, often provide social infrastructure, including schools and health care clinics, to communities close to their sites of operation, sometimes at the request of the government.

Cocoa companies have actively supported programs to improve sustainability in the sector and are working to combat the worst forms of child labor. This activity has increased since 2011 with the government’s focus on eliminating child labor and supporting cocoa producers and their families.

While international firms are aware of OECD guidelines and international best practices in RBC, most local firms have limited familiarity with international standards.

There have not been high profile instances of private sector impact on human rights, or resolution of such cases, in the past year.

There are government-funded agencies in charge of monitoring business conduct. Human rights, environmental protection, and consumer NGOs report misconduct and violations of good governance practices.

As part of public procurement reform, the Ministry of Budget plans to include social needs in public procurement contracts to support job creation, fair trade, decent working conditions, social inclusion, and compliance with social standards. On the environment, the main reforms include the selection of goods and services, such as ecofriendly computers, low-energy use buildings, and recycled paper that have a smaller impact on the environment.

Companies are not required under Ivoirian law to disclose information relating to RBC, although many companies, especially in the cocoa sector, publicize their work on websites.

Côte d’Ivoire is EITI compliant and discloses revenues and payments in the oil, gas, and mineral sector. More information can be found at: www.cnitie.ci/ .

In 2013, the government founded the High Authority of Good Governance, with the requirement that all public officials submit asset declarations at the beginning and end of their tenures in office. By mid-2016, all government and government-funded institutions’ employees had submitted asset declarations. It is not yet clear how those declarations will be reviewed or monitored or if penalties for non-compliance will be imposed.

The country’s Code of Public Procurement No. 259 of August 2009 and the associated WAEMU directives counter conflict of interest in awarding contracts or government procurement.

Under the Ivoirian Penal Code, a bribe by a local company to a foreign official is a criminal act.

Some private companies use compliance programs or measures to prevent and detect bribery of government officials. U.S. firms underscore to their Ivoirian counterparts that they are subject to the Foreign Corrupt Practice Act (FCPA).

The country’s financial intelligence CENTIF was established in December 2007 and is responsible for investigating money laundering and terrorist financing. CENTIF has broad authority to investigate suspicious financial transactions, including those of government officials.

Côte d’Ivoire ratified the UN Anti-Corruption Convention in November 2011; however, the country is not a signatory to the OECD Convention on Combating Bribery. In 2016, Côte d’Ivoire joined the Partnership on Illicit Finance, which obliges the country to develop an action plan to combat corruption.

There are no special protections to NGOs involved in investigating corruption.

Corruption in many forms is deeply engrained in public and private sector practices and remains a serious impediment to investment and economic growth in Côte d’Ivoire. Many companies cite corruption as the major obstacle to investment in Côte d’Ivoire. It has the greatest impact on judicial proceedings, contract awards, customs, and tax issues. Lack of transparency in the awarding of contracts often leads businesses to conclude bribery was involved. Businesses have reported encountering corruption at every level of the civil service, with some judges appearing to base their decisions on bribes. Clearance of goods at the ports often require substantial “commissions,” and the Embassy has heard anecdotal accounts of customs agents rescinding valuations that were declared by other customs colleagues in an effort to extract bribes from customers. Although procedures are in place, the demand for bribes can mean that containers stay at the Port of Abidjan for months, incurring substantial demurrage charges.

Resources to Report Corruption

Inspector General of Finance

(Brigade de Lutte Contre la Corruption)

Lassina Sylla
Inspector General
+225 2252 9797
+225 2252 9798
+225 8000 0380
http://www.igf.finances.gouv.ci/ 

High Authority for Good Governance

(Haute Autorité pour la Bonne Gouvernance)

Seydou Diarra
President
+225 22479 5000
+225 2247 8261

Police anti-Racketeering Unit

(Unite de Lutte Contre le Racket –ULCR)

Alain Oura
Unit Commander
+225 2244 9256
info@ulcr.ci

President Alassane Ouattara was elected to a second term in 2015. The constitution allows only two presidential mandates which would require him to step down after his current term ends in 2020. In November 2016, a new constitution was adopted through a referendum creating the position of Vice-President and a Senate.

Côte d’Ivoire‘s security situation has significantly improved since the 2010-2011 post electoral dispute that led to civil conflict. Côte d’Ivoire suffered its first terrorist attack in March 2016 on the beaches of Grand Bassam, for which Al Qaeda in the Islamic Maghreb claimed responsibility. The Ivoirian forces responded very quickly, showing that its capacity has improved over the past few years. There continue to be small-scale security incidents in the country-side, primarily along Côte d’Ivoire’s western borders. In January and again in May 2017, soldiers mutinied, demanding payment of bonuses. The government responded by partially acceding to their demands and pledging to improve living and working conditions for armed and security forces. Reform of the security sector is an ongoing process.

Demonstrations and protests by unions and political parties occur with regularity but rarely lead to violence.

The official unemployment rate is 11 percent with higher unemployment in urban areas. The unemployment rate among those aged 14-35 is 8.6 percent. The percentage of the non-agricultural workforce in the informal economy is 47 percent. All of these numbers, however, fail to fully account for the large informal economy throughout the country and do not accurately portray the general lack of sufficient employment opportunities. The government implemented a national strategy for employment, which includes youth capacity building for employment and training programs. Despite the government’s efforts, child labor remained a widespread problem, particularly on cocoa and coffee plantations and in artisanal gold mining.

Labor laws favor the employment of Ivoirians in private enterprises, and states that any position to be filled must be advertised for two months. If after two months no qualified Ivoirian is found, the employer is allowed to recruit a foreigner, provided that s/he plans to recruit an Ivoirian to fill the position in the next two years. The foreign employee must be given a labor contract.

There are no restrictions on employers adjusting employment to fluctuating market conditions. Employees terminated for reasons other than theft or flagrant neglect of duty have the right to termination benefits. Unemployment insurance and other social safety programs exist for employees laid off for economic reasons, but for the 85 percent of workers employed in the informal sector, this is not an option.

Labor laws are not waived to attract or retain investment.

Collective bargaining agreements are in effect in many major business enterprises and sectors of the civil service. In most cases in which wages were not established by direct negotiations between unions and employers, the Ministry of Employment and Social Affairs establishes salaries by job categories.

Labor disputes are submitted to the labor inspector for amicable settlement before engaging in any legal proceedings. If this attempt to settle the dispute fails, then the labor court can be engaged to resolve the dispute.

There are no gaps in law or practice with international labor standards that may pose a reputational risk to investors.

The National Assembly passed a new labor code in July 2015 which replaced the 1995 labor code. This new code addresses non-standard employment (seasonal, insecure, and poorly paid work), and strengthens the freedom to unionize. It also promotes job access for the handicapped and the requirement to maintain minimum levels of service in case of strike.

OPIC opened an office in Abidjan as part of its effort to expand operations in sub-Saharan Africa. There are currently no OPIC projects in Côte d’Ivoire, but OPIC continues to look for opportunities, particularly in energy and infrastructure. OPIC is currently updating its investment incentive agreement with Côte d’Ivoire.

Côte d’Ivoire is a member of the Multilateral Investment Guarantee Agency (MIGA). In 2013, MIGA agreed to guarantee the expansion and ongoing operations of the Azito power plant. Other MIGA guarantees in Côte d’Ivoire include the construction of the Henri Konan Bédié Bridge in Abidjan and guarantees for offshore development of platforms for oil and gas fields.

Table 3: Sources and Destination of FDI in 2015

Table 4: Sources of Portfolio Investment

Jeremy Chen
Economic Officer
01 B.P. 1712 Abidjan 01, Côte d’Ivoire
Tel: +225 2249 4000
ChenJH2@state.gov

Policies Towards Foreign Direct Investment

The Government of Ghana has no overall economic or industrial strategy that discriminates against foreign-owned businesses. The government has made increasing FDI a priority and acknowledged the importance of having an enabling environment for the private sector to thrive. Officials have announced plans to undertake regulatory and other reforms to improve the ease of doing business and make investing in Ghana more attractive. The government also plans to hold an annual business summit.

In the past, the government passed laws to encourage foreign investment and replaced regulations perceived as unfriendly to investors. The 2013 GIPC Act regulates investments in almost every sector, except minerals and mining, oil and gas, and the industries within Free Zones. Sector-specific laws further regulate banking, non-banking financial institutions, insurance, fishing, securities, telecommunications, energy, and real estate. In the oil and gas sector, these laws include specific local content requirements that could discourage international investment. Foreign investors are required to satisfy the provisions of the investment act as well as the provisions of sector-specific laws. New GIPC leadership has pledged to work in closer collaboration with the private sector to address investor concerns but there have been no significant changes to the laws as of yet. More information on investing in Ghana can be obtained from GIPC’s website, www.gipcghana.com .

Limits on Foreign Control and Right to Private Ownership and Establishment

Ghana is one of the more open economies to foreign equity ownership in Sub-Saharan Africa. Most of its major sectors are fully open to foreign capital participation.

U.S. investors in Ghana are treated the same as any other foreign investor. All foreign investment projects must register with the Ghana Investment Promotion Center (GIPC). Foreign investments are subject to the following minimum capital requirements: $200,000 for joint ventures with a Ghanaian partner; $500,000 for enterprises wholly-owned by a non-Ghanaian; and $1 million for trading companies (firms that buy or sell imported goods or services) wholly owned by non-Ghanaian entities. Trading companies are also required to employ at least 20 skilled Ghanaian nationals.

Ghana’s investment code excludes foreign investors from participating in eight economic sectors: petty trading; the operation of taxi and car rental services with fleets of fewer than 25 vehicles; lotteries (excluding soccer pools); the operation of beauty salons and barber shops; printing of recharge scratch cards for subscribers to telecommunications services; production of exercise books and stationery; retail of finished pharmaceutical products; and the production, supply, and retail of drinking water in sealed pouches. Sectors where foreign investors are allowed limited market access include: telecommunications, banking, fishing, mining, petroleum, and real estate.

Real Estate

The 1992 Constitution recognized existing private and traditional titles to land; however, freehold acquisition of land is no longer permitted. There is an exception for transfer of freehold title between family members for land held under the traditional system. Foreigners are allowed to enter into long-term leases of up to 50 years and the lease may be bought, sold or renewed for consecutive terms. Nationals are allowed to enter into 99-year leases.

Oil and Gas

The oil and gas sector is subject to a variety of state ownership and local content requirements. The Petroleum (Exploration and Production) Act (2016, Act 919) mandates local participation. All entities seeking petroleum exploration licenses in Ghana must create a consortium in which the state-owned Ghana National Petroleum Corporation (GNPC) holds a minimum 10 percent stake. The Petroleum Commission issues all licenses, but exploration licenses must be approved by Parliament. Further, local content regulations specify in-country sourcing requirements with respect to the full range of goods, services, hiring, and training associated with petroleum operations. The regulations also require mandatory local equity participation for all suppliers and contractors. The Minister of Energy must approve all contracts, sub-contracts, and purchase orders above $100,000. Non-compliance with these regulations may result in a criminal penalty, including imprisonment for up to five years.

The Petroleum Commission applies registration fees and annual renewal fees on foreign oil and gas service providers, which, depending on a company’s annual revenues, range from $70,000 to $150,000, compared to fees of between $5,000 and $30,000 for local companies.

Mining

Per the Minerals and Mining Act, 2006 (Act 703), foreign investors are restricted from obtaining a small scale mining license for mining operations less than or equal to an area of 25 acres (10 hectares). Non-Ghanaians may only apply for industrial mineral rights if the proposed investment is $10 million or above. The Act mandates compulsory local participation, whereby the government acquires 10 percent equity in ventures at no cost. In order to qualify for a license, a non-Ghanaian company must be registered in Ghana, either as a branch office or a subsidiary that is incorporated under the Ghana Companies Code or Incorporated Private Partnership Act.

The Minerals and Mining Act provides for a stability agreement, which protects the holder of a mining lease for a period of 15 years from future changes in law that may impose a financial burden on the license holder. When investment exceeds $500 million, lease holders can negotiate a development agreement which contains elements of a stability agreement and more favorable fiscal terms. Parliament passed a new Minerals and Mining (Amendment) Act (Act 900) in December 2015. One significant provision of the new act requires the mining lease-holder to, “…pay royalty to the Republic at the rate and in the manner that may be prescribed.” The previous Act 703 capped the royalty rate at six percent. The Minerals Commission implements the law.

Insurance

The National Insurance Commission (NIC) imposes nationality requirements with respect to the board and senior management of locally-incorporated insurance and reinsurance companies. At least two board members must be Ghanaians, and either the Chairman of the board or Chief Executive Officer (CEO) must be Ghanaian. In situations where the CEO is not a Ghanaian, the NIC requires that the Chief Financial Officer be Ghanaian. Minimum initial capital investment in the insurance sector is 15 million Ghana cedis ($4 million).

Telecommunications

The National Communications Authority (NCA), under the Electronic Communications Act of 2008, regulates and manages the nation’s telecommunications and broadcast sectors. For licenses for 800 MHz spectrum for mobile telecommunications services, Ghana restricts foreign participation to a joint venture or consortium that includes a minimum of 35 percent indigenous Ghanaian ownership. Applicants that do not reach 35 percent Ghanaian ownership within 13 months from the effective date of the license risk severe penalties. In 2013, a portion of Ghana’s 4G Long-Term Evolution (LTE) bandwidth was auctioned under restrictions that prevented foreign-invested enterprises (FIEs) from being directly involved.

There are no significant limits on foreign investment or differences in the treatment of foreign and national investors in other sectors of the economy.

Other Investment Policy Reviews

Ghana has not conducted an investment policy review (IPR) through the OECD in recent times. UNCTAD last conducted an IPR in 2003.

The WTO last conducted a Trade Policy Review (TPR) in May 2014. The TPR concluded that the 2013 amendment to the investment law raised the minimum capital that foreigners must invest to levels above those specified in Ghana’s 1994 GATS horizontal commitments, and excludes new activities from foreign competition. But it was determined that overall this would have minimum impact on dissuading future foreign investment due to the size of the companies traditionally seeking to do business within the country. An Executive Summary of the findings can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp398_e.htm 

Business Facilitation

Per the Ghana Investment Promotion Centre (GIPC) Act, all foreign companies are required to register with GIPC. Registration can be completed online at http://www.gipcghana.com . While the registration process is designed to be completed within five business days, the process often takes significantly longer. With the exception of the extractive industries, international companies are free to establish a business in Ghana without prior approval of GIPC. However, the Ghanaian business environment is unique and guidance can be extremely helpful. In some cases, a foreign investment may enjoy certain tax benefits under the law or additional incentives if the project is deemed critical to the country’s development, which makes registration with GIPC beneficial.

Although registering a business is a relatively easy procedure, the process involved in establishing a business is lengthy, complex, and requires compliance with regulations and procedures of at least five different government agencies including GIPC, Registrar General Department, Ghana Revenue Authority (GRA), Ghana Immigration Service, and Social Security and National Insurance Trust (SSNIT).

According to the World Bank’s 2016 Doing Business Report, it takes 10 procedures and 72 days to establish a foreign-owned limited liability company (LLC) that wants to engage in international trade in Ghana. This is longer than the regional average for Sub-Saharan Africa. Foreign investors must obtain a certificate of capital importation, which can take 14 days. The local authorized dealer must confirm the import of capital with the Bank of Ghana, which will then confirm the transaction to GIPC for investment registration purposes.

Most companies or individuals considering investing in Ghana or trading with Ghanaian counterparts find it useful to consult with a local attorney or business facilitation company. The Embassy maintains a list of local attorneys which is available through the embassy’s Foreign Commercial Section (www.export.gov/ghana ). Specific information about setting up a business is available at the GIPC website: http://www.gipcghana.com/invest-in-ghana/doing-business-in-ghana.html .

Note that mining or oil and gas sector companies are required to obtain licensing/approval from the following relevant bodies:

Ghana Investment Promotion Centre
Post: P. O. Box M193, Accra-Ghana
Telephone: +233 (0) 302 665125, +233 (0)302 665126, +233 (0) 302 665127, +233 (0) 302 665128/ +233 (0) 302 665129
Telephone: +233 (0) 302 244318254/ 244318252
Email: info@gipcghana.com
Website: www.gipcghana.com 

Petroleum Commission Head Office
Plot No. 4A, George Bush Highway, Accra, Ghana
P.O. Box CT 228 Cantonments, Accra, Ghana
Telephone: +233 [0] 302 953392 | +233 [0] 302 953393
Website: http://www.petrocom.gov.gh/ 

Minerals Commission
No. 9 Switchback Road, Cantonments, Accra
P. O. Box M 248
Telephone: +233 (0) 302 772 783 /+233 (0) 302 772 786 /+233 (0) 302 773 053
Email: mincom@mc.ghanamining.org
Website: http://www.mincom.gov.gh/ 

Outward Investment

Ghana has significantly liberalized both inward and outward foreign investment policies, but it has no specific outward investment policy. It has entered into bilateral treaties with a number of countries to promote and protect foreign investment on a reciprocal basis. A few Ghanaian companies have established operations in other West African countries.

Ghana has signed and ratified Bilateral Investment Treaties (BIT) with the following countries: China; Denmark; Germany; Malaysia; the Netherlands; Switzerland; the United Kingdom. Ghana has concluded the BIT negotiation process with 26 countries in total, 19 of which are awaiting Parliament ratification. The countries with concluded Bilateral Investment Treaties that have not yet been internally ratified are: Barbados; Benin; Botswana; Bulgaria; Burkina Faso; Cote d’Ivoire; Cuba; Egypt; France; Guinea; Italy, Mauritania; Mauritius; Romania; Spain; Yugoslavia; Zambia, and Zimbabwe. Agreements with the United States, Pakistan, South Korea, North Korea, and Belgium are being discussed.

The United States has signed several investment related agreements with Ghana: the Trade and Investment Framework Agreement (TIFA), OPIC Investment Incentive Agreement, and the Open Skies Agreement. In 2012, the U.S. and Ghana initiated exploratory BIT discussions but discussions have stalled.

Ghana has continued to meet eligibility requirements to participate in the benefits afforded by the African Growth and Opportunity Act (AGOA) and also separately qualifies for the apparel benefits under AGOA.

Transparency of the Regulatory System

The Government of Ghana’s policies on trade liberalization and investment promotion are guiding its effort to create a clear and transparent regulatory system.

Ghana does not have a standardized consultation process but ministries generally share the text or summary of proposed regulations and solicit comments directly from stakeholders or via public meetings. All laws that are currently in effect are printed in the Ghana Gazette.

The Government of Ghana has established regulatory bodies such as the National Communications Authority, the National Petroleum Authority, the Petroleum Commission, Energy Commission, and the Public Utilities Regulatory Commission to oversee activities in the telecommunications, downstream and upstream petroleum, electricity and natural gas, and water sectors, respectively. The creation of these bodies was a positive step but they remain relatively under-resourced and subject to political influence, thus their ability to deliver the intended level of oversight is limited.

The government has announced a 36 month regulatory reform strategy/program, which includes plans to improve the ease of doing business, review all rules and regulations to identify and reduce unnecessary costs and requirements, establish an e-registry of all laws, establish a centralized public consultation web portal, provide regulatory relief for entrepreneurs, and eventually implement a regulatory impact analysis system.

International Regulatory Considerations

Ghana has been a World Trade Organization (WTO) member since January 1995. Ghana issues its own standards for most products under the auspices of the Ghana Standards Authority (GSA). The GSA has promulgated more than 500 Ghanaian standards and adopted more than 2,000 international standards for certification purposes. The Ghanaian Food and Drugs Authority is responsible for enforcing standards for food, drugs, cosmetics, and health items. Ghana notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Ghana’s legal system is based on British common law and customary law. Investors should note that the acquisition of real property is governed by both statutory and customary law. The judiciary comprises both the lower courts and the superior courts. The superior courts are the Supreme Court, the Court of Appeal, and the High Court and Regional Tribunals. Lawsuits are permitted and usually begin in the High Court. The High Court has jurisdiction in all matters, civil and criminal, other than those involving treason. There is a history of government intervention in the court system, although somewhat less so in commercial matters. The courts have, when the circumstances require, entered judgments against the government. However, the courts have been slow in disposing of cases and at times face challenges in enforcing decisions, largely due to resource constraints and institutional inefficiencies.

Laws and Regulations on Foreign Direct Investment

The GIPC Act codified the government’s desire to present foreign investors with a transparent foreign investment regulatory regime. GIPC regulates foreign investment in acquisitions, mergers, takeovers and new investments, as well as portfolio investment in stocks, bonds, and other securities traded on the Ghana Stock Exchange. The GIPC Act also specifies areas of investment reserved for locals, and further delineates incentives and guarantees that relate to taxation, transfer of capital, profits and dividends, and guarantees against expropriation.

While Ghana does not currently have a “one stop shop” for business registration, GIPC helps to facilitate the process and provides economic, commercial and investment information for companies and business people interested in starting a business or investing in Ghana. GIPC provides assistance to enable investors to take advantage of relevant incentives. Registration can be completed online at www.gipcghana.com . The government has announced plans to establish a “one stop shop” and aims to significantly reduce the time it takes to start a business by automating the process for registration across the relevant agencies.

As detailed in the previous section on “Limits on Foreign Control and Right to Private Ownership and Establishment,” sector specific laws regulate foreign participation/investment in telecommunications, banking, fishing, mining, petroleum, and real estate.

Ghana regulates the transfer of technologies not freely available in Ghana. According to the 1992 Technology Transfer Regulations, total management and technical fee levels higher than eight percent of net sales must be approved by GIPC. The regulations do not allow agreements that impose obligations to procure personnel, inputs, and equipment from the transferor or specific source. The duration of related contracts cannot exceed ten years and cannot be renewed for more than five years. Any provisions in the agreement inconsistent with Ghanaian regulations are unenforceable in Ghana.

Competition and Anti-Trust Laws

Ghana does not have a competition law.

Expropriation and Compensation

The Constitution sets out some exceptions and a clear procedure for the payment of compensation in allowable cases of expropriation or nationalization. Additionally, Ghana’s investment laws generally protect investors against expropriation and nationalization. The Government of Ghana may, however, expropriate property if it is required to protect national defense, public safety, public order, public morality, public health, town and country planning, or to ensure the development or utilization of property in a manner to promote public benefit. In such cases, the GOG must provide prompt payment of fair and adequate compensation to the property owner. The Government of Ghana guarantees due process by allowing access to the high court by any person who has an interest or right over the property.

U.S. investors are generally not subject to differential or discriminatory treatment in Ghana, and there have been no official government expropriations in recent times. There have been no reported instances of indirect expropriation or any government action equivalent to expropriation during the past year.

Dispute Settlement

ICSID Convention and New York Convention

Ghana is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). Ghana is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

There is a caveat for investment disputes arising from within the energy sector: the Government of Ghana has expressed a preference for handling disputes under the ad hoc arbitration rules of the U N Commission on International Trade Law (UNCITRAL Model Law).

Investor-State Dispute Settlement

Ghana’s track record for sound governance and a relatively reliable legal system result in a dispute resolution process that benefits foreign investors, in comparison to other countries in the region.

Since 2001, four American investors have filed for international arbitration against the Ghanaian government. Two of these cases were resolved when the Government of Ghana agreed to purchase the investments in dispute. In both cases the American investors agreed to the terms of the government purchase as an exit strategy, notwithstanding perceived inequitable terms. The other two cases are still in litigation where they have remained since December 2012.

International Commercial Arbitration and Foreign Courts

The United States has signed three bilateral agreements on trade and investment with Ghana: a Trade and Investment Framework Agreement (TIFA), OPIC Investment Incentive Agreement, and the Open Skies Agreement. These agreements contain provisions for investment as well as trade dispute mechanisms.

The Commercial Conciliation Center of the American Chamber of Commerce (Ghana) provides arbitration services on trade and investment issues for disputes regarding contracts with arbitration clauses.

There is interest in alternative dispute resolution, especially as it applies to commercial cases. Several lawyers provide arbitration and/or conciliation services. Arbitration decisions are enforceable provided they are registered in the courts.

The Government of Ghana established fast-track courts to expedite action in certain cases. These fast track courts, which are automated divisions of the High Court, were intended to oversee cases which can be concluded within six months. However, they have not succeeded in consistently disposing of cases within six months. In March 2005, the government established a commercial court with exclusive jurisdiction over all commercial matters. This Court also handles disputes involving commercial arbitration and the enforcement of awards, intellectual property rights, including patents, copyrights and trademarks, commercial fraud, applications under the Companies Code, tax matters, and insurance and re-insurance cases. A distinctive feature of the commercial court is the use of mediation or other alternative dispute resolution mechanisms, which are mandatory in the pre-trial settlement conference stage. Ghana also has a Financial and Economic Crimes Court. It is a specialized division of the High Court that handles high profile corruption and economic crime cases.

Enforcement of foreign judgments in Ghana is based on the doctrine of reciprocity. On this basis, judgments from Brazil, France, Israel, Italy, Japan, Lebanon, Senegal, Spain, the United Arab Emirates, and the United Kingdom are enforceable. Judgments from American courts are not currently enforceable in Ghana.

The GIPC, Free Zones, Labor, and Minerals and Mining Laws outline dispute settlement procedures and provide for arbitration when disputes cannot be settled by other means. They also provide for referral of disputes to arbitration in accordance with the rules of procedure of the United Nations Commission on International Trade Law (UNCITRAL), or within the framework of a bilateral agreement between Ghana and the investor’s country. The 2010 Alternative Dispute Resolution Act (Act 798 of 2010) provides for the settlement of disputes by mediation and customary arbitration, in addition to regular arbitration processes.

Bankruptcy Regulations

Ghana does not have a bankruptcy statute. The Companies Code of 1963, however, provides for official closure of a company when it is unable to pay its debts.

Investment Incentives

Investment incentives differ slightly depending upon the law under which an investor operates. For example, while all investors operating under the Free Zone Act are entitled to a ten-year corporate tax holiday, investors operating under the GIPC law are not automatically entitled to a tax holiday. Tax incentives vary depending upon the sector in which the investor is operating.

All investment-specific laws contain some incentives. The GIPC law allows for import and tax exemptions for plant inputs, machinery and parts that are imported for the purpose of the investment. Chapters 82, 84, 85, and 89 of the Customs Harmonized Commodity and Tariff Code zero-rate these production items. The Government of Ghana recently imposed a five percent import duty on some items that were previously zero-rated, to conform to the ECOWAS common external tariff.

The Ghanaian tax system is replete with tax concessions that considerably reduce the effective tax rate. The minimum incentives are specified in the GIPC law and are not applied in an ad hoc or arbitrary manner. Once an investor has been registered under the GIPC law, the investor is entitled to the incentives provided by law. The government has discretion to grant an investor additional customs duty exemptions and tax incentives beyond the minimum stated in the law. The GIPC website (http://www.gipcghana.com ) provides a thorough description of available incentive programs. The law also guarantees an investor all the tax incentives provided for under Ghanaian law. For example, rental income from commercial and residential property is exempt from tax for the first five years after construction. Similarly, income from a company selling or leasing out premises is income tax exempt for the first five years of operation. Rural banks and cattle ranching are exempt from income tax for ten years and pay 8 percent thereafter.

The corporate tax rate is 25 percent and this applies to all sectors except income from non-traditional exports (8 percent tax rate) and oil and gas exploration companies (35 percent tax rate). For some sectors there are temporary tax holidays. These sectors include Free Zone enterprises and developers (0 percent for the first ten years and 8 percent thereafter); real estate development and rental (0 percent for the first five years and 25 percent thereafter); agro-processing companies (0 percent for the first five years, after which the tax rate ranges from 0 percent to 25 percent depending on the location of the company in Ghana), and waste processing companies (0 percent for seven years and 25 percent thereafter). Tax rebates are also offered in the form of incentives based on location. A capital allowance in the form of accelerated depreciation is applicable in all sectors except banking, finance, commerce, insurance, mining, and petroleum. Under the new Income Tax law of 2015, all businesses can carry forward tax losses for at least three years.

The government charges a 15 percent Value Added Tax (VAT) plus a 2.5 percent Health Insurance Levy on most imports, all consumer purchases, services, accommodation in hotels and guest houses, food in restaurants, hotels and snack bars, as well as advertising, betting and entertainment. For a list of current exemptions to VAT please visit the Ghana Revenue Authority website at www.gra.gov.gh . The government also charges a 1 percent Tourism Development Levy as seed money for the country’s Tourism Development Fund. As of late 2014, petroleum products are subject to a 15 percent special petroleum tax.

Ghana has no discriminatory or excessively burdensome visa requirements. A foreign investor who invests under the GIPC law is automatically entitled to a specific number of visas/work permits based on the size of the investment. When an investment of $50,000, but not more than $250,000 or its equivalent is made in convertible currency or machinery and equipment, the enterprise can obtain a visa/work permit for one expatriate employee. An investment of $250,000, but not more than $500,000, entitles the enterprise to two automatic visas/work permits. An investment of $500,000, but not more than $700,000, allows the enterprise to bring in three expatriate employees. An investment of more than $700,000 allows an enterprise to bring in four expatriate employees. An enterprise may apply for extra visas or work permits, but the investor must justify why a foreigner must be employed rather than a Ghanaian. There are no restrictions on the issuance of work and residence permits to Free Zone investors and employees. A few American firms have recently reported to the Embassy extensive delays in receiving the work permits to which they are entitled by their investment levels. Overall, the process of issuing work permits is not very transparent.

Ghana has no import price controls. It is pursuing a liberalized import regime policy within the framework of the World Trade Organization to accelerate industrial growth. The Government of Ghana joined other ECOWAS countries by fully implementing the ECOWAS Common External Tariff (CET) in February 2016

Foreign Trade Zones/Free Ports/Trade Facilitation

Free Trade Zones were established in May 1996, with one near Tema Steelworks, Ltd., in the Greater Accra Region, and two other sites located at Mpintsin and Ashiem near Takoradi. The seaports of Tema and Takoradi, as well as the Kotoka International Airport and all the lands related to these areas, are part of the Free Zone. The law also permits the establishment of single factory zones outside or within the areas mentioned above. Under the law, a company qualifies to be a Free Zone company if it exports more than 70 percent of its products. Among the incentives for Free Zone companies are a ten-year corporate tax holiday and zero import duty.

To make it easier for Free Zone developers to acquire the various licenses and permits to operate, the Ghana Free Zones Board (www.gfzb.com.gh ) provides a “one-stop approval service” to assist in the completion of all formalities. A lack of resources has limited the effectiveness of the Board, however. Foreign employees of Free Zone businesses require work and residence permits.

Performance and Data Localization Requirements

In most sectors, Ghana does not have performance requirements for establishing, maintaining, and expanding a business. Investors are not currently required to purchase from local sources or employ prescribed levels of local content, except in the upstream petroleum sector, which is subject to substantial local content requirements. Similar legislation is being drafted for the downstream petroleum and power sectors, but there is no clear timeline for its consideration.

Generally, investors are not required to export a specified percentage of their output, except for Free Zone enterprises which, in accordance with the Free Zone Act, must export 70 percent of their products. Government officials have intimated that local content requirements should be applied to sectors other than petroleum, but currently no local content regulations have been promulgated for other sectors.

As detailed earlier in this report, there are a few areas where the GOG does impose performance requirements including the mining, oil and gas, insurance, and telecommunications sectors.

Data Storage

The Government of Ghana does not follow a forced localization policy in which foreign investors must use domestic content in goods or technology. In addition, there are no requirements for foreign IT providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption).

Real Property

The legal system recognizes and enforces secured interest in property. The process to get clear title over land is difficult, complicated, and lengthy. It is important to conduct a thorough search at the Lands Commission to ascertain the identity of the true owner of any land being offered for sale. Investors should be aware that land records can be incomplete or non-existent and, therefore, clear title may be impossible to establish.

Mortgages exist, although there are only a few thousand in existence due to a variety of factors including land ownership issues and scarcity of long-term finance. Mortgages are regulated by the Home Mortgages Finance Act 770 (2008) which has enhanced the process of foreclosure. A mortgage must be registered under the Land Title Registration Law, a requirement that is mandatory for it to take effect. Registration with the Land Title Registry is a reliable system of recording the transaction.

Intellectual Property Rights

The protection of intellectual property is an evolving area of law in Ghana. Progress has been made in recent years to afford protection under both local and international law. Ghana is a party to the Universal Copyright Convention, the Berne Convention for the Prosecution of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty (PTC), the Singapore Trademark Law Treaty (STLT), and the Madrid Protocol Concerning the International Registration of Marks. Ghana is also a member of the World Intellectual Property Organization (WIPO), the English-speaking African Regional Intellectual Property Organization (ARIPO), and the World Trade Organization (WTO). In 2004, Ghana’s Parliament ratified the WIPO internet treaties, namely the WIPO Copyright Treaty and the WIPO Performance and Phonograms Treaty. Since December 2003, Ghana’s Parliament has passed six bills designed to bring Ghana into compliance with WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) requirements. The new laws are: Copyright, Trade Marks, Patents, Layout-Designs (Topographies) of Integrated Circuits, Geographical Indications, and Industrial Designs. Except for the copyright law, implementing regulations necessary for fully effective promulgation has not been passed.

The Government of Ghana launched its National Intellectual Property Policy and strategy in January 2016. Devised to strengthen the legal and institutional framework to protect intellectual property rights, the strategy highlights and allocates resources across an initial 34 projects to be implemented over the succeeding 5 years (2016-2020). The projects include amendments of existing laws as well as automation of IP registration.

Despite Ghana’s effort to strengthen its IPR regime, enforcement remains weak and piracy of intellectual property takes place in Ghana. Although precise statistics are not available for many sectors, counterfeit computer software regularly shows up at street markets and counterfeit pharmaceuticals have found their way into public hospitals. Counterfeit products have also been discovered in such disparate sectors as industrial epoxy, pharmaceuticals, cosmetics, drinking spirits, and household cleaning products. Based on cases where it has been possible to trace the origin of counterfeit goods, most have been found to have been produced outside the region, usually in Asia. Holders of intellectual property rights have access to local courts for redress of grievances, although the few trademark, patent, and copyright infringement cases that have been filed in Ghana by American companies have reportedly moved through the legal system slowly.

Resources for Rights Holders

Please contact the following at Mission Accra if you have further questions regarding IP issues:

Jimmy Mauldin
Economic Section
No. 24 Fourth Circular Road, Cantonments, Accra, Ghana
233-030-274-1000
MauldinJ@state.gov

A list of local lawyers can be found at: http://ghana.usembassy.gov/root/pdfs/attorneys.pdf 

American Chamber of Commerce Ghana
5TH Crescent Street, Asylum Down
P.O. Box CT2869, Cantonments-Accra, Ghana
Tel: 233 030 2247562/233 030 7011862
Fax: 233 030 2247562
Website: https://www.amchamghana.org/ 

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/ 

Capital Markets and Portfolio Investment

Private sector growth in Ghana has been constrained by financing challenges. Businesses continue to face difficulty raising capital on the local market. While credit to the private sector has increased, levels have remained stagnant over the last decade and high government borrowing has driven up interest rates beyond 25 percent and crowded out private investment.

Capital markets and portfolio investment are gradually evolving. For a long time, the government had become highly dependent on the domestic capital market to raise funds for its budget. Over the last several years, the domestic debt stock has shifted towards short term securities (maturities of one year or less), which now make up more than half of total marketable securities. The longest term domestic bonds are 10 years, but government plans to issue about $1 billion of 15-year domestic bonds between April to June 2017. Foreign investors are only permitted to participate in bond auctions with maturities of two years or longer. In 2016, foreign investors held about 23percent (valued at $3 billion) of the total outstanding securities. Authorities are working to expand the secondary market to improve liquidity.

The rapid accumulation of debt over the last decade has raised debt sustainability concerns. In 2007, only three years after reaching its highly indebted poor countries (HIPC) completion point, Ghana became the first sub-Saharan African country after South Africa to issue a Eurobond. The $750 million issuance was followed by additional Eurobonds in 2013 ($1 billion), 2014 ($1 billion), 2015 ($1 billion), and 2016 ($750 million) as global investors chased yields in frontier and emerging markets. Total public debt, roughly evenly split between external and domestic, now stands at nearly 73 percent of GDP. Following the government’s strategy of increasing demand for longer-dated bonds, short-term debt declined from a share of 45 percent in 2015 to 38 percent in 2016.

The Ghana Stock Exchange (GSE) has 40 listed companies, 4 government bonds and 1 corporate bond. Both foreign and local companies are allowed to list on the GSE. The Securities and Exchange Commission regulates activities on the Exchange. There is an 8 percent tax on dividend income. Foreigners are permitted to trade stocks listed on the GSE without restriction. There are no capital controls on the flow of retained earnings, capital gains, dividends or interest payments. The GSE composite index (GGSECI) has exhibited mixed performance.

Money and Banking System

Banks in Ghana are relatively small with the largest in the country, Ecobank Ghana Ltd., holding assets totaling about $1.3 billion. Out of the 33 banks in Ghana, 16 are domestically controlled and the remaining 17 are foreign-controlled. In total, there are 1,342 branches distributed across the ten regions of the country. Central bank regulations require existing banks to maintain a minimum capital base of 60 million Ghana cedis (USD 16 million), while new banks entering the market are required to have 120 million Ghana cedis (USD 32 million) in capital.

Overall, the banking industry in Ghana is well-capitalized with a capital adequacy ratio of 17.8 percent as of December 2016, which is above the 10 percent prudential and statutory requirement. As of December 2016, the non-performing loans ratios had increased to 17.3 percent – up from 14.9 percent in 2015 and 11.3 percent in 2014. Lending in foreign currencies to unhedged borrowers poses a risk and widely varying standards in loan classification and provisioning may be masking weaknesses in bank balance sheets. The Bank of Ghana is commissioning a special diagnostic audit to assess industry underwriting and credit evaluation practices, and has additional plans to strengthen the financial sector framework.

Recent developments in the non-banking financial sector indicate increased diversification, including new rules and regulations governing the trading of Exchange Traded Funds. Non-banking financial institutions such as leasing companies, building societies and savings and loan associations have increased access to finance for underserved populations, as have rural and mobile banking. Currently, Ghana has no “cross-shareholding” or “stable shareholder” arrangements used by private firms to restrict foreign investment through mergers and acquisitions.

Foreign Exchange and Remittances

Foreign Exchange

Ghana operates a free-floating exchange rate regime. The Ghana cedi can be exchanged for dollars and major European currencies. Investors may convert and transfer funds associated with investments provided there is documentation of how the funds were acquired. Ghana’s investment laws guarantee that investors can transfer the following transactions in convertible currency out of Ghana: dividends or net profits attributable to an investment; loan service payments where a foreign loan has been obtained; fees and charges with respect to technology transfer agreements registered under the GIPC Act; and the remittance of proceeds from the sale or liquidation of an enterprise or any interest attributable to the investment. Companies have not reported challenges or delays in remitting investment returns. For details, please consult the GIPC Act (http://www.gipcghana.com ) and the Foreign Exchange Act guidelines (http://www.sec.org ).

Ghana’s foreign exchange reserve needs are largely met through cocoa, gold and oil exports, government securities, foreign assistance, and private remittances. Fiscal problems and the fall in commodity prices have led to a steep depreciation of foreign reserves and inflation rates reached a six year high of 19.2 percent in March 2016. The ongoing IMF program should continue to provide Ghana with stronger fiscal stability as long as the Government of Ghana adheres to the program’s guidelines and recommendations.

Remittance Policies

There is a single formal system for transferring currency out of the country through the banking system. The Parliament passed the Foreign Exchange Act in November 2006. The Act provided the legal framework for the management of foreign exchange transactions in Ghana. It fully liberalized capital account transactions, including allowing foreigners to buy certain securities in Ghana (i.e. those with tenor of 3 years and higher). It also removed the requirement for the Bank of Ghana (the central bank) to approve offshore loans. Payments or transfer of foreign currency can only be made through banks or institutions licensed to do money transfers. There is no limit on capital transfers as long as the transferee can identify the source of capital.

In February 2014, the government announced limits to foreign exchange withdrawals in an effort to stem the deterioration of the cedi and prevent the dollarization of the currency. By June, these limits were lifted, making it clear that this technique will only be used as a short term measure to deal with urgent economic concerns. However, companies have expressed concerns over a requirement to now submit all invoices valued in cedis.

Sovereign Wealth Funds

Ghana’s only sovereign wealth fund is the Petroleum Holding Fund, which is funded by oil profits and flows to the Ghana Heritage Fund and Stabilization Fund. The Petroleum Revenue Management Act (PRMA), passed in 2011, spells out how revenues from oil and gas should be spent and includes transparency provisions for reporting by government agencies, as well as an independent oversight group, the Public Interest and Accountability Committee (PIAC). Section 48 of the Petroleum Revenue Management Act, 2011 (Act 815) requires the fund to publish an audited annual report by the Ghana Audit Service. The fund’s management meets the legal obligations. Management of the Ghana Petroleum Fund is a joint responsibility between the Ministry of Finance and the Bank of Ghana. The Minister develops the investment policy for the GPF, and is responsible for the overall management of GPF funds, consults regularly with the Investment Advisory Committee and Bank of Ghana Governor before making any decisions related to investment strategy or management of GPF funds. The Minister is also in charge of establishing a management agreement with the Bank of Ghana for the oversight of the funds. The Bank of Ghana is responsible for the day-to-day operational management of the Petroleum Reserve Accounts (PRAs) under the terms of Operation Management Agreement.

http://www.mofep.gov.gh/?q=petroleum-reports/2016-annual-report-petroleum-funds 

Today only a handful of large SOEs remain, mainly in the transportation, power, extractive and airport management sectors. The largest SOEs are the Ghana Ports and Harbor Authority (GPHA), the Electricity Company of Ghana (ECG), the Volta River Authority (VRA), the Tema Oil Refinery (TOR), the Ghana Airport Company Limited (GACL), Ghana Cocoa Board (COCOBOD), Ghana National Gas Company Limited, and GNPC. Many of these receive subsidies and assistance from the government. Ghana has started the process of increasing private sector participation in ECG under its second Millennium Challenge Corporation (MCC) compact, which entered into force in September, 2016. The $498.2 million grant is designed to increase the commercial viability of the utility. One of the key elements of the compact is to have a private company manage and operate ECG on a concession agreement for a period of 25 years. In turn, this will drive expanded opportunities for Independent Power Producers (IPPs) to enter the sector.

While the Government of Ghana does not actively promote adherence to the OECD Guidelines, corporate governance of SOEs is overseen by the State Enterprise Commission (SEC). The SEC encourages SOEs to be managed like Limited Liability Companies so as to be profit-making. In addition, beginning in 2014, most state-owned enterprises were required to contract and service direct and government-guaranteed loans on their own balance sheet. The government’s goal is stop adding these loans to “pure public” debt, paid by taxpayers directly through the budget.

Privatization Program

Ghana currently has no formal privatization program, however the current government is prioritizing the creation of public private partnerships (PPPs) to restructure and privatize non-performing state-owned enterprises. Procuring PPPs is allowed under the National Policy on Public Private Partnerships in Ghana which was adopted in June 2011.A draft PPP law is with parliament for approval.

There is no specific responsible business conduct law in Ghana and the government has no action plan regarding OECD RBC guidelines.

Ghana has been a member of the Extractive Industries Transparency Initiative since 2010. The government also enrolled in the Voluntary Principles on Security Human Rights in 2014, making Ghana the only African country in the initiative.

Corporate social responsibility (CSR) is a growing concern among Ghanaian companies. The Ghana Club 100 is a ranking of the top performing companies, as determined by GIPC. It is based on several criteria, including a 10 percent weight assigned to corporate social responsibility, including philanthropy. Ghanaian consumers are not generally interested in the CSR activities of private companies, with the exception of the extractive industries (whose CSR efforts seem to attract consumer, government and media attention). In particular, there is a widespread expectation that extractive sector companies will involve themselves in substantial philanthropic activities in the communities in which they have operations. The relatively free Ghanaian press has often advertised CSR projects sponsored by major extractive sector companies, foreign or domestic.

Corruption in Ghana is comparatively less prevalent than in other countries in the region, but remains a problem. The government has a relatively strong anti-corruption legal framework in place, but faces challenges with enforcement. A few American firms have identified corruption as the main obstacle to foreign direct investment. Ghana’s 2016 score and ranking on the Transparency International Global Corruption Perceptions Index dropped to 70 out of 176 (from 56 in 2015). Corruption in government institutions is pervasive. In 2016, there were a number of corruption allegations involving government officials. Shortly before the December 7 election, media and local civil society organization OccupyGhana reported the government awarded a contract worth 35 million cedis (approximately $9 million) to a business owned by controversial businessman Alfred Woyome. In 2014, Ghana’s Supreme Court ordered Woyome to pay back 51 million cedis (approximately $13 million) for unfulfilled public works contracts awarded by the government in 2010. In June 2016, media reported that then-President Mahama accepted an SUV worth approximately $60,000 as a “gift” from a businessman in Burkina-Faso bidding on three government contracts.

Commercial fraud in the form of scams is common in Ghana. Similar to the better-known Nigerian “419” scams, Ghana’s homegrown ‘Sakawa’ fraud typically originates through unsolicited email proposals. The most common fraud scams are procurement offers tied to alleged Ghanaian government or, more frequently, ECOWAS programs. U.S. companies frequently report being contacted by an unknown Ghanaian firm claiming to be an authorized agent of an official government procurement agency. Foreign firms that express an interest in being included in potential procurements are lured into paying a series of fees to have their companies registered or products qualified for sale in Ghana or the West Africa region. U.S. companies receiving offers from West Africa from unknown sources should use extreme caution and conduct significant due-diligence prior to pursuing these offers.

There have also been a number of commercially oriented scams whose sole aim is to fraudulently obtain U.S. visas. One particularly notable criminal enterprise involved a fake U.S. Embassy that operated in Accra for more than 10 years selling fake and stolen U.S. passports and visas to unsuspecting customers. American firms can request background checks on companies with whom they wish to do business by using the United States Commercial Service’s International Company Profile (ICP). Requests for ICPs should be made through the nearest United States Export Assistance Center. For more information about the United States Commercial Service, visit www.export.gov/ghana .

Offering the sale of gold or gemstones at discount prices is also a common form of fraud in Ghana. Buyers of gold and diamonds are strongly advised to deal directly with the Precious Minerals Marketing Company (PMMC) in Ghana. Gold and diamonds can be exported legally from Ghana only through the PMMC and prices are based solely on the London Exchange price on the day of export. No discounting or negotiation of prices prior to export by the PMMC is valid.

Bribery is common in the judicial system and across public services. Companies report that bribes are often exchanged in return for favorable judicial decisions. Large corruption cases are prosecuted, but proceedings are lengthy and convictions are slow. A 2015 undercover film by journalist Anas Aremeyaw Anas captured video of judges and other judicial officials extorting bribes from litigants to manipulate the justice system. Thirty-four judges were implicated, and 25 were dismissed following the revelations, though to date none have been criminally prosecuted.

The Government of Ghana has taken steps to amend laws on public financial administration and public procurement. The public procurement law, passed in January 2004, seeks to harmonize the many public procurement guidelines used in the country and also to bring public procurement into conformity with WTO standards. The law aims to improve accountability, value for money, transparency and efficiency in the use of public resources. However, some civil society observers have criticized the law as inadequate. Notwithstanding the procurement law, companies cannot expect complete transparency in locally funded contracts. There continue to be allegations of corruption in the tender process and the government has in the past set aside international tender awards in the name of national interest.

The 1992 Constitution established the Commission for Human Rights and Administrative Justice (CHRAJ). Among other things, the Commission is charged with investigating alleged and suspected corruption and the misappropriation of public funds by officials. The Commission is also authorized to take appropriate steps, including providing reports to the Attorney General and the Auditor-General in response to such investigations. The Commission has a mandate to investigate alleged offenders when there is sufficient evidence to initiate legal actions. The Commission, however, is under-resourced and largely ineffective, conducting few investigations leading to prosecutions. In November 2015, President Mahama fired the CHRAJ Commissioner after she was under investigated for misappropriating public funds.

In 1998, the Government of Ghana also established an anti-corruption institution, called the Serious Fraud Office (SFO), to investigate corrupt practices involving both private and public institutions. SFO’s name was changed to Economic and Organized Crime Office (EOCO) in 2010 and its functions were expanded to include crimes such as money laundering and other organized crimes. EOCO is empowered to initiate prosecutions and to recover proceeds from criminal activities. The government passed a “Whistle Blower” law in July 2006, intended to encourage Ghanaian citizens to volunteer information on corrupt practices to appropriate government agencies. In December 2006, CHRAJ issued guidelines on conflict of interest to public sector workers. In December 2009, CHRAJ and the government issued a new Code of Conduct for Public Officers in Ghana with guidelines on conflicts of interest.

A National Anti-Corruption Action Plan was developed by the CHRAJ and approved by the Parliament in July 2014, but many of its provisions have not been implemented due to lack of resources.

President Akufo-Addo’s administration has vowed to combat corruption and announced specific steps the government plans to undertake in 2017 to promote better transparency and accountability. These include: amending the 1960 Criminal Offenses Act to make corruption a felony; passing a Right to Information Bill to increase transparency; strengthening enforcement of Ghana’s Public Procurement Act to reduce sole-source contracts; and establishing an Office of Independent Prosecutor to pursue corruption cases (although questions remain about the office’s independence, the nominee – who has close personal and professional ties to the ruling party, and feasibility as creation of an office anywhere but under the control of the current Attorney General would require a constitutional change and a national referendum).

Like most other African countries, Ghana is not a signatory to the OECD Convention on Combating Bribery.

Resources to Report Corruption

Commission on Human Rights and Administrative Justice (CHRAJ)
Old Parliament House, High Street, Accra
Postal Address: Box AC 489, Accra
Phone: 0302- 662150/ 664267/ 664561/ 668839
Fax: 0302- 660020/ 668840/ 680396/ 673677
Email: info@chrajghana.com
Website: http://www.chrajghana.com/ 

Economic and Organized Crime Office (EOCO)
Tel +233 30 266 9995
Tel +233 30 266 7485
Tel +233 30 266 4786
Website: http://eoco.org.gh/about/ 

Ghana offers a relatively stable and predictable political environment for American investors. Ghana has a solid democratic tradition. In December 2016, Ghana completed its seventh consecutive peaceful presidential and parliamentary elections. Opposition New Patriotic Party (NPP) candidate Nana Akufo-Addo defeated incumbent President and National Democratic Congress (NDC) candidate John Mahama by a margin of over one million votes. Mahama conceded the election and power was transferred to the NPP peacefully. There were isolated cases of politically-motivated violence but no widespread civil disturbances.

Ghana has a large pool of unskilled labor. English is widely spoken, especially in urban areas. However, according to the United Nations, illiteracy remains high at 33 percent. Labor regulations and policies are generally favorable to business. Although labor-management relationships are generally positive, there are occasional labor disagreements stemming from wage policies in Ghana’s inflationary environment. Many employers find it advantageous to maintain open lines of communication on wage calculations and incentive packages. A revised Labor Law of 2003 (Act 651) unified and modified the old labor laws to bring them into conformity with the core principles of the International Labor Convention, to which Ghana is a signatory. A number of labor-related laws, except the Children’s Law (Act 560), have been repealed.

Under the Labor Law, the Chief Labor Officer issues collective bargaining agreements (CBA) in lieu of the Trade Union Congress (TUC). This change limited the TUC’s influence, since the prior CBA provisions implicitly compelled all unions to be part of TUC. Also, instead of the labor court, a National Labor Commission was established to resolve labor and industrial disputes, and the Tripartite Committee that sets the minimum wage was given legal authority.

There is no legal requirement for labor participation in management. However, many businesses utilize joint consultative committees in which management and employees meet to discuss issues affecting business productivity and labor issues.

There are no statutory requirements for profit sharing, but fringe benefits in the form of year-end bonuses and retirement benefits are generally included in collective bargaining agreements. Child labor remains a problem. Children in Ghana are engaged in the worst forms of child labor in agriculture, including in cocoa, and in fishing. Fish (including tilapia) is included on the U.S. government’s Executive Order 13126 List of Goods Produced by Forced and Indentured Child Labor. Additionally, cocoa, fish, gold, and tilapia are included on the U.S. government’s List of Goods Produced by Child Labor or Forced Labor. Post recommends consulting a local attorney for detailed advice regarding labor issues. The United States Embassy in Accra maintains a list of local attorneys, which is available through the Foreign Commercial Section (www.export.gov/ghana ).

Ghana has signed an agreement with the Overseas Private Investment Cooperation (OPIC). OPIC is actively launching several investment funds in Ghana, which are sources of information and financing for local investment. The African Project Development Facility (APDF) and the African investment program of the International Finance Corporation are other sources of information. OPIC has also pledged to support Power Africa by facilitating financing for large scale power projects.

Table 3: Sources and Destination of FDI

Source: IMF Coordinated Direct Investment Survey, 2014
Note: Outward direct investment information is not available.

Table 4: Sources of Portfolio Investment

Data not available.

Margo Siemer
Economic Section
No. 24 Fourth Circular Road, Cantonments, Accra, Ghana
233-030-274-1000
SiemerME@state.gov

Policies Towards Foreign Direct Investment

Kenya has enjoyed a steadily improving environment for foreign direct investment (FDI). Foreign investors seeking to establish a presence in Kenya generally receive the same treatment as local investors, and multinational companies make up a large percentage of Kenya’s industrial sector. There is little discrimination against foreigners in access to government-financed research, and the government’s export promotion programs do not distinguish between goods produced by local and foreign-owned firms.

The Government of Kenya (GOK) prioritizes investment retention and maintains an ongoing dialogue with investors. All bills must pass through a period of public consultation in which investors have an opportunity to offer feedback. Private sector representatives can serve as board members on Kenya’s state-owned enterprises. Since 2013, when the current government assumed power, the Kenya Private Sector Alliance (KEPSA), the apex private sector association, has had bi-annual round table meetings with President Kenyatta and his cabinet. During the budget making process, KEPSA presents a memorandum to the government on its wish list.

The government does not have a policy to steer investment to specific geographic locations but encourages investments in sectors that create employment, generate foreign exchange, and create forward and backward linkages with rural areas. Kenya puts significant effort into assuring the health and growth of its tourism industry. To strengthen Kenya’s manufacturing capacity, the government offers incentives for the production of goods for export.

KenInvest, the country’s official investment promotion agency, is viewed favorably by international investors (http://www.investmentkenya.com ). KenInvest’s mandate is to promote and facilitate investment by assisting investors in obtaining the licenses necessary to invest and by providing other assistance and incentives as necessary for smoother operations. In order to help investors navigate local regulations, KenInvest has developed an online database known as eRegulations, which is designed to provide investors and entrepreneurs with full transparency on investment-related regulations and procedures in Kenya (http://kenya.eregulations.org/?l=en ). At each step, the system tells the investor where to go, who to see, what to bring, what to pay, what is the legal justification, and who to complain to in case there is a problem. According to United Nations Conference on Trade and Development (UNCTAD)’s Global Enterprise Registration Network (http://www.GER.co ), the KenInvest site makes Kenya one of only 25 countries to earn a perfect rating on its information portal.

Limits on Foreign Control and Right to Private Ownership and Establishment

The government provides the right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. In an effort to encourage foreign investment, the GOK repealed regulations in 2015 that imposed a 75 percent foreign ownership limitation for firms listed on the Nairobi Securities Exchange, allowing such firms now to be 100 percent foreign-owned, as reported by the UNCTAD World Investment Report 2016. In 2015, the government established regulations requiring that Kenyans own at least 15 percent of the share capital of derivatives exchanges, through which derivatives such as options and futures can be traded.

There appears to be a recent trend in Kenya toward imposing “local content” requirements on foreign investments. When President Kenyatta signed the new Companies Act (2015), it contained language requiring all foreign company to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth. United States business associations raised concerns over the bill, pointing to its lack of clarity and the possibility that such measures could run afoul of Kenya’s commitments under the WTO. The U.S. government also raised the issue with the Kenyan government. The clause has now been repealed.

Telecommunications regulator Communications Authority requires 20 percent Kenyan shareholding within three years of receiving a license. The new Mining Act (2016) restricts foreign participation in the mining sector. Among other restrictions, it reserves the acquisition of mineral rights to Kenyan companies, and requires 60 percent Kenyan ownership of mineral dealerships and artisanal mining companies. The Private Security Regulations Act (2016) restricts foreign participation in the private security sector by requiring that at least 25 percent of shares in private security firms be held by Kenyans. The National Construction Authority Act (2011) imposes local content restrictions on “foreign contractors,” defined as companies incorporated outside Kenya or with more than 50 percent ownership by non-Kenyan citizens. The act requires foreign contractors to enter into subcontracts or joint ventures assuring that at least 30 percent of the contract work is done by local firms. Regulations implementing these requirements are in process. The Kenya Insurance Act (2010) restricts foreign capital investment to two thirds with no single person controlling more than 25 percent of an insurers’ capital.

Other Investment Policy Reviews

There have been no third-party investment policy reviews through multilateral organizations in the last three years.

Business Facilitation

In September 2015, President Kenyatta signed into law The Business Registration Services (BRS) Act (2015) and the Companies Act (2015), which aim to strengthen Kenya’s position as a destination for investors. The BRS seeks to establish a state corporation known as the Business Registration Service to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships and firms. The BRS also devolves to the counties business registration services such as registration of business names and promoting local business ideas/legal entities, thus reducing costs of registration. The Companies Act (2015) deals with specifics of registration and management as they pertain to public and private corporations.

In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country. The unit has representatives from all ministries and focuses on reducing the bureaucratic steps related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a web site (http://www.businesslicense.or.ke/ ) offering online business registration and providing information on how to access detailed information on additional relevant business licenses and permits, including requirements, costs, application forms, and contact details for the relevant regulatory agency.

An investment guide to Kenya, also referred to as iGuide Kenya, can be found at http://www.theiguides.org/public-docs/guides/kenya/about# . iGuides, designed by UNCTAD and the International Chamber of Commerce, provide investors with up-to-date information on business costs, licensing requirements, opportunities and conditions in developing countries. Kenya is a member of UNCTAD’s international network of transparent investment procedures.

Outward Investment

The GOK does not promote or incentivize outward investment. Despite this, Kenya is evolving into an outward investor in tourism, manufacturing, retail, finance, education, and media. Currently, the majority of outward investment remains in the EAC, making the most of Kenyan preferential access between EAC member countries. The GOK also does not restrict domestic investors from investing abroad. Rather, the EAC advocates for free movement of capital across the six member states – Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.

The United States does not have a free trade agreement, bilateral investment treaty, or bilateral taxation treaty with Kenya. Kenya, however, is a beneficiary of the African Growth and Opportunity Act (AGOA), a U.S. trade preference and export promotion policy, which Congress renewed in 2015 for an additional 10 years. Under AGOA, Kenyan exporters enjoy duty-free access to U.S. markets for products falling under more than 6,400 tariff lines. Kenya’s primary exports to the United States under AGOA are apparel and accessories, coffee, tea, and nuts. In 2013, Kenya overtook Lesotho as the largest textile exporter to the United States under AGOA. According to the Kenya National Bureau of Statistics’ Economic Survey 2016, apparel exported through EPZs under AGOA increased from $300 million in 2014 to $352 million in 2015. The GOK is currently developing a revised AGOA strategy.

The GOK has trade facilitation agreements (TFA) through the WTO, EAC Customs Union Protocol, Common Market for Eastern and Southern Africa (COMESA) Protocol on FTA, and the EU-EAC economic partnership agreement. The nine COMESA FTA member countries are Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, and Zimbabwe. The other 10 COMESA countries that are not part of the FTA trade with Kenya on preferential terms observing tariff reductions between 60 and 80 percent. The status of EU-EAC economic partnership agreement is unclear at this time because of the failure of Tanzania and Uganda to renew the agreement in 2016.

Transparency of the Regulatory System

Kenya’s regulatory system is relatively transparent and continues to improve. Proposed laws and regulations pertaining to business and investment are published in draft form for public input and stakeholder deliberation before their passage into law (http://www.kenyalaw.org/  and http://www.parliament.go.ke/the-national-assembly/house-business/bills-tracker ). Kenya’s business registration and licensing systems are fully digitized and transparent while computerization of other government processes to increase transparency and close avenues for corrupt behavior is ongoing.

Many GOK laws have granted significant discretionary and approval powers to government agency administrators, which can create uncertainty among investors. While some government agencies either have amended laws or published clear guidelines for decision-making criteria, others have lagged in making their transactions transparent. For instance, foreign work permit processing continues to be in disarray with overlapping and sometimes contradictory regulations. American companies have complained about delays of up to seven months and non-issuance of permits that appear to be compliant with known regulations.

International Regulatory Considerations

Kenya is a member state of the EAC, and generally applies EAC policies on trade and investment. The U.S. government engages with Kenya on trade and investment issues both bilaterally and through the U.S.-EAC Trade and Investment Partnership. Kenya is also a member of COMESA and the Inter-Governmental Authority on Development (IGAD). According to the Africa Regional Integration Index Report 2016, Kenya is a leader in regional integration policies within these regional blocs with strong performance on regional infrastructure, productive integration, free movement of people, and financial and macro-economic integration. The GOK maintains a Department of East African Community Integration within the Ministry of EAC, Labor, and Social Protection.

Kenya generally adheres to international regulatory standards. The country is a member of the WTO and provides notification of draft technical regulations to the Committee on Technical Barriers to Trade (TBT). Kenya maintains a TBT National Enquiry Point at http://notifyke.kebs.org . Additional information on Kenya’s participation in the WTO can be found at https://www.wto.org/english/thewto_e/countries_e/kenya_e.htm . Accounting, legal, and regulatory procedures are transparent and consistent with international norms. Publicly listed companies adhere to International Financial Reporting Standards (IFRS) that have been developed and issued in the public interest by the International Accounting Standards Board. The board is an independent, private sector, not-for-profit organization that is the standard-setting body of the IFRS Foundation. Kenya is a member of UNCTAD’s international network of transparent investment procedures.

Legal System and Judicial Independence

The legal system is based on English Common Law, and the 2010 constitution establishes an independent judiciary with a Supreme Court, a Court of Appeal, a Constitutional Court, and a High Court. The following subordinate courts also remain in place: Magistrates, Khadis (Muslim succession and inheritance), Courts Martial, and the Employment and Labor Relations Court (formerly the Industrial Court) as well as the Milimani Commercial Courts which both have jurisdiction over economic and commercial matters. In 2016, Kenya’s judiciary instituted specialized courts focused on corruption and economic crimes, which are now operational. The Chief Justice of Kenya is required under the constitution to issue an annual “State of the Judiciary and Administration of Justice Report.” There is no systematic executive or other interference in the court system that affects foreign investors. The courts are nevertheless plagued by frequent allegations of corruption and long delays in rendering judgments.

The Foreign Judgments (Reciprocal Enforcement) Act (2012) provides for the enforcement of judgments given in other countries that accord reciprocal treatment to judgments given in Kenya. Kenya has entered into reciprocal enforcement agreements with Australia, the United Kingdom, Malawi, Tanzania, Uganda, Zambia, and Seychelles. Outside of such an agreement, a foreign judgment is not enforceable in the Kenyan courts except by filing a suit on the judgment. Foreign advocates are not entitled to practice in Kenya unless a Kenyan advocate instructs and accompanies them, although a foreign advocate may practice as an advocate for the purposes of a specified suit or matter if appointed to do so by the Attorney General.

Laws and Regulations on Foreign Direct Investment

The major regulations governing Foreign Direct Investment (FDI) are found in the Investment Promotion Act (2004). Other important documents that provide the legal framework for FDI include the 2010 constitution of Kenya, the Companies Ordinance, the Private Public Partnership Act (2013), the Foreign Investment Protection Act (1990), and the Companies Act (2015). GOK membership in the World Bank’s Multilateral Investment Guarantee Agency (MIGA) provides an opportunity to insure FDI against non-commercial risk.

Competition and Anti-Trust Laws

In August 2011, the Competition Act (2010) replaced the outdated Monopolies and Price Control Act and the Monopolies and Prices Commission. Specifically, the act created the Competition Authority of Kenya (CAK). All mergers and acquisitions require the CAK’s authorization before they are finalized, and the CAK regulates abuse of dominant position and other competition and consumer-welfare related issues in Kenya. In 2014, CAK imposed a filing fee for mergers and acquisitions set at one million shillings (approximately $10,000) for mergers involving turnover of between one and 50 billion shillings (up to approximately $500 million). Two million shillings (approximately $20,000) will be charged for larger mergers. Company takeovers are possible if the share buy-out is more than 90 percent, although such takeovers are rarely seen in practice.

Expropriation and Compensation

The 2010 constitution guarantees safety from expropriation except in cases of eminent domain or security concerns. All cases are subject to the payment of prompt and fair compensation. The Land Acquisition Act (2010) governs compensation and due process in acquiring land, although land rights issues in Kenya remain contentious and can cause significant delays in projects. For more issue on land issues, see the section on real property.

Dispute Settlement

ICSID Convention and New York Convention

Kenya is a member of both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, also known as the ICSID Convention or the Washington Convention, and the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards. Kenya signed the ICSID Convention on May 24, 1966, and became a Contracting State on February 2, 1967. Kenya became a Contracting State in the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards on February 10, 1989. As it relates to arbitration over property issues, the Foreign Investments Protection Act (2014) specifically cites Article 75 of the Kenyan Constitution, which provides that “[e]very person having an interest or right in or over property which is compulsorily taken possession of or whose interest in or right over any property is compulsorily acquired shall have a right of direct access to the High Court.”

Investor-State Dispute Settlement

There have been very few investment disputes involving U.S. and international companies. Commercial disputes, including those involving government tenders, are more common. The private sector cites weak institutional capacity, inadequate transparency, and inordinate delays in dispute resolution in lower courts. The resources and time involved in settling a dispute through the Kenyan courts often render them ineffective as a form of dispute resolution.

International Commercial Arbitration and Foreign Courts

The government does accept binding international arbitration of investment disputes with foreign investors. The Kenyan Arbitration Act (1995) as amended in 2010 is anchored entirely on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Legislation introduced in 2013 established the Nairobi Centre for International Arbitration (NCIA), which seeks to serve as an independent, not-for-profit international organization for commercial arbitration, and may offer a quicker alternative to the court system.

In June 2014, the Kenya Revenue Authority launched an Alternative Dispute Resolution (ADR) mechanism aiming to provide taxpayers with an alternative, fast-track avenue for resolving tax disputes. The ADR mechanism offers a cheaper mechanism for foreign investors and an alternative to the lengthy court processes in Kenya.

Bankruptcy Regulations

The Insolvency Act (2015) modernized the legal framework for bankruptcies. Its provisions generally correspond to those of the Model Law on Cross Border Insolvency adopted by the United Nations Commission on International Trade Law on May 30, 1997. The act promotes fair and efficient administration of cross-border insolvencies to protect the interests of all creditors and other interested persons, including the debtor. The act repeals the Bankruptcy Act (2012) and updates the legal structure relating to insolvency of natural persons and incorporated and unincorporated bodies. Section 720 of the Insolvency Act (2015) grants the force of law to the UNCITRAL Model Law.

Creditors’ rights are comparable to those in other common law countries, and monetary judgments typically are made in Kenyan shillings. Similarly, the new Insolvency Act (2015) increased the rights of borrowers and prioritizes the revival of distressed firms. The new law states that a debtor will automatically be discharged from debt after three years. Bankruptcy is not criminalized in Kenya. The World Bank Group’s Doing Business 2017 report puts Kenya at 92 of 190 countries in the “resolving insolvency” category. This is up 42 rankings since 2015.

Investment Incentives

The minimum foreign investment to qualify for GOK investment incentives is $100,000, a potential deterrent to foreign small and medium enterprise investment, especially in the services sector. Investment Certificate benefits, including entry permits for expatriates, are outlined in the Investment Promotion Act (2004).

The government allows all locally financed materials and equipment for use in construction or refurbishment of tourist hotels to be zero-rated for purposes of VAT calculation – excluding motor vehicles and goods for regular repair and maintenance. The National Treasury principal secretary, however, must approve such purchases. An additional measure enacted to boost the ailing tourism industry makes one-week employee vacations paid by employers a tax-deductible expense. Aircraft and aircraft parts, tractors, inputs for solar manufacturing, and services relating to goods in transit are fully exempt from VAT. Investors in metal manufacturing and products and the hospitality services sectors are able to deduct from their taxes a large portion of the cost of buildings and capital machinery.

The government’s Manufacturing Under Bond (MUB) program, established in 1986, is meant to encourage manufacturing for export. The program provides a 100 percent tax deduction on plant machinery and equipment and raw materials imported for production of goods for export. The program is also open to Kenyan companies producing goods that can be imported duty-free or goods for supply to the armed forces or to an approved aid-funded project.

The Finance Act (2014) amended the Income Tax Act (1974) to reintroduce after 29 years the capital gains tax (CGT) on transfer of property located in Kenya. Under this provision, gains derived on sale or transfer of property by an individual or company are subject to tax at rates of at least five percent. The effective date of this provision was January 1, 2015, and sales and transfer of property related to the oil and gas industry are taxed up to 37.5 percent.

The Finance Act (2014) also reintroduced the withholding VAT system by government ministries, departments and agencies. The system excludes the Railway Development Levy (RDL) imports for persons, goods, and projects; the implementation of an official aid-funded project; diplomatic missions and institutions or organizations ‘gazetted’ under the Privileges and Immunities Act (2014); and the United Nations or its agencies.

Foreign Trade Zones/Free Ports/Trade Facilitation

Kenya’s Export Processing Zones (EPZ) and Special Economic Zones (SEZ) offer special incentives for firms operating within their boundaries. By the end of 2015, Kenya had 57 designated Export Processing Zones (EPZs) with 89 companies and 50,850 workers contributing KSh 35 billion (approximately $350 million) to the Kenyan economy. Companies operating within an EPZ benefit from the following tax benefits: a 10-year corporate-tax holiday and a 25 percent tax thereafter; a 10-year withholding tax holiday; stamp duty exemption; 100 percent tax deduction on initial investment applied over 20 years; and VAT exemption on industrial inputs.

About 54 percent of EPZ products are exported to the United States under AGOA. The majority of the exports are textiles – Kenya’s third largest export behind tea and horticulture – and more recently handicrafts. Eighty percent of Kenya’s textiles and apparel originate from EPZ-based firms. Approximately 50 percent of all firms in the zones are fully owned by foreigners – mainly from India – while the rest are locally owned or joint ventures with foreigners. The proposed Textile City, to be set up at the Athi River EPZ, is expected to attract more than 100 textile investments, but progress on the project has been slow.

While EPZs are focused on encouraging production for export, the not yet fully established special economic zones (SEZs) are designed to boost local economies by offering benefits for goods that are consumed both internally and externally. The SEZs will allow for a wider range of commercial ventures, including primary activities such as farming, fishing, and forestry. The 2016 Special Economic Zones Regulations that came into effect in August 2016 state that the Special Economic Zone Authority (SEZA) must maintain an open investment environment to facilitate and encourage business by the establishment of simple, flexible, and transparent procedures for investor registration. The new rules also empower county governments to set aside public land for establishment of industrial zones.

Companies operating in the SEZ’s will receive the following benefits: all SEZ supplies of goods and services to companies and developers will be exempted from value-added tax (VAT); the corporate tax rate for enterprises, developers, and operators will be reduced from 30 percent to 10 percent for the first 10 years and 15 percent for the next 10 years; exemption from taxes and duties payable under the Customs and Excise Act (2014), the Income Tax Act (1974), the EAC Customs Management Act (2004), and stamp duty; and exemption from advertisement and license fees levied by county governments.

The Second Medium Term Plan of Kenya’s Vision 2030 economic development agenda calls for establishing SEZs in Mombasa (2000 sq. km), Lamu (700 sq. km), Kisumu (700 sq. km), and eventually to additional towns throughout the country. An SEZ near Naivasha is also under consideration. It would be located near the Olkaria geothermal power plant where manufacturers would benefit from cheaper and reliable power. In the FY 2015/16 budget statement, the GOK allocated KSh 3 billion (approximately $33 million) for industrial development, including SEZs.

Performance and Data Localization Requirements

The GOK mandates local employment in the category of unskilled labor. The Kenyan government regularly issues permits for key senior managers and personnel with special skills not available locally. For other skilled labor, any enterprise whether local or foreign may recruit from outside if the skills are not available in Kenya. Firms seeking to hire expatriates must demonstrate that the requisite skills are not available locally through an exhaustive search. The Ministry of EAC, Labor, and Social Protection, however, has noted plans to replace this requirement with an official inventory of skills that are not available in Kenya. A work permit can cost up to KSh 200,000 (approximately $2,000).

In January 2016, the new Public Procurement and Asset Disposal Act (2015) came into force offering preferences to firms owned by Kenyan citizens and to products manufactured or mined in Kenya. For tenders funded entirely by the government with a value of less than KSh 50 million (approximately $500,000), the preference for Kenyan firms and goods is exclusive. Where the procuring entity seeks to contract with non-Kenyan firms or procure foreign goods, the act requires a report detailing evidence of an inability to procure locally. The act also calls for at least 30 percent of government procurement contracts to go to firms owned by women, youth, and persons with disabilities. The act further reserves 20 percent of procurement contracts tendered at the county level to residents of that county. With the support of the World Bank and in collaboration with the Kenya ICT Board, the Public Procurement Oversight Authority (PPOA) is developing a web-based Market Price Index to increase transparency in public procurement and implementation of the new act.

There is currently no legislation that requires data localization. A draft data protection bill has been under discussion for a long time.

Real Property

Foreigners cannot own land in Kenya, though they can lease it in 99-year increments. The cumbersome and opaque process required to acquire land raises concerns about security of title, particularly given past abuses relating to the distribution and redistribution of public land.

Mortgages and liens exist in Kenya, but the recording system is not reliable, and there are often complaints of property rights and interests not being enforced. The legal infrastructure around land ownership and registration has changed in recent years, and land issues delayed several major infrastructure projects in 2016. Kenya’s 2010 Constitution required all land leases to convert from 999 years to 99 years, giving the state the power to review leasehold land at the expiry of the 99 years, deny lease renewal, and confiscate the land if it determines the land has not been used productively. The Constitution also converted foreign-owned freehold interests into 99-year leases at a “peppercorn rate” (a nominally low rate used to satisfy the requirements for the creation of a legal contract). The GOK has not yet effectively implemented this provision. Work continues on the National Land Information Management System, but fully digitized, border-to-border cadastral data is still many years in the future.

The 2010 Constitution and subsequent land legislation created the National Land Commission, an independent government body mandated to review historical land injustices and provide oversight of the government’s land policy and management. This has had the unintended side effect of introducing coordination and jurisdictional confusion between the commission and the Ministry of Land, Housing, and Urban Development.

On February 11, 2015, President Uhuru Kenyatta officially commissioned the newly established National Titling Center with a promise to increase the 5.6 million title deeds issued since independence to nearly 9 million. Land grabbing resulting from double registration of titles, however, remains prevalent. Property legally purchased and unoccupied can revert ownership to other parties.

Intellectual Property Rights

The major intellectual property enforcement issues in Kenya related to counterfeit products are corruption, lack of penalty enforcement, failure to impound imports of counterfeit goods at the ports of entry (especially in Mombasa), and the reluctance of brand owners to file a complaint with the Anti-Counterfeit Agency (ACA). The prevalence of “gray market” products – genuine products that enter the country illegally without paying import duties – also presents a challenge, especially in the mobile phone and computer sectors.

In an attempt to combat the import of counterfeits, the Ministry of Industrialization and the Kenya Bureau of Standards (KEBS) decreed in 2009 that all locally-manufactured goods must have a KEBS standardization mark. Several categories of imported goods, specifically food products, electronics, and medicines, must have an import standardization mark (ISM). Under this new program, U.S. consumer-ready products may enter the Kenyan market without altering the U.S. label but must also carry an ISM. Once the product qualifies for a Confirmation of Conformity, KEBS will issue the ISM free of charge.

For additional information regarding the IPR environment in Kenya, also see USTR’s Special 301 Report. For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Though small by Western standards, Kenya’s capital markets are the deepest and most sophisticated in East Africa. Sixty-seven companies were listed on the Nairobi Stock Exchange for a total market capitalization of KSh 1.9 trillion (approximately $19 billion) as of March 2016. The Kenyan capital market has grown rapidly in recent years and has also exhibited strong capital raising capacity. The bond market, however, is still underdeveloped and dominated by trading in government debt securities. Long-dated corporate bond issuances are uncommon, leading to a lack of long-term investment capital. As of February 2016, the domestic government bond market denominated in local currency represents a total of $14 billion dollars, of which only five percent is comprised of international institutional investors. In March 2017, the Kenyan National Treasury launched its mobile money platform government bond to retail investors locally. The name of the product is M-Akiba, through which local Kenyans will be able to purchase bonds as small as $30 on their mobile phones.

The Central Bank of Kenya (CBK) is working with regulators in EAC member states through the Capital Market Development Committee (CMDC) and East African Securities Regulatory Authorities (EASRA) on a regional integration initiative and has successfully introduced cross listing of equity shares. The combined use of both the Central Depository System (CDS) and an automated trading system has moved the Kenyan securities market to globally accepted standards. Kenya is a full (ordinary) member of the International Organization of Securities Commissions.

Money and Banking System

In August 2016, President Kenyatta signed into law the Banking Act (2016), which caps the maximum interest rate banks can charge on loans at four percent above the CBK’s benchmark lending rate. It further provides a floor for the deposit rate held in interest earning accounts to at least 70 percent of the CBK benchmark rate. The cap has already hurt the GOK’s ability to raise funds in the local debt market, and the CBK has cancelled three auctions of treasury bills and bonds this year. The cap has also slowed the consumer and small and medium business credit market. The International Monetary Fund and other observers have warned that the restrictions will result in a continuing contraction in the availability of credit.

The total population with access to financial services, either through conventional or mobile banking platforms is now approximately 80 percent. According to the World Bank, M-Pesa, Kenya’s largest mobile banking platform, processes more transactions within Kenya each year than Western Union does globally. As of September 2016, 31.1 million Kenyans were using mobile phone platforms to transfer money, according to Communication Authority of Kenya figures. There were over 162,465 agents facilitating transactions in excess of KSh 3.1 trillion (approximately $3 billion) in the 2015/2016 fiscal year, a sum equivalent to half of Kenya’s GDP in the same period. The National ICT Masterplan 2017 envisages the sector contributing at least 10 percent of GDP growth by 2017, up from 4.7 percent recorded in 2015. As of February 2016, Kenyan mobile money platform SimbaPay has received approval to operate in five European countries catering to the Kenyan diaspora, allowing them to bank in Kenya from abroad.

The CBK is the primary regulator of financial institutions. As of December 2016, Kenya had 43 banking institutions – 42 commercial banks and one mortgage finance company with three locally-owned institutions not in operation as one was under statutory management and two were in receivership as of July 31, 2016. Kenya has seven representative offices of foreign banks, twelve deposit-taking microfinance institutions (DTMs), 76 foreign exchange bureaus, 17 money remittance providers, and three credit reference bureaus (CRBs). Out of the 43 banking institutions, 28 are locally owned – three with public shareholding and 25 privately-owned – and 13 are foreign owned. The foreign owned financial institutions are comprised of eight locally incorporated foreign banks and four branches of foreign incorporated banks. Some major international banks operating in Kenya include Citibank, Barclays, Bank of India, and Standard Chartered. These are listed as commercial banks on the CBK website.

Foreign Exchange and Remittances

Foreign Exchange

Kenya is an open economy with a liberalized capital account and a floating exchange rate. The CBK engages in volatility controls aimed exclusively at smoothing temporary market fluctuations. Between June 2015 and June 2016, the shilling declined 3.5 percent after a sharp decline of 15 percent during the same period in 2014/2015. In 2016, foreign exchange reserves continue to grow and now provide more than five months of import cover. The average inflation rate was 6.3 percent in 2016 and the rate on 91-day treasury bills had fallen to 8.44 percent in December 2016. According to CBK figures, the average exchange rate was KSh 101.5 to $1.00 in 2016.

Remittance Policies

Kenya’s Foreign Investment Protection Act (FIPA) guarantees capital repatriation and remittance of dividends and interest to foreign investors, who are free to convert and repatriate profits including un-capitalized retained profits (proceeds of an investment after payment of the relevant taxes and the principal and interest associated with any loan). Kenya has no restrictions on converting or transferring funds associated with investment. Kenyan law requires the declaration to customs of amounts greater than KSh 500,000 (approximately $5,000) or the equivalent in foreign currencies for non-residents as a formal check against money laundering. Foreign currency is readily available from commercial banks and foreign exchange bureaus and can be freely bought and sold by local and foreign investors. The Central Bank of Kenya Act (2014), however, states that all foreign exchange dealers are required to obtain and retain appropriate documents for all transactions above the equivalent of KSh 1,000,000 (approximately $10,000). As of March 2017, the CBK has licensed 17 money remittance providers following the operationalization of the Money Remittance Regulations in April 2013.

Kenya is listed as a country of primary concern for money laundering and financial crime by the State Department’s Bureau of International Narcotics and Law Enforcement. Kenya’s ongoing progress in creating the legal and institutional framework to combat money laundering and the financing of terrorism resulted in the inter-governmental Financial Action Task Force (FATF) removing Kenya the FATF Watchlist in June 2014.

Sovereign Wealth Funds

Kenya is in the process of establishing a sovereign wealth fund through the Kenya National Sovereign Wealth Fund Bill (2014). The fund will receive income from any future privatization proceeds, dividends from state corporations, oil and gas, and minerals revenues due to the national government, revenue from other natural resources, and funds from any other source. The bill is still undergoing internal review and stakeholder consultations. The fund will have the triple goal of shielding the economy from cyclical changes in commodity prices, saving for future generations, and supporting infrastructure investment. According to the working draft of the bill, “Investments shall be directed to both local and foreign markets except to the extent restricted under this Act or under the investment Guidelines.”

The Kenya Information and Communications Act (2009) provides for the establishment of a Universal Service Fund (USF). The purpose of the USF is to fund national projects that have significant impact on the availability and accessibility of ICT services in rural, remote, and poor urban areas. The USF has amassed sizeable assets, but to date, the fund and its managing committee have not been able to mobilize it for use on any project.

In 2013, the Presidential Task Force on Parastatal Reforms (PTFPR) published a list of all state-owned enterprises (SOEs) and recommended proposals to reduce the number of State Corporations from 262 to 187 in order to eliminate redundant functions between parastatals, close or dispose of non-performing organizations, consolidate functions wherever possible, and reduce the workforce; however, progress is slow. The taskforce’s report can be found online . In general, competitive equality is the standard applied to private enterprises in competition with public enterprises. Certain parastatals, however, have enjoyed preferential access to markets. Examples include Kenya Reinsurance, which enjoys a guaranteed market share; Kenya Seed Company, which has fewer marketing barriers than its foreign competitors; and the National Oil Corporation of Kenya (NOCK), which benefits from retail market outlets developed with government funds. Some state corporations have also benefited from easier access to government guarantees, subsidies, or credit at favorable interest rates. In addition, “partial listings” on the Nairobi Securities Exchange offer parastatals the benefit of financing through equity and GOK loans (or guarantees) without being completely privatized.

On procurement from the private sector, SOEs are guided by the Public Procurement (Preference and Reservations) (Amendment) Regulations (2013). The amendment reserves 30 percent government supply contracts for youth, women, and SMEs.

Kenya is neither party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) nor an Observer Government.

Privatization Program

Kenya is not currently pursuing privatization.

The Environmental Management and Coordination Act (1999) establishes a legal and institutional framework for the management of the environment while The Factories Act (1951) safeguards labor rights in industries. The legal system, however, has remained slow to prosecute corporate malfeasance in both areas.

The GOK does not have laws or regulations encouraging Corporate Social Responsibility (CSR) for fear of discouraging investment. It is not an adherent to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, and it is not yet an Extractive Industry Transparency Initiative (EITI) implementing country or a Voluntary Principles Initiative signatory. Nonetheless, good examples of CSR abound as major foreign enterprises drive CSR efforts by applying international standards relating to human rights, business ethics, environmental policies, community development, and corporate governance.

Corruption in Kenya is pervasive and entrenched. Transparency International’s (TI) 2016 Global Corruption Perception Index ranks Kenya 145 out of 176 countries, six places lower than 2015. Lack of political will, little progress in prosecuting past corruption cases, and the slow pace of reform in key sectors were reasons cited for Kenya’s chronic low ranking. Corruption is an impediment to FDI with local media reporting on allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts. There are many reports that corruption often influences the outcomes of government tenders in Kenya, and U.S. firms have had limited success bidding on public procurements.

According to the PricewaterhouseCoopers (PwC) Global Economic Crimes Survey 2016, 72 percent of the firms in Kenya reported incidences of asset misappropriation compared to the global average of 64 percent. Bribery was the second most prevalent form of economic crime in Kenya with 47 percent of the firms reporting incidents, representing the third highest rate of incidence globally. Finally, procurement fraud was the third most prevalent economic crime reported in Kenya, with 37 percent of the respondents having experienced procurement fraud in the last two years, against a global average of 23 percent.

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

The government made modest progress in 2016 implementing elements of President Kenyatta’s November 2015 anticorruption strategy. In December 2016, the new private sector-supported Bribery Act (2016) went into effect stiffening penalties for corruption in public tendering and requiring private firms participating in such tenders to sign a code of ethics and develop measures to prevent bribery. A multi-agency team launched in January 2016 by the Attorney General resulted in better coordination between law enforcement agencies on corruption cases.

Kenya is a signatory to the UN Convention Against Corruption (UNCAC), and in March 2016 published the results of a peer review process on UNCAC compliance

(https://www.unodc.org/documents/treaties/UNCAC/CountryVisitFinalReport Country Review Report of Kenya ). Kenya is also a signatory to the UN Anticorruption Convention and the OECD Convention on Combatting Bribery, and a member of the Open Government Partnership. Kenya is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Kenya is also a signatory to the East African Community’s Protocol on Preventing and Combating Corruption.

Resources to Report Corruption

Rev. Eliud Wabukala (Ret.)
Chairperson and Commissioner, Ethics and Anti-Corruption Commission
+254 (0)20-271-7318
http://www.eacc.go.ke/default.asp?pageid=62 

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

Anxiety and speculation about political violence around the national elections in August 2017 has grown over the last year. Protests in Nairobi during May and June 2016 over the composition and authorities of Kenya’s national elections commission were characterized by violence on the part of both protesters and police, resulting in at least five deaths. Various stakeholders continue to work to mitigate tensions and issues that have in Kenya’s past led to electoral violence. Ethnically-charged political violence accompanied the 2007 election, resulting in approximately 1,200 deaths and the displacement of more than 300,000 people. Property damage was in the millions of dollars, and GDP growth dropped to 0.2 percent in 2008 before increasing to 3.3 percent in 2009 and 8.4 in 2010. Kenya’s current constitution was approved in 2010 in a violence-free referendum, and elections in 2013 were relatively peaceful.

The United States maintains a travel warning for Kenya due to the threat of terrorism and crime. Instability in Somalia has heightened security concerns and led to increased security measures aimed at businesses and public institutions around the country. Tensions flare occasionally within and between ethnic communities. A severe drought afflicting Kenya has caused increased conflict between landowners and herders searching for water and grazing lands in several areas of the country. Regional conflict, most notably in Somalia and South Sudan, sometimes have spill-over effects in Kenya. There could be an increase in refugees escaping drought and instability in neighboring countries, adding to the large refugee population already in Kenya from several countries. Security expenditures represent a substantial operating expense for businesses in Kenya.

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

Kenya has not officially published complete labor statistics since 2009. Official and non-official reporting cites a 40 percent unemployment rate from the 2009 KNBS census, with unemployment and underemployment for youth approaching much higher levels. Employment in Kenya’s formal sector was 2.6 million in 2015, an increase of 4.5 percent from 2014. Average wages for the formal sector are KSh 604,255 (approximately $6,000) annually. The government is the largest employer in the formal sector, with an estimated 718,400 government workers in 2015. Agriculture, forestry, and fishing employ 337,000 workers, and manufacturing employs 295,400 workers. Kenya’s large informal sector, however, makes accurate labor reporting difficult.

Kenya’s labor laws comply, for the most part, with internationally recognized standards and conventions, and the Ministry of EAC, Labor, and Social Protection is currently reviewing and ensuring that Kenya’s labor laws are consistent with the 2010 constitution. The Labor Relations Act (2007) provides that workers, including those in export processing zones (EPZs), are free to form and join unions of their choice. The law permits workers in collective bargaining disputes to strike but requires the exhaustion of formal conciliation procedures and seven days’ notice to both the government and the employer. Anti-union discrimination is prohibited, and the government does not have a history of retaliating against striking workers. The law provides for equal pay for equal work. Regulation of wages is part of the Labor Institutions Act (2014), and the government has established basic minimum wages by occupation and location.

The government also continued to implement a range of programs for the elimination of child labor with dozens of partner agencies, and has actively pursued the elimination of forced labor. However, extremely low salaries and the lack of vehicles, fuel, and other resources make it very difficult for labor inspectors to do their work. Employers in all sectors routinely bribe labor inspectors to prevent them from reporting infractions, especially in the area of child labor. The Labor Commissioner’s Report for 2014 notes that “under-staffing and in particular of technical officers (inspectorate staff) has affected efficient delivery of services.”

Work permits are required for all foreign nationals intending to work in Kenya. International companies have complained that the visa and work permit approval process is slow and sometimes bribes are solicited to speed up the process. In 2015, the Directorate of Immigration Services made administrative additions to the list of requirements for work permits and special passes applications. Recent policy changes also mandate assured income of at least $24,000 annually for the issuance of a work permit. However, firms in agriculture, mining, manufacturing, or consulting sectors can avoid this with a special permit.

A company holding an investment certificate granted by registering with KenInvest and passing health, safety, and environmental inspections becomes automatically eligible for three class D entry permits for management or technical staff and three class G, I, or J permits for owners, shareholders, or partners. More information on permit classes can be found at https://kenya.eregulations.org/menu/61?l=en .

In 2016, the U.S. Overseas Private Insurance Corporation (OPIC) established a regional office in Nairobi. The agency is engaged in funding programs in Kenya with an active in-country portfolio of approximately $700 million, including projects in power generation, internet infrastructure, light manufacturing, and education infrastructure. Notable projects include the $310 million financing for the expansion of Nevada-based Ormat’s geothermal plant, the $72 million financing of Wanachi’s expansion of fiber optic internet service, and $4.1 million to expand Mawingu Network’s last mile internet access program, among others. Going forward, OPIC currently has an active pipeline of approximately $600 million in new projects including transactions in the energy, education, and financial service sectors.

Table 3: Sources and Destination of FDI

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

Table 4: Sources of Portfolio Investment

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

David Pemberton
Economic Officer
U.S. Embassy
U.N. Avenue, Nairobi, Kenya
+254 (0)20 363 6048
PembertonDD@state.gov

Policies Towards Foreign Direct Investment

Over the last four years, Mongolia has suffered from a combination of declines in the value of its key commodity exports of coal and copper and policy missteps. These missteps have led the Government of Mongolia (GOM) to seek financial support from an International Monetary Fund (IMF)-led group of organizations and bilateral donors to cover budget shortfalls and sovereign debts. Starting in 2017, this three-year program will require significant budget tightening and increased fiscal discipline. Consequently, the GOM is limited in its capacity to financially support investment projects in important sectors, most notably mining and agriculture; and relies on foreign direct investment (FDI) to support its broad economic and development agendas.

The GOM has publicly pledged to support FDI and taken significant measures that confirm this commitment. It has reaffirmed support for the investment agreements that established the Oyu Tolgoi copper/gold mega-mine project, repealed potentially onerous certificate of origin requirements for imports in response to U.S. Embassy, AmCham, and U.S. company complaints, reduced the use of prosecutorial “exit bans” against foreign business executives (although these continue to be a source of concern), and moved to bring into force and implement the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment. This Agreement allows investors and exporters to review and comment on legislation and regulations affecting trade and commerce before they are approved. A copy of the Transparency Agreement is available here .

Investors have expressed appreciation for these positive steps, but question whether this recent progress indicates broader and more permanent progress. In late 2016, the GOM closed the Invest Mongolia Agency (IMA), which had promoted Mongolian investment opportunities abroad and assisted foreign investors with obtaining tax stabilization, corporate registrations, and investment dispute resolutions with the government. The IMA replacement, the new National Development Agency, is supposed to issue tax stabilization certificates but has not implemented a process for doing so. The previous IMA support functions are no longer available to foreign investors from the GOM. In conjunction with the International Finance Corporation and the World Bank, the GOM has promised, but not yet established, an Investor Dispute Resolution Council. In addition, the Prime Minister’s Office maintains an Investors Advisory Council, which occasionally includes representatives from the foreign investment community.

Investors are also concerned that the GOM has not yet fulfilled public commitments to adequately reform or completely eliminate the practice of barring foreign and Mongolian nationals involved in a commercial dispute from leaving Mongolia, commonly referred to as an exit ban. Other concerns that investors point to include stalled GOM negotiations over key infrastructure projects, lack of progress on construction of power plants, and the absence of an agreement with a consortium to exploit the Tavan Tolgoi mega-coking coal mine, as reasons for skepticism about Mongolia’s ability to provide a business-enabling environment. They also cite stagnant global commodity prices as a disincentive to invest in Mongolia’s mining sector and other sectors, including construction, real estate, and IT, that depend on mining sector activity for profitability. Investors approve of GOM plans to diversify the economy from overreliance on the volatile mining sector – with the agricultural and livestock sectors being the most important diversification targets – but are concerned about the government’s slow progress to craft and implement practical diversification strategies.

Broadly, there is no systemic, institutional effort to impose laws and practices that discriminate against foreign investors in general or U.S. investors in particular – with two key exceptions. First, foreign investors object to the regulatory requirement that they invest a minimum of USD $100,000 to establish a venture when the Investment Law of Mongolia states that all investors in Mongolia, without reference to nationality, are subject to national treatment. In contrast, Mongolian investors are not subject to investment minimums. Second, foreign nationals and companies may not own real estate; only Mongolian adult citizens can own land. While foreign investors may obtain use rights for the underlying land, these rights expire after a set number of years, with no automatic right of renewal.

Various international financial institutions (IFI) active in Mongolia have helped the country improve its standing as a destination for FDI. The European Bank for Reconstruction and Development (EBRD) has invested nearly USD $2 billion in the country, mostly in projects designed to facilitate private sector growth in the mining, energy, financial, agri-business, and retail sectors. The Asian Development Bank’s USD $700 million project portfolio largely complements EBRD efforts in its focus on the transportation, energy, urban utilities and services, education, and health sectors. The International Finance Corporation and the World Bank have committed several hundred million dollars to projects that support infrastructure development, employment generation, economic diversification as well as the institutional strengthening of the mining sector. Other UN agencies and NGOs also make significant contributions to making Mongolia more accommodating to FDI either as their primary missions or as secondary aspects of their programming.

In line with these IFI investment-support projects, the U.S. government, GOM, and international NGO Mercy Corps have launched a USD $10 million program to stimulate production and export opportunities in the domestic livestock economy. The project works with herders, meat processors, downstream customers, U.S. technology suppliers, government organizations, and veterinarians to produce high quality, organic Mongolian meat products meeting international export standards.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Constitution limits the right to privately own land to adult citizens of Mongolia. However, no formal law exists vesting Mongolia’s pastoral nomadic herders with exclusive rights of pasturage, control of water, or land rights. As such, rural municipalities unofficially recognize that traditional, customary access to these resources by pastoralists must be taken into account before, during, and after other non-resident users, particularly but not exclusively those in the mining sector, can exercise their use and ownership rights. Both foreign and domestic investors have the same rights to establish, sell, transfer, or securitize structures, shares, use-rights, companies, and movable property, subject to relevant legislation and related regulation controlling such activities. Mongolian law does allow creditors to recover debts by seizing and disposing of property offered as collateral.

Other Investment Policy Reviews

The GOM conducted an investment policy review through the United Nations Conference on Trade and Development (UNCTAD) in 2013 and a trade policy review with the World Trade Organization (WTO) in 2014. Although the Organization for Economic Cooperation and Development (OECD) has not conducted a comprehensive investment policy review of Mongolia in the past three years, it has completed economic studies on specific aspects of investment and development in Mongolia.

For the UNCTAD Mongolia investment policy review: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=758 .

For the WTO Mongolia investment policy review in the context of a Trade Policy Review: https://www.wto.org/english/tratop_e/tpr_e/tp397_e.htm .

For OECD Mongolia reports: http://www.oecd.org/countries/mongolia .

Business Facilitation

In its 2013 Investment Policy Review of Mongolia, UNCTAD reported that to diversify and facilitate FDI beyond mining, Mongolia needed to comprehensively reform FDI policies to include clear “developmental objectives.” Legislation and regulation should be reformed so as to reflect an “open stance and practice” to FDI. The GOM’s limited institutional capacity requires enhancement to better implement and enforce effective, efficient regulations. As of 2017, Mongolia has yet to adopt these recommendations and has not applied UNCTAD’s ten investment facilitation guidelines to create a consistently transparent, predictable, efficient, and open regime to facilitate FDI. A copy of the UNCTAD report is available online .

However, consistent with the World Bank’s 2016 Doing Business Report, investors report that Mongolia’s business registration process is reasonable efficient and clear. All enterprises, foreign and domestic, must register with the General Authority for Intellectual Property and State Registration (GAIPSR: www.burtgel.gov.mn ). Registrants obtain form UB 03-II and other required documents from the website and can submit completed documents by email. GAIPSR aims at a two-day turnaround for the review and approval process, but investors report that complex cases can take anywhere from several weeks to three months. Once approved by GAIPSR, a company must register with the Mongolian General Authority Taxation (GTA: http://en.mta.mn/ ). Upon hiring its first employees, a company must register with the Social Insurance Agency. GAIPSR reports that notarization is not required for its registration process.

Outward Investment

Although the GOM neither promotes nor incentivizes outward investment, it does not restrict domestic investors from investing abroad.

The United States and Mongolia signed a Bilateral Investment Treat (BIT) in 1994, with the agreement entering into force in 1997. The BIT states that the agreement will protect U.S. investors and assist Mongolia in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thus strengthening the development of the private sector. More information on the BIT is available from the Department of State’s website.

In January 2017, the two countries certified completion of their respective applicable legal requirements and procedures for the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment, or Transparency Agreement, which came into effect on March 20, 2017. It sets out clear processes for drafting and commenting on new legislation and regulations and requires strict transparency related to laws involving trade and investment. A copy of the U.S.-Mongolia Transparency Agreement is available here .

Mongolia and the United States have no bilateral tax or free-trade agreements.

Mongolia has also signed an Economic Partnership Agreement (EPA) with Japan, which entered into effect in June 2016. For details on the EPA, please see the Japanese Ministry of Finance website . In 2016, Mongolia and Canada signed a Foreign Investment Promotion and Protection Agreement (FIPA) which entered into force on March 7, 2017. For the FIPA text, please see the Canadian government website . In 2016, Mongolia and the Republic of Korea agreed to launch talks on a Free Trade Agreement in 2017.

Information regarding the various other investment agreements that Mongolia has signed is available from the UNCTAD website .

Transparency of the Regulatory System

In September 2013, the United States and Mongolia signed the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment, or Transparency Agreement (TA). The agreement marked an important step in developing and broadening the economic relationship between the two countries. The TA makes it easier for U.S. and Mongolian firms to do business by guaranteeing transparency in the formation of trade-related laws and regulations, the conduct of fair administrative proceedings, and measures to address bribery and corruption. In addition, it provides for commercial laws and regulations to be published in English, improving transparency and making it easier for foreign investors to operate in the country. Parliament ratified the TA in December 2014, the United States and Mongolia certified that their respective applicable legal requirements and procedures were completed in January 2017, and the TA entered into force on March 20, 2017. Mongolia has five years to implement the TA fully. A copy of the U.S.-Mongolia Transparency Agreement is available here .

Coming into force on January 1, 2017, the new Law on Legislation (LL) aligns Mongolia’s legislative processes with its TA obligations. The LL clarifies who has the right to draft legislation, the format of these bills, the respective roles of GOM and Parliament, and the procedures for obtaining and employing public comment on pending legislation. The LL states that law initiators – i.e., Members of Parliament, the President of Mongolia, or the Cabinet of Mongolia – may introduce laws and amendments to existing statutes. To initiate legislation, the initiator must fulfill the following criteria: (1) provide a clear process for both developing, and justifying the need for, the draft legislation; (2) set out methodologies for estimating costs to the government related to the draft law’s implementation; (3) evaluate the impact of the legislation on the public once implemented; and (4) conduct public outreach before submitting legislation to the public. The LL requires that both the Head of the Cabinet Secretariat and the Head of the Parliament Secretariat certify that the law initiator has complied with these requirements before Parliament officially accepts legislation for consideration.

To justify draft legislation and account for its costs and impacts, initiators must conduct studies that clearly demonstrate the need for, and consequences of, a new law. The initiator may reach out to government experts or contract with citizens and such legal entities as professional associations or civil society organizations for data-based information. Initiators must also submit draft legislation to the Cabinet and affected GOM ministries for comment and review as a precondition for receiving certification from the Head of the Cabinet Secretariat that the legislation complies with the LL.

The LL requires that law initiators obtain public comment by posting draft legislation and required reports evaluating costs and impacts on Parliament’s official website  at least thirty days prior to submitting it to Parliament. These posts must explicitly state the time period for public comment and review. In addition, initiators must solicit comments in writing, organize public meetings and discussions, seek comment through social media, and carry out public surveys. No more than thirty days after the public comment period ends, the initiator must prepare a matrix of all comments, including those used to revise the legislation as well as those not used. This matrix must be posted on Parliament’s official web site. After passage of a new law, Parliament is responsible for monitoring and evaluating both the implementation and impact of the legislation.

Publically listed Mongolian companies adhere to International Financial Reporting Standards (IFRS). As with statutory requirements for transparent law making, regulations for accounting, legal, and regulatory procedures also require transparent processes for consistent implementation, and are sometimes (but not always) consistent with international norms and best practices. The business community and legal experts have criticized legal, regulatory, and accounting practices that are non-transparent, vague, or poorly worded in Mongolian and English translations, as well as inconsistently enforced. Domestic and foreign investors claim these domestic practices are largely aimed at extracting revenue for both the government and individuals, and occasionally to injure a company that may be competing against a state-owned or influential private entity. Consequently, some investors have concluded that the Mongolian government does not use transparent laws and regulations to create a level playing field for either foreign or domestic competitors. However, investors have expressed some hope that the TA and the recently passed raft of transparency-based legislation will give them leverage in dealing with GOM regulators.

The General Administrative Law, Article 6, (GAL) brings Mongolia’s regulatory drafting process into line with its Transparency Agreement obligations. Parliament specifies in the text of each statute the specific ministry responsible for administering the law, which includes drafting of regulations. The designated ministry creates a ministerial working group that may also include representatives of other ministries affected by the statute. Regulatory drafts must also be reviewed by the Ministry of Justice and Home Affairs to ensure consistency with other statutes and the Constitution of Mongolia. GAL requires regulations to use scientific or data-driven assessments to assess the costs and impact of the proposed rules. GAL also requires ministries, agencies, and provincial governments to seek public comment by posting draft regulations on their respective websites for at least thirty days and by holding public hearings, following the rules set out in the 2015 Public Hearing Law. The drafting entity must record, report, and respond to the public comment. The Ministry of Justice and Home Affairs must certify that each regulatory drafting process complies with the GAL before the regulations enter into force. After approval, the relevant government agency is responsible for monitoring and evaluating both the implementation and impact of the regulations.

Designated implementing agencies, such as the Mineral Resources Authority, the General Tax Authority, or the General Agency for Specialized Inspections, have statutory responsibility for enforcing regulations. These agencies use administrative remedies to enforce most regulations, including but not limited to seizing contraband, suspending or cancelling use rights and permits, or freezing financial assets. In addition to these administrative remedies, organizations responsible for criminal enforcement, such as the National Police, may enforce regulations using such criminal penalties as imprisonment if the regulatory infraction is deemed to rise to the level of a crime. The public can contest administrative enforcement acts under the 2002 Law on Procedure for Administrative Cases (LPAC). LPAC gives disputants the right to a hearing from the Administrative Court of Mongolia based in Ulaanbaatar. However, LPAC requires that parties first mediate the dispute with the relevant regulatory authority before seeking judicial remedy. Once the Administrative Court rules, either party can appeal the decision to the Supreme Court of Mongolia.

International Regulatory Considerations

Mongolia is not part of any regional economic block, but often seeks to adapt and adopt European standards and norms in areas such as construction materials, food, and environmental regulations, and looks to U.S. standards for activity in the petroleum sector, while adopting a combination of Australian and Canadian standards and norms in the mining sector. There is also a tendency for Mongolia to attempt to sync its customs and transport standards to China’s, its primary trade partner.

Mongolia, a member of the WTO, asserts that it will notify the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations; however, as demonstrated by the recent failure to notify TBT about changes in the process for using certificates of origin, Mongolia does not always comply with that commitment.

Legal System and Judicial Independence

Mongolia has adopted a hybrid Civil Law-Common Law system of jurisprudence. Trial judges may use prior rulings to adjudicate cases similar to those that have come before them but are not obliged to respect legal precedent as such. Mongolian laws, and even their implementing regulations, often lack the specificity needed for consistent interpretation and application. Experienced and dedicated judges do their best to rule in the spirit of the law in routine matters. However, statutory and regulatory vagueness invites corruption within the underfinanced and understaffed judiciary, especially in cases where large sums of money are at stake, or where large foreign corporations are in court against domestic government agencies or well-connected private Mongolian citizens.

Mongolia has a specialized law for contracts but no dedicated law for commercial activities. Contractual disputes are usually adjudicated in Mongolia’s district court system. Disputants may appeal cases to the City Court of Ulaanbaatar and ultimately to the Supreme Court of Mongolia. Mongolia has in place several specialized administrative courts authorized to adjudicate cases brought by citizens against official administrative acts. Disputants may appeal administrative court decisions to higher trial courts. Mongolia has a Constitutional Court, dedicated to ruling on constitutional issues. The General Executive Agency for Court Decisions (GEACD) enforces court decisions.

The Mongolian constitution specifies that non-judicial elements of the GOM “shall not interfere with the discharge of judicial duties” by the judicial branch. The Judicial General Council (JGC), composed of respected jurists, is charged with the constitutional duty of ensuring the impartiality of judges and independence of the judiciary. However, the council lacks express authority to investigate allegations of judicial misconduct or to impose disciplinary measures on judges or other judicial sector personnel. Mongolian law recently required judges to maintain membership in the Mongolian Bar Association (MBA), but some judges actively oppose that requirement with the result that the MBA is no better positioned than the JGC to police the judiciary.

The legislative branch interfered directly with the judicial branch in 2016 when Mongolia’s Constitutional Court ruled that four provisions of a subsidized residential mortgage program were unconstitutional. Following the program’s suspension, then Parliament Speaker Z. Enkhbold issued a statement that “the Parliament will annul the decision of the Constitutional Court and restore the original law with the same provisions as before.” Parliament thereupon voted in special session to dismiss the presiding justice of the court, paving the way for re-adoption of the original legislation and re-establishment of the mortgage subsidy program. Legal experts believe Parliament had no authority under Mongolian law to dismiss the presiding justice. Even Members of Parliament who supported his ouster did so to keep the very popular mortgage program in place and readily admit that the speaker effectively engineered an assault on the court’s independence.

Legal experts believe that Mongolian substantive law also invites judicial corruption through weak distinctions between the branches of the GOM, which allows unconstitutional over-reach. The thinly staffed GEACD is charged with all aspects of implementing the decisions and verdicts of Mongolia’s civil and criminal courts. GEACD is responsible for operating prisons, garnishing wages, impounding moveable property, and much more. But GEACD personnel do not report to the JGC or directly to the courts, but to the Ministry of Justice and Home Affairs (an element of the executive branch). The GEACD works closely on a functional level with the Office of the Prosecutor General, an independent agency run by a presidential appointee. However, its funding is provided by Parliament. The strong influence of Mongolian prosecutors on Mongolian courts is well documented. Mongolian courts, for example, rarely dismiss charges over the objection of the prosecution or otherwise enter defense verdicts even after trial. As a result of this convoluted chain-of-command, the GEACD can function as a conduit of potentially inappropriate communication from most any interested corner of the GOM to the judiciary.

Laws and Regulations on Foreign Direct Investment

2016 saw no major changes in the 2013 Investment Law of Mongolia. The Investment Law frames the general statutory and regulatory environment for all investors in Mongolia. Under the law, foreign investors can access the same investment opportunities as Mongolian citizens and receive the same protections as domestic investors. Investor residence, not nationality, determines whether an investor is foreign or domestic. The law also provides for a more stable tax environment and provides tax and other incentives for investors. Accordingly, most investments by private foreign individuals or firms residing in Mongolia need only be registered with the General Authority for Intellectual Property and State Registration (GAIPSR ).

The Investment Law offers tax incentives in the form of transferrable tax stabilization certificates which give qualifying projects favorable tax treatment for up to 27 years. Affected taxes may include the corporate income tax, customs duties, value-added tax, and mineral resource royalties. The criteria for participation in the tax stabilization program are transparent and include the amount of investment, the sector involved, and the geographic area involved. For information on tax stabilization certification, see www.investmongolia.gov.mn .

The law created a one-stop shop for investors, the Invest Mongolia Agency, but the current government cancelled this program in September 2016. The new National Development Agency is to issue tax stabilization certificates but has not implemented a process for doing so. The remaining IMA support functions are no longer available to foreign investors from the GOM. In conjunction with the International Finance Corporation and the World Bank, the GOM has promised, but not yet established, an Investor Dispute Resolution Council. In addition, the Prime Minister’s Office maintains an Investors Advisory Council, which occasionally includes representatives from the foreign investment community.

While foreign investors report they appreciate the intent of the Investment Law, they note that its implementation does not always deliver the promised national treatment, specifically in two areas. First, foreign nationals and companies may not own real estate; only Mongolian adult citizens can own land. While foreign investors may obtain use rights for the underlying land, these rights expire after a set number of years, with no automatic right of renewal. Second, foreign investors object to the regulatory requirement that they invest a minimum of USD $100,000 to establish a venture. Although the Investment Law has no such requirement, GOM regulators have unilaterally imposed it on all foreign investors. In contrast, Mongolian investors are not subject to investment minimums.

Competition and Anti-Trust Laws

Mongolia’s Agency for Fair Competition and Consumer Protection (AFCCP) reviews domestic transactions for competition-related concerns. For a description of the AFCCP and its legal and regulatory powers, see the UNCTAD website  and the AFCCP website .

Expropriation and Compensation

Although Mongolia generally respects property rights, the Mongolian government and Parliament may exercise eminent domain in the national interest. Mongolian state entities at all levels are authorized to confiscate or modify land use rights for purposes of economic development, national security, historical preservation, or environmental protection. However, Mongolia’s constitution recognizes private real property rights and derivative rights, and Mongolian law specifically bars the GOM from expropriating such assets without payment of adequate market-based compensation. Investors express little disagreement with such takings in principle, but worry that a lack of clear lines of authority among the central, provincial, and municipal levels of government creates occasions for loss of property rights. For example, the 2006 Minerals Law (amended in 2014) provides no clear division of local, regional, and national jurisdictions for issuances of land use permits and special use rights. Faced with unclear lines of authority and frequent differences in practices and interpretation of rules and regulations by different levels of government, investors can find themselves unable to fully exercise duly conferred property rights. The GOM has acknowledged this, but has not yet taken effective steps to remedy it.

Many of the cases alleging expropriation involve court expropriations after criminal trials in which the investors were compelled to appear as “civil defendants” but were not allowed to fully participate in the court proceedings. In these cases a GOM official is usually convicted of corruption and sentenced to prison, and the trial court judge then orders the foreign civil defendant to surrender a license or pay a tax penalty or fine for having received an alleged favor from the criminal defendant. In ongoing disputes involving several foreign investors, among them U.S. companies, the courts have taken property or revoked use licenses despite an absence of evidence the property or licenses were derived from corruption.

Investors and the legal community have expressed concerns about an act of Parliament they perceive as expropriation. In June 2016, a privately-held Mongolian company, using some U.S.-sourced financing, bought 49 percent of Mongolian state-owned Erdenet Mining Corporation from the Russian state-owned company Rostec. The non-transparent sale of this mining asset generated public controversy. Parliament subsequently nullified the transaction on February 10, 2017, and ordered seizure of the Mongolian company’s shares. While investors and legal experts do not dispute Parliament’s powers under the Constitution and statute to nationalize property, so long as compensation is provided, they state that Parliament has no authority to undo a business transaction between two non-government or foreign parties. They argue that Parliament’s claim undermines the sanctity of contracts and may well inhibit investment into other projects.

Dispute Settlement

ICSID Convention and New York Convention

Mongolia has ratified the Washington Convention and has joined the International Centre for Settlement of Investment Disputes (ICSID) in 1991. It also signed and ratified the New York Convention in 1994. The government of Mongolia has accepted international arbitration in several disputes.

Investor-State Dispute Settlement

The U.S.-Mongolia Bilateral Investment Treaty (BIT) entered into force in 1997 (http://www.state.gov/e/eb/ifd/bit/117402.htm). Under this BIT, the two countries have agreed to respect international legal standards for state-facilitated property expropriation and compensation matters involving nationals of either country. The BIT effectively provides an extra measure of protection against financial loss for U.S. nationals doing business in Mongolia. In at least one expropriation case, however, the GOM restored a mining license it had unilaterally modified years previously, but declined to pay compensation for undisputed financial loss as required by the BIT and independently required by the domestic law specifically cited in rendering the modification. Under the BIT, such uncompensated expropriation is appealable through arbitration proceedings. However, the cost of arbitration can make it impractical for aggrieved parties.

The number of investment disputes involving foreigners in Mongolia is unknown. Fearing to jeopardize future opportunities in Mongolia, some U.S. and foreign investors quietly pursue or even abandon potentially sensitive projects, especially those involving a GOM interest. Some investors report that GOM entities have solicited bribes in order to pre-empt or resolve particular investment disputes with foreign interests.

In disputes involving the GOM, investors report government interference in the dispute resolution process, both administrative and judicial. Foreign investors describe three general categories of disputes that invite such interference. The first comprises disputes between private parties before a GOM administrative tribunal. In these cases, a Mongolian private party may exploit contacts in government, the judiciary, law enforcement, or the prosecutor’s office to coerce a foreign private party to accede to demands. The second category involves disputes between investors and the GOM directly. In these cases, the GOM may claim a sovereign right to intervene in the business venture, often because the GOM itself is operating a competing state-owned enterprise (SOE) or because officials have undisclosed business interests. The third category involves Mongolian tax officials or prosecutors levying highly inflated tax assessments against a foreign entity and demanding immediate payment, sometimes in concert with imposition of exit bans on company executives or even the filing of criminal charges.

Investors have reported to us that local courts recognize and enforce arbitral decisions, but that problems exist with enforcement. The thinly staffed General Executive Agency for Court Decisions (GEACD) is charged with implementing the decisions and verdicts of Mongolia’s civil and criminal courts. GEACD employees often live in the jurisdictions in which they work, and are subject to pressure from friends and professional acquaintances. A complicated chain-of-command and opportunities for conflicts of interest can weaken GEACD’s resolve to execute court judgments on behalf of foreign and domestic interests.

International Commercial Arbitration and Foreign Courts

Although investors voice concern that the GOM may choose to ignore international arbitration decisions, the GOM has consistently declared it will honor arbitral awards. In 2016, the GOM and Canadian uranium mining company Khan Resources settled a high-profile expropriation dispute after a Paris arbitration panel awarded USD $104 million to the Canadian company. The parties settled for USD $70 million and Mongolia paid Khan Resources in May 2016.

To improve Mongolia-based international arbitration, Parliament passed a new Arbitration Law in January 2017. Based on the United Nations Commission on International Trade Law (UNCITRAL), the Arbitration Law provides a clearer set of rules and protections for Mongolia-based arbitration. The law does not, however, designate any particular organization for use by all disputants, and has yet to be used by a foreign entity, to our knowledge. Any organization that satisfies specific requirements set out in the law can provide arbitral services. This change breaks the monopoly on domestic arbitration held by the Mongolian National Chamber of Commerce and Industry (MNCCI), which many investors criticized as politicized, unfamiliar with commercial practices, and too self-interested to render fair decisions. Foreign investors tell us that they prefer international arbitration, but might consider domestic arbitration if they now have options other than MNCCI.

The new law also limits the role of Mongolia’s courts in the arbitration process. Previously, disputants could appeal to Mongolia’s civil courts if the results of “binding arbitration” were not to their liking. The new arbitration law limits parties to a single appeal only to Mongolia’s Court of Civil Appeals in Ulaanbaatar (CCA). The CCA can only reject an arbitration judgment for “serious” procedural failings or discrepancies with official public policy initiatives.

As reported in the section on Investor-State Dispute Settlement, local courts will recognize both foreign and domestic arbitral awards and order the General Executive Agency for Court Decisions to enforce them, although collection may be slowed or even sabotaged for the reasons described above.

Foreign investors perceive a bias against them if they pursue legal action against a Mongolian SOE. To our knowledge no foreign plaintiff has prevailed against an SOE in Mongolia’s courts. Mongolia-based legal experts relate that foreign investors and exporters are likely to experience preemptory, non-transparent court processes up to outright discrimination by judges. Most investors and legal experts advise using other dispute resolution mechanisms when confronting Mongolian SOEs.

Bankruptcy Regulations

Mongolia’s bankruptcy law defines bankruptcy as a civil matter. Mongolian law mandates the registration of mortgages and other debt instruments backed by real estate, structures, immovable collateral (mining and exploration licenses and other use rights); and, after March 2017, movable property (cars, equipment, livestock, receivables, and other items of value). However, even though the law allows for securitizing movable and immovable assets, local law firms hold that the bankruptcy process remains too vague, onerous, and time consuming to make it practical. Mongolia’s Constitution and statutes allow contested foreclosure and bankruptcy only through judicial (rather than administrative) proceedings. Local business and legal advisors report that proceedings usually require no less than 18 months, with 36 months not uncommon. Investors and legal advisors state that a lengthy appeals process and perceived corruption and government interference can create years of delay. Moreover, while in court, creditors face suspended interest payments and limited access to the asset.

Investment Incentives

The GOM generally offers the same tax preferences to both foreign and domestic investors. The GOM occasionally grants tax exemptions for imports of essential fuel and food products or for imports in certain targeted sectors, such as agriculture or energy. Such exemptions can apply to Mongolia’s five percent import duty and ten percent value-added tax (VAT). In addition, the GOM occasionally extends a ten percent tax credit on a case-by-case basis to investments in key sectors such as mining, agriculture, and infrastructure. Under the Investment Law, foreign-invested companies properly registered and paying taxes in Mongolia are considered domestic Mongolian entities, thus qualifying for investment incentive packages that, among other benefits, include tax stabilization for a period of years. In 2014 Parliament authorized the central bank, the Bank of Mongolia (BOM), to waive 7.5 percent of the ten percent royalty payments that gold miners must pay when selling gold to the BOM and Mongolian commercial banks through 2017. The GOM intends to extend this program and to underwrite low-interest loans from commercial banks for small- to medium-sized gold mines that commit to selling gold to the BOM.

Investors should note that an impending three-year International Monetary Fund Program, set to begin in first half of 2017, may require the GOM to curtail lending and tax incentive programs as part of a fiscal austerity program.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Mongolian government launched a free trade zone (FTZ) program in 2004. Two FTZ areas are located along the Mongolia spur of the trans-Siberian highway: one in the north at the Russia-Mongolia border in the town of Altanbulag; the other in the south at the Chinese-Mongolia border in the town of Zamiin-Uud. Both FTZs are relatively inactive, still pending development. A third FTZ is located at the port of entry of Tsagaan Nuur in the far western province of Bayan-Olgii bordering Russia. Mongolian officials also suggest that the New Ulaanbaatar International Airport (NUBIA), expected to commence operations in 2018, may host an FTZ. As first noted in the April 2004 USAID sponsored Economic Policy Reform and Competitiveness Project, benchmarking Mongolia’s FTZ program against current successful international practices shows deficiencies in the legal and regulatory framework as well as in the process to establish FTZs. In addition, Mongolian FTZs lack implementing regulations based on international best practices. Further, due diligence, including a cost-benefit analysis, has never been completed for the FTZs, nor has sufficient funding been mobilized for on-site infrastructure requirements. Finally, these shortcomings may lead to “hidden costs” or subsidies that the government of Mongolia did not foresee.

Performance and Data Localization Requirements

Mongolia imposes no legal requirement for foreign investors to use local goods, services, or equity, or to engage in substitution of imports. The government applies the same geographical restrictions to both foreign and domestic investors. Existing restrictions involve border security, environmental concerns, and local use rights. There are no onerous or discriminatory visa, residence, or work permit requirements imposed on U.S. investors – although foreign firms must meet certain local hire requirements. Neither foreign nor domestic businesses need purchase from local sources, export a certain percentage of output, or use foreign exchange to cover exports.

The GOM strongly encourages but does not legally compel domestic sourcing of material inputs in Mongolia, especially for firms engaged in natural resource extraction. The 2014 Amendments to the 2006 Minerals Law of Mongolia state that holders of exploration and mining licenses should preferentially supply extracted minerals at market prices to Mongolian processing facilities and should procure goods and services and hire subcontractors from business entities registered in Mongolia. Although there are no formal enforcement procedures to ensure local sourcing, investors occasionally report that central, provincial, or municipal governments slow down permitting and licensing until domestic and foreign enterprises make some effort to source locally. The GOM’s encouraging of the hiring of Mongolians becomes essentially a legal requirement when combined with the GOM requirement that individual employers seeking work visas for foreign employees demonstrate that their workforces comprise the same percentage of domestic hires that are suggested in Mongolia’s procurement law. A long-pending draft labor law, if adopted in fall of 2017, would clarify the extent to which these target percentages are mandatory.

Despite pressure to source locally, foreign investors generally set their own export and production targets without concern for government imposed targets or requirements. Mongolia has no requirement to transfer technology. The government generally imposes no offset requirements for major procurements. Certain tenders and projects on strategic mineral deposits may require specific levels of local employment, procurement, or commitments to fund certain facilities or training opportunities as a condition of the tender or project; however, such conditions are not the norm. Investors, not the Mongolian government, make arrangements regarding technology, intellectual property, and similar resources, and may generally finance as they see fit. Except for a currently unenforced provision of the amended Minerals Law of Mongolia requiring mining companies to list ten percent of the shares of the Mongolian mining company on the Mongolian Stock Exchange, foreign-invested businesses are not required to sell shares to Mongolian nationals. Equity stakes are generally at the discretion of investors, Mongolian or foreign.

In cases where investments are determined to have national impact or raise national security concerns, the GOM may restrict the type of financing that foreign investors may obtain, their choice of partners, or to whom they sell shares or equity stakes. Investors and local legal experts note that the system by which the GOM regulates these transactions lacks a clear statutory basis and transparent, predictable regulatory procedures.

Investors can locate and hire workers without using hiring agencies as long as hiring practices follow the Mongolian Law on Labor. Mongolian law requires companies to employ Mongolian workers in certain labor categories where it has been determined that a Mongolian can perform the task as well as a foreigner. This law generally applies to unskilled labor categories and not fields in which a high degree of technical expertise not existing in Mongolia is required.

The GOM has no forced localization policy for data storage; no legal requirements for IT providers to turn over source code or to provide access for surveillance; and no rules or mechanisms for maintaining a certain amount of data storage at facilities within the territory of Mongolia.

Real Property

The Mongolian Constitution provides that “the State shall recognize any forms of public and private properties.” The Constitution limits real estate ownership to adult citizens of Mongolia, though that limitation does not apply to “subsoil,” a term that is not expressly defined in the Constitution. Mongolian civil law allows private Mongolian citizens or government agencies to assume property ownership or use rights if the current owner or holder of use rights does not use the property or the rights. In the case of use rights, revocation and assumption is almost always written into the formal agreements covering the rights. Squatters may also under certain circumstances claim effective property ownership of unused structures.

Although foreigners and non-resident investors may own structures and obtain use rights to land, only Mongolian citizens may own real estate. Ownership of a structure vests the owner with control over the use rights of the land upon which the structure sits. Use rights are granted from periods of three to sixty years depending on the particular use right. Although Mongolia has a well-established register for immovable property – structures and real estate – it lacks a central register for use rights; consequently, investors, particularly those seeking to invest in rural Mongolia, have no easy way to learn who might have conflicting rights. Complicating matters, Mongolia’s civil law system has yet to develop a formal process for apportioning multiple use rights on adjacent lands or adjudicating disputes arising from conflicting use rights.

Mongolian law does allow creditors to recover debts by seizing and disposing of property offered as collateral. Mongolian law mandates that mortgages and other debt instruments backed by real estate, fixed structures, and other immovable collateral be registered with the Immovable Property Office of the General Authority for Intellectual Property and State Registration (GAIPSR: www.burtgel.gov.mn ). Beginning in March 2017, Mongolian law allows movable property (cars, equipment, livestock, receivables, and other items of value) to be registered with GAIPSR as collateral. Investors report that the Immovable Property registration system is generally reliable, but the Movable Property system is new and just beginning its implementation. At this point, the GOM has no accurate figure for land with clear titles.

Intellectual Property Rights

Mongolia supports intellectual property rights (IPR) in general, and as member of the World Intellectual Property Organization (WIPO) has signed and ratified most relevant treaties and conventions, including the World Trade Organization Agreement on Trade Related Aspects of Intellectual Property Rights (WTO TRIPS). Mongolia’s Parliament has yet to ratify the WIPO internet treaties. Nevertheless, the Mongolian government and its intellectual property rights enforcer, GAIPSR, make a good faith effort to comply with these agreements. For additional information on IPR protection, see http://www.ipom.mn/ .

Under TRIPS and Mongolian law, the Mongolian Customs Authority (MCA) and the Economic Crimes Unit of the National Police (ECU) also have an obligation to protect IPR. MCA can seize shipments at the border. The ECU has the exclusive power to conduct criminal investigations and bring criminal charges against IPR violators. GAIPSR has the administrative authority to investigate and seize pirated goods. Of these agencies, GAIPSR makes the most consistent efforts to fulfill Mongolia’s treaty commitments. It generally has an excellent record of protecting U.S. trademarks and copyrights; however, tight resources limit the GAIPSR’s ability to act. In most cases, when a rights holder files a complaint, GAIPSR investigates. If it judges that an abuse has occurred, it has in every case so far seized the pirated products under its administrative powers granted under Mongolian law. Mongolia does not publicize figures of seizures of IPR violating contraband.

The U.S. Embassy is aware of two particular areas in which enforcement lags. First, legitimate software products remain rare in Mongolia, with GAIPSR estimating in early 2017 that at least 85 percent of the domestic market uses pirated software. GAIPSR enforces the law where it can but the scale of the problem dwarfs its capacity to deal with it. Second, pirated optical media are also readily available and subject to spotty anti-piracy enforcement. The growth of online downloads of pirated digital media by individuals, local Mongolian TV stations using pirated videos, radio broadcasters playing pirated music, and cellular service providers offering pirated ringtones has eclipsed local production and imports of fake CDs, videos, and DVDs. GAIPSR acknowledges that most local public and privately held TV stations, some 184 at latest count, regularly broadcast pirated materials; however, GAIPSR hesitates to move on these broadcasters, most of which are connected to major government or political figures. GAIPSR rarely initiates action on its own without prompts from rights holders.

Resources for Rights Holders

Contact at the U.S. Embassy in Ulaanbaatar Economic and Commercial Section; +976-7007-6001 or Ulaanbaatar-Econ-Comm@state.gov.

For additional resources on protecting IPR in Mongolia, please see the American Chamber of Commerce in Mongolia website http://amcham.mn/ . The U.S. Embassy also provides a list of attorneys available here.

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/ .

Capital Markets and Portfolio Investment

Mongolia is developing the experience and expertise needed to sustain portfolio investments and active capital markets. The GOM has reported that it wants to establish vibrant capital markets, and seeks to use the state-owned Mongolian Stock Exchange as the primary venue for generating capital and portfolio investments. To achieve this goal, Parliament passed the Revised Securities Market Law (RSML), which most investors believe creates a sufficient regulatory apparatus for these activities. However, most foreign investors shy away from investing in the Mongolian Stock Exchange because it lacks the regulatory capacity, accountability, transparency, and liquidity to effect proper capital formation and portfolio investments. GOM imposes few restrictions on the flow of capital into and out of any of its markets.

Money and Banking System

Of the 13 commercial banks currently operating in Mongolia, there are four large banks that are majority owned by both Mongolian and foreign investors. These banks – Golomt, Khas, Trade and Development Bank, and Khan Bank – collectively hold approximately 80 percent of all banking assets or about USD $8 billion as of January 2017. The banks operate branches throughout the country and are regularly audited by one of the big four international accounting firms. Their rates of non-performing loans averaged 9.3 percent in February 2017, a slight rise from February 2016’s 8.8 percent. They generally follow international standards for prudent capital reserve requirements, have conservative lending policies, up-to-date banking technology, seem generally well-managed, and are open to foreigners opening bank accounts under the same terms as Mongolian nationals. In addition, foreign investors, including the International Finance Corporation (IFC) and Goldman Sachs, have equity stakes in several of these four banks. While there are no legal prohibitions, the GOM generally discourages majority foreign control of any local commercial bank or foreign establishment of local branch operations. Mongolia’s commercial banks also face the challenge of maintaining correspondent relations with U.S.-based banks. Local bankers report that correspondent banks are terminating their Mongolian relationships because the revenue generated by the relatively small number of Mongolian transactions is not worth the administrative costs of providing correspondent relationships.

In 2015, to consolidate weaker, less capitalized banks into larger, better funded institutions, the BOM, the central bank, ordered all commercial banks to increase their minimum paid-in-capital from the current minimum of USD $8 million to USD $25 million by December 2017. While the BOM and Mongolia’s financial system have endured insolvencies over time, each failed bank had shown clear signs of distress before the BOM moved to safeguard depositors and the banking system. As with many issues in Mongolia, the problem is not lack of laws or procedures for dealing with troubled banks, but rather, some lack of capacity and an apparent reluctance on the part of BOM banking overseers to enforce regulations related to capital reserve requirements, bank management and corporate governance, and non-performing loans.

Pursuant to the IMF-led program, international auditors will conduct an in-depth asset quality review of Mongolia’s commercial banking sector to be completed in 2018. International accounting firms will conduct comprehensive financial audits on Mongolia’s commercial banks. The audits, a condition for Mongolia’s receiving support under an IMF extended fund facility, will stress test all of Mongolia’s 13 commercial banks. Publicly the BOM and the IMF have stated that the banking assessments are unlikely to measurably affect the commercial banking sector but may result in some consolidation among the smaller, less-well capitalized banks.

Foreign Exchange and Remittances

Foreign Exchange

The Mongolian government employs a liberal regime for controlling foreign exchange. Foreign and domestic businesses report no problems converting or transferring investment funds, profits and revenues, loan repayments, or lease payments into whatever currency they wish aside from occasional, market-driven shortages of foreign reserves. Mongolia’s national currency, the tugrik (denoted as MNT), is fully convertible into a wide array of international currencies with its relative value fluctuating freely (mostly falling in recent years against the USD) in response to economic trends. Mongolia’s central bank, the Bank of Mongolia (BOM), regularly intervenes in currency markets to limit MNT volatility.

The 2009 Currency Law of Mongolia requires all domestic transactions be conducted in MNT unless expressly excepted by the BOM. The central bank’s regulation prohibits the listing in Mongolia of wholesale or retail prices in any fashion (including as an internal accounting practice) that effectively denominates or otherwise indexes those prices to currencies other than the MNT. Given the 50 percent devaluation of the MNT over the past few years, this BOM edict has adversely impacted businesses that pay for imported goods in USD or other hard currency and sell them in MNT. Businesses caught adjusting MNT prices in exact or nearly exact proportion to currency fluctuations can face stiff penalties up to the full market value of the involved goods.

BOM regulation compels lenders to issue written warnings to borrowers seeking dollar-denominated loans that the steady depreciation of the MNT in recent years has translated to very significant increases in the real costs of servicing dollar loans. Hedging forward mechanisms available elsewhere to mitigate exchange risk for many national currencies are generally unavailable in Mongolia given the small size of the market. Letters of credit remain difficult to obtain, and the GOM sometimes resorts to paying for goods and services with promissory notes that cannot be directly exchanged for other currencies.

Remittance Policies

Businesses report no delays in remitting investment returns or receiving in-bound funds. Most transfers are completed within a few days to a week. However, in response to occasional currency shortages, most often of U.S. dollars, commercial banks can temporally limit the amounts they exchange daily, transmit abroad, or allow to be withdrawn. Remittances sent abroad are subject to a ten percent withholding tax to cover any potential profit, income, or value-added tax liabilities.

Sovereign Wealth Funds

In 2008, Parliament established the Human Development Fund (HDF), ostensibly Mongolia’s first sovereign wealth fund (SWF); however, it does not function as a traditional SWF. The HDF is to be funded from the profits, taxes, and royalties generated by the mining industry as a whole. Rather than husband these revenues for later days, the HDF, when it has funds from mining activities, distributes them to the citizens of Mongolia in the form of social benefits: payments for pension and health insurance premiums; mortgage support and other loan guarantees; and payments for health and education services. The GOM has no plans to use the HDF as a conduit for Mongolian investments abroad or for investment into Mongolia. In that sense, there is conflict between the HDF and U.S. investors in Mongolia.

The Mongolian government maintains various state owned enterprises (SOEs) in the banking and finance, energy production, mining, and transport sectors. The Government Agency for Policy Coordination on State Property and Regulation (PCSP: http://www.pcsp.gov.mn/en ) manages these assets but currently provides no complete list of its SOEs. Investors can compete with SOEs, although in some cases an opaque regulatory framework limits both competition and investor penetration. Indeed, both foreign and domestic private investors believe the current GOM approach to regulating SOEs is favorable to Mongolian SOEs over private enterprises and foreign SOEs. Although many private companies have been created or registered in Mongolia in recent years, including foreign private companies, the GOM has also created several dozen SOEs over the same period.

In 2010, Mongolia passed and implemented the Law of Mongolia on Competition applying to private enterprises and SOEs active in Mongolia. Prior to passage, competition between state-owned and private businesses had been declining for the simple reason that many SOEs had been privatized. Currently, firms from Mongolia, China, Japan, Europe, Canada, and the United States have sought opportunities for renewable and traditional power generation, a sector still under state control in Mongolia. However, few want to invest in the power generation field until the regulatory and statutory framework for private power generation firms up and tariffs reflect commercial best practices and true cost recovery.

The 2006 Minerals Law of Mongolia (amended in 2014) and the 2009 Nuclear Energy Law grant the GOM the right to acquire equity stakes ranging from 34 percent up to 100 percent of certain uranium and rare earth deposits deemed strategic for the nation. Once acquired, these assets are vested with Erdenes MGL, the state-owned entity for mining assets. Mongolia requires Erdenes MGL to use its profits to “benefit the Mongolian people.”

The role of the state as an equity owner in management of revenues and operation of mines remains unclear. Investors question the GOM’s capacity to deal with conflicts of interest arising from its position as both regulator and owner-operator. Specifically, they worry that the GOM’s desire to maximize local procurement, employment, and revenues may compromise the long-term commercial viability of mining projects. Investors also question the GOM’s capacity to execute its fiduciary responsibilities as both owner and operator of mines. Observers are concerned that the GOM waives legal and regulatory requirements for state-owned mining companies that it imposes on all others. Generally, approval for relevant environmental and operating permits for private coal mines in Mongolia takes at least two years. However, there are indications that the GOM has exempted Erdenes Tavan Tolgoi (ETT) mining operations from regulatory requirements imposed on other operations. Preferential treatment for SOEs creates the appearance that the GOM has one standard for its SOEs and another for foreign-invested and private domestic invested companies; and also provides SOEs with substantial cost advantages via a more lenient interpretation or outright waiver of legal requirements.

Mongolian SOEs will source from foreign firms only when inputs are not available locally or cannot be produced competitively in Mongolia. SOEs and private enterprises are under political pressure to source locally as much as possible and often resort to creating local Mongolian shell companies to act as a domestic storefront for foreign-sourced goods. This unofficial requirement adds inefficiency and cost to serving the Mongolian market. Finally, Mongolia is not yet a party to the World Trade Organization Procurement Agreement, although it has expressed a desire to join.

OECD Guidelines on Corporate Governance of SOEs

Mongolian SOEs do not adhere to the OECD Corporate Governance Guidelines for SOEs, however they are technically required to follow to the same international best practices on disclosure, accounting, and reporting as imposed on private companies. When SOEs seek international investment and financing, they tend to follow these rules. Many international best practices are not institutionalized in Mongolian law, and SOEs tend to follow existing Mongolian rules. At the same time, foreign-invested firms follow the international rules, causing inconsistencies in corporate governance, management, disclosure, and accounting.

The SOE corporate governance structure is clear on paper. There is an independent management answering to an independent board of directors, who, report to the Government Agency for Policy Coordination on State Property and Regulation (PCSP: http://www.pcsp.gov.mn/en ). In reality, government officials tell us that management and board of director operations and appointments are subject to political interference to an almost crippling extent. Some of the professional managers of these SOEs have expressed hope that implementation of the 2015 amendments to the Law on the Human Development Fund formally allowing independent, professional management of SOEs would curtail such interference. In support of this effort, the Asian Development Bank is funding a USD $35 million corporate governance strengthening project for Erdenes Mongol, an SOE holding key copper and coal mining assets.

Privatization Program

Parliament’s 2016 National Action Plan references privatizing some state-held assets, but the government has yet to identify the specific assets to privatize or the process to implement privatization. The Government Agency for Policy Coordination on State Property and Regulation (PCSP ) holds and operates some SOE mining assets, the Mongolian Stock Exchange (MSE), the national air carrier MIAT, the Mongol Post Office, and other properties. Since 2015 some of these assets have been auctioned off. Most notably, in 2015 30 percent of the post office was offered to private buyers through an initial public offering on the MSE. However, while stating that it welcomes foreign participation in privatization efforts, the GOM has yet to clarify a tendering process for the privatization of state assets not to be sold via the MSE. Mongolia has no plans to privatize its existing railroad jointly held with the government of Russia, but the law does allow private firms to build, operate, and transfer new railroads to the state.

The concept and practice of responsible business conduct (RBC) in Mongolia is still in its infancy. Most reputable international companies make good faith efforts to work with local communities. The larger firms tend to follow accepted international RBC practices and underwrite a range of RBC activities across Mongolia; however, smaller companies, lacking sufficient resources, often limit RBC actions to the locales in which they work. A few large Mongolian firms regularly undertake RBC actions, with small- to medium-sized enterprises generally (but not always) hindered by limited resources. Generally, firms that pursue RBC are perceived favorably, at least within the communities in which they operate. Nationally, responses range from praise from politicians to cynical condemnation by certain civil society groups, which allege that RBC is no more than an attempt to buy public approval. Public awareness of RBC remains limited, with only a few NGOs involved in RBC promotion or monitoring, and those concentrated on large projects such as the Oyu Tolgoi mega-mine project owned by international mining giant Rio Tinto.

The government has no statutory requirement for RBC covering all companies active in Mongolia. However, the Minerals Law of Mongolia requires minerals exploration and mining companies to develop local development plans with the soum (county) in which they operate. Ministry of Mining and Heavy Industry (MMHI) officials explain that the GOM will eventually codify and standardize how companies should work with soums on local development issues. MMHI has a model agreement laying out specific, mandatory obligations that companies and municipalities would assume toward one another and the specific projects that companies would be able to undertake in the municipalities in which they operate. Investors report the model agreement remains a work in progress. Mongolia is also a member in good standing of the Extractive Industries Transparency Initiative (EITI ).

Domestic and foreign investors continue to report that corruption remains a cause for concern in Mongolia at both the “petty” or administrative and “grand” or elite levels. Instances of grand corruption reinforce the existing linkages between economic and political power that have negatively affected and in some cases ultimately derailed projects in Mongolia. Transparency International’s 2016 Corruption Perception Index ranked Mongolia 87 of 176 countries globally, largely on par with its rankings from previous years.

The primary law governing anti-corruption efforts is the 2006 Anti-Corruption Law (ACL), which sets criminal penalties for official corruption. However, the ACL is poorly enforced, and corruption continues at all levels of government – with some officials enjoying apparent impunity. Factors contributing to corruption include conflicts of interest, lack of transparency, lack of access to information, an inadequate civil service system, and weak government control of key institutions. Parliament approved the National Program to Combat Corruption in November 2016, and the program is currently under development. In addition, in June 2016 Mongolia initiated its second National Action Plan under the Open Government Partnership.

The law proscribes fines and imprisonment of up to five years for the solicitation or acceptance of bribes by government officials. The law also criminalizes the offering of bribes to officials. NGOs previously alleged that the threat of prosecution of both individuals offering bribes and officials involved gave neither guilty party motivation to report the episodes after the fact and thus resulted in significant underreporting. After the government began granting limited immunity for those paying smaller bribes, the reporting of bribes increased. Members of Parliament are immune from prosecution during their tenure, and this immunity can preclude litigation of allegations of corruption.

The Independent Authority Against Corruption (IAAC) is the principal agency responsible for investigating corruption cases, although the Organized Crime Department of the National Police Agency also investigates corruption cases and often assists in IAAC investigations. The IAAC is responsible for investigating complaints against police, prosecutors, and judges. As reported in the State Department’s Human Rights Report, questions about the IAAC’s political impartiality remain, due in part to the President’s power to appoint the head of the IAAC. Despite this potential conflict of interest, the public views the agency as relatively effective. In response to complaints that it was not making the results of its investigations and subsequent court proceedings public, the IAAC has held periodic press conferences about its activities. In addition, the IAAC increased its public awareness and prevention efforts through activities such as distributing educational materials for children and conducting outreach trips to the provinces.

For more information, see The Asia Foundation’s surveys  on corruption in Mongolia and the State Department’s 2016 Mongolian Human Rights Report.

Resources to Report Corruption

Independent Agency Against Corruption (IAAC)
District 5, Seoul Street 41
Ulaanbaatar, Mongolia 14250
+976-70110251; 976-11-311919
contact@iaac.mn

Transparency International Mongolia
Tur-Od Lkhagvajav, Chairman of the Mongolian National Chapter
Zorig Foundation, 2nd floor
Peace Avenue 17, Sukhbaataar District
Ulaanbaatar, Mongolia
+976 9919 1007; +976 9511 4777; +976 95599714
lturod@gmail.com

The Mongolian political and security environment is characterized largely by peace and stability; with instances of political violence rare. Mongolia has held 12 successful presidential and parliamentary elections over the past 20 years, though a brief but violent outbreak of civil unrest followed disputed parliamentary elections in July 2008. During that unrest, five people were killed and a political party’s headquarters was burned. The violence was quickly contained and order restored, and no repeat of that level of civil unrest has occurred since. Indeed, Mongolia held peaceful presidential elections less than a year later in May 2009, in which the incumbent president was defeated and conceded the next day; with power smoothly transitioning to the winner. Mongolia’s successful parliamentary elections in June 2016 also led to a peaceful transition of political power. Presidential elections are scheduled for June 2017.

A more resource nationalist tone in politics has become evident in recent years. Media and observer reports suggest a rising anti-foreigner sentiment among elements of the public, mostly based on the desire to have Mongolian resources developed in an environmentally sound, culturally sensitive way by Mongolians for the benefit of Mongolians. However, this nationalist sentiment has not led to any known incidents of anti-Americanism or politically motivated damage to American projects or installations since the United States and Mongolia established relations in 1987. However, some commentators over the last three years have described a rising level of hostility towards Chinese, Vietnamese, and South and North Korean nationals in Mongolia. This hostility has led to instances of improper seizure of Chinese and Korean property, and in even more limited cases to acts of physical violence against Chinese nationals and Chinese-owned property, and to a lesser extent, against Korean and Vietnamese nationals residing in Mongolia.

The National Statistics Office of Mongolia (NSO) reports that as of May 2017, 9.1 percent of the 1.24 million people defined by the NSO as economically active were unemployed. Youth unemployment (15-34 year olds) currently hovers around 57.6 percent of total unemployed. There are currently approximately 5,900 foreign workers officially registered with the Ministry of Labor (MOL), two-thirds of whom work in construction, mining, and manufacturing. More than one-third of the foreign workers are from China.

The Mongolian labor pool of nearly two million workers is generally educated, young, and skilled. Unskilled labor is abundant but shortages exist in most professional categories requiring advanced degrees or vocational training, including all types of engineers and professional tradespeople in the construction, mining, and services sectors. Foreign-invested companies deal with these shortages by providing in-country training to their staffs, raising salaries and benefits to retain employees, or hiring expatriate workers with specific skills and expertise unavailable in Mongolia.

Mongolian labor laws are not particularly restrictive. Investors can locate and hire workers without using hiring agencies, as long as hiring practices follow the 1999 Law on Labor of Mongolia (LOL). The LOL requires companies to employ Mongolian workers in all labor categories whenever a Mongolian can perform the task as well as a foreigner. This LOL provision generally applies to unskilled labor categories. If an employer seeks to hire a non-Mongolian laborer and cannot obtain a waiver from MOL for that employee, the employer can pay a monthly waiver fee. Depending on a project’s importance, MOL can exempt employers from 50 percent of the waiver fees per worker. However, employers report difficulty in obtaining waivers, due in part to public concerns that foreign and domestic companies refuse to hire Mongolians in the numbers that they should.

Because Mongolia’s long, cold winters limit outdoor operations in the infrastructure development, commercial and residential construction, and mining exploration sectors, employers tend to use a higher degree of temporary contract labor than companies that can operate year-round. Current law allows for employers and employees to employ these short-term contracts.

Employers have expressed concern over the package of proposed amendments to the LOL currently under consideration by the GOM. If passed by parliament in 2017, the proposed amendments would mandate that employers, the government, and the Confederation of Mongolian Trade Unions (CMTU) form a committee to set actual work hours and conditions, rather than allowing employers and employees to contract directly based on actual labor needs. Both foreign and local employers have advocated against this change and other proposed amendments to LOL, noting that such changes restrict their ability to respond to fluctuating market conditions.

The LOL currently allows workers to form or join independent unions and professional organizations of their choosing and protects rights to strike and collective bargaining. However, some legal provisions restrict these rights for foreign workers, certain public servants, and workers without formal employment contracts, though all groups have the right to organize. The law protects the right of workers to participate in trade union activities without discrimination, and the government has protected this right in practice. The law provides for reinstatement of workers fired for union activity, but the CMTU stated that this provision is not always enforced. According to the CMTU, some employees occasionally face obstacles to forming or joining unions, and some employers have taken steps to weaken existing unions. For example, some companies use the portion of employees’ salaries deducted for union dues for other purposes rather than forwarding the monies to the unions. Some employers have prohibited workers from participating in union activities during working hours, despite being mandated by law. There have also been some violations of collective bargaining rights, as some employers refuse to conclude collective bargaining agreements in contracts.

The law on collective bargaining regulates relations among employers, employees, trade unions, and the government. Wages and other conditions of employment are set between employers (whether public or private) and employees, with trade union input in some cases. Laws protecting the rights to collective bargaining and freedom of association are generally enforced. The Tripartite Labor Dispute Settlement Committees (TC) resolves the majority of disputes between workers and management and consists of representatives from Mongolia’s CMTU, employers, and the government. However, management and legal contacts state that TCs are not compliant either with the existing labor law or Mongolia’s 2013 Law on Mediation. Cases that cannot be resolved by TCs are referred to the courts. For Mongolian labor laws as they relate to union activity, see the 2016 Mongolia Country Report on Human Rights Practices.

The LOL allows employers to fire or lay-off workers for cause; however, depending on the circumstances, severance may be required and workers may seek judicial review of their dismissal. The statutory severance package requires employers to pay laid off workers one month of the contracted salary; fired workers receive no severance. Laid off or fired workers are entitled to three months of unemployment insurance from the Social Insurance Agency.

The International Labor Organization (ILO) has expressed concern about child labor practices that vary with Mongolian law and international labor standards. Authorities report that employers often do not follow the law, requiring minors to work in excess of the permitted hours per week and paying them less than the minimum wage. The General Agency for Specialized Inspections (GASI ) enforces all labor regulations; however the agency is understaffed, with only 1,250 inspectors. GASI Inspectors are authorized to compel compliance with labor statutes, but its limited capacity, combined with the growing number of privately owned enterprises, limits enforcement. Additional information on the ILO conventions ratified by Mongolia are available on the ILO website .

The United States Overseas Private Investment Corporation (OPIC) offers loans and political risk insurance to U.S. investors active in most sectors of the Mongolian economy. In addition, OPIC and Mongolia have signed an Investment Incentive Agreement that requires the GOM to extend national treatment to OPIC-financed projects in Mongolia. The agreement is available online . For example, under this agreement mining licenses of firms receiving an OPIC loan may be pledged as collateral to OPIC, a right not normally bestowed on foreign financial entities. The U.S. Export-Import Bank (EXIM) offers programs in Mongolia for short-, medium-, and long-term transactions in the public sector and for short- and medium-term transactions in the private sector. Mongolia is also a member of the Multilateral Investment Guarantee Agency (MIGA).

*Mongolia Host Country Data: Bank of Mongolia, Mongolian Foreign Sector Review, 2016: https://mongolbank.mn/documents/statistic/externalsector/bopreview/bopreview_2016.pdf 

Table 3: Sources and Destination of Mongolia FDI

The Government of Mongolia has never tracked where the beneficial ownership of a given investment actually terminates. Rather the government only records where the company claims its domicile. The U.S. Embassy is aware of numerous cases where foreign entities active in Mongolia do not incorporate in their countries of origin but rather do so in third countries, largely for tax mitigation purposes. Consequently, although Mongolia’s data and the IMF’s, respectively, suggest that much of Mongolia’s investment originates from such places as the Netherlands or Singapore, much of the investment comes from other jurisdictions, including but not limited to the United States, Australia, Canada, Russia, and China.

Outward Direct Investment figures are unavailable. (From the IMF’s Coordinated Direct Investment Survey (CDIS) site: http://data.imf.org/CDIS )

Table 4: Sources of Mongolia Portfolio Investment

(From IMF’s Coordinated Portfolio Investment Survey (CPIS) site: http://data.imf.org/?sk=B981B4E3-4E58-467E-9B90-9DE0C3367363 )

The Economic and Commercial Section
U.S. Embassy
P.O. Box 341
Ulaanbaatar 14192, Mongolia
Telephone: +976-7007-6001
Email: Ulaanbaatar-Econ-Comm@state.gov

Policies Towards Foreign Direct Investment

The Government of Mozambique is open to foreign investment, which it views as a means to drive economic growth and promote job creation. Fundamentally, all business sectors are open to foreign investors. The GRM reviews and approves each foreign and domestic investment; however, there are almost no restrictions on the form or extent of foreign investment. The government’s Investment Promotion Center (CPI) has been investors’ primary contact with the government; however, CPI will merge in 2017 with two export and investment-related agencies.

Contact information for CPI is:

Investment Promotion Center (CPI)
Rua da Imprensa, 332 (ground floor)
Caixa Postal 4635, Maputo
Tel: (258) (21) 313310/75 or (21) 313295/99
Fax: (258) (21) 313325
E-mail: cpi@cpi.co.mz
Internet: http://www.cpi.co/ 

Mozambique’s Law on Investment, No. 3/93, dated June 24, 1993, and its related regulations, govern national and foreign investment. Earlier amendments, from 1993 and 1995, were replaced by Decree No. 43/2009 in August 2009, which provided new regulations to the Investment Law.

In November 1, 2016, the Council of Ministers merged CPI, the Office of Economic Zones for Accelerated Development (GAZEDA-Portuguese acronym), and the Institute for the Promotion of Exports (IPEX- Portuguese acronym), creating the Agency for Investment Promotion and Exports (APIEX in its Portuguese acronym). The Decree will come into effect in April 2017, but the agencies will continue to have separate roles until May 2017.

CPI assists both local and foreign investors in obtaining licenses and permits. However, in general, large investors receive much more support from the government in the business registration process than small and medium-sized investors. Government authorities must approve all foreign and domestic investments that require guarantees or receive incentives under the Investment Law.

The GRM maintains an ongoing dialogue with the Confederation of the Economic Business Associations (CTA- Portuguese acronym). CTA is represented throughout the country and has 132 associations as members. CTA organizes several provincial meetings and a national event every year to provide feedback to the government on the business environment. CTA holds an annual Private Sector Conference (CASP –Portuguese acronym) with the president and quarterly Doing Business Monitoring Council (CMAM – Portuguese acronym) with the prime minister.

Despite generally conducive laws, investors in Mozambique find that public institutions have differing levels of knowledge, enforcement, and capacity to implement legislation. Courts and magistrates are overtasked and investors complain of meddling from influential local interests.

Limits on Foreign Control and Right to Private Ownership and Establishment

Mozambique’s Investment Law and regulations generally do not make distinctions based upon investor origin, nor do they limit foreign ownership or control of companies. With the exception of investments related to Security & Safety, Media & Entertainment, and certain game-hunting concessions, there have been no legal requirement that Mozambican citizens own shares of foreign investments since 2011.

Lengthy registration procedures can be problematic for any investor — national or foreign — but those unfamiliar with Mozambique and the Portuguese language face greater challenges. Some foreign investors find it beneficial to work with a local equity partner who is familiar with the bureaucracy at the national, provincial, and district levels.

CPI assists investors in finding land for development and obtaining appropriate documentation, including appropriate agricultural land. The GRM advises companies on relocating individuals currently occupying land designated for development; however, companies are ultimately responsible for planning and executing resettlement programs.

Law No. 15/2011 passed in August 2011, often referred to as the “Mega-Projects Law” that governs public-private partnerships, large-scale ventures, and business concessions, states that Mozambican persons should participate in the share capital of all such undertakings in a percentage ranging from 5% to 20% of the equity capital of the project company. Regulations of this law were approved by the Council of Ministers in June 2012.

The GRM is developing a “Local Content” law defining the legal regime that would require inclusion of local goods and services by businesses operating in Mozambique. Other legal obligations being considered would give exclusivity to Mozambican legal and natural persons to import and supply final goods and services within the country. For the oil and gas sector, concessionaires would need to procure insurance with certified Mozambican companies, provided that such insurance is generally applicability and not specific to petroleum operations, construction, or to facilities. The concessionaries shall give preference to Mozambican insurers, when the locally available insurance is comparable to international standards and the prices do not exceed the price of comparable insurance coverage by more than 10 percent from international markets, inclusive of taxes and related fees.

The government recognizes and enforces the protection of private property and provides a mechanism that protects and facilitates acquisition and disposition. The government owns all land, but there is a lease system in place. Developers are entitled to 50-years leases that can be renewable for an equal period of time. Infrastructure built on leased land is owned by the license holder who can rent it or sell it to others without restrictions.

Provincial governors can approve domestic investment projects with an investment value of less than 1.5 billion meticais (approximately $55 million). Approval of the Director General of CPI is required for foreign and/or national investment projects with an investment value of less than 2.5 billion meticais (approximately $92 million). The Minister of Economy and Finances must approve foreign and/or national investment projects with an investment value of less than 13.5 billion meticais (approximately $500 million). The Council of Ministers must approve investment projects with an investment value greater than 13.5 billion meticais, including projects that require a land area greater than 10,000 hectares to be used for any purpose. Any other projects with political, social, economic, financial or environment impacts should be approved by the Council of Ministers, as proposed by the Minister of Economy and Finances.

Other Investment Policy Reviews

Mozambique has undergone investment policy reviews by both the United Nations Committee on Trade and Development (UNCTAD) and the Organization for Economic Cooperation and Development.

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

UNCTAD Investment Policy Review (2012)
http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=222 

Business Facilitation

CPI and GAZEDA are responsible for promoting and facilitating investment in Mozambique. They provide the following services to all investors: incorporation, business licensing, Entrance Visa, work permits, residence permits, identification and licensing of land, identification of business partners, troubleshooting, project monitoring, and implementation follow-up.

All information regarding registration of business and administrative practices are available at: http://www.portaldogoverno.gov.mz/por/Empresas/Registos 

Investors have to pay close attention to documents and procedures requested in order to establish a business locally or to request fiscal and customs incentives if investing in an “industrial free zone.” Detailed information on the required documents and the corresponding agencies is available here: http://www.portaldogoverno.gov.mz/por/Empresas/Registos 

In 2016, Mozambique ranked 137 among 190 countries in the World Bank Doing Business report. The report highlights that it takes 24 days to start a business, one day to receive construction permits, and 32 days to get electricity. The World Bank reports that Mozambique requires 34 days and 12 procedures to establish a foreign-owned limited liability company (LLC), which puts Mozambique at slightly better than the regional average for Sub-Saharan Africa.

Outward Investment

The GRM does not promote or incentivize outward investment. It also does not restrict domestic investors from investing abroad. The law does request that domestic investors remit investment income from overseas, except for amounts required to pay debts, taxes, or other expenses abroad.

In December 1998, Mozambique negotiated a Bilateral Trade Agreement (BIT) with the United States. The U.S. Senate ratified the treaty in November 2000, followed by the Mozambican Council of Ministers in December 2004. The U.S.-Mozambique BIT came into effect on March 3, 2005. In June 2005, the United States and Mozambique signed a Trade and Investment Framework Agreement (TIFA) that established a Trade and Investment Council to discuss bilateral and multilateral trade and investment issues. The Council held its first meeting in October of 2006.

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

Mozambique has also signed bilateral investment agreements with: Algeria, Belgium, China, Cuba, Denmark, Egypt, Finland, France, Germany, Indonesia, Italy, Mauritius, The Netherlands, Portugal, South Africa, Sweden, Switzerland, the United Kingdom, and Zimbabwe.

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

Investors face myriad requirements for permits, approvals, and clearances that take substantial time and effort to obtain. The difficulty of navigating the system provides opportunities for corruption and bribery when officials facilitate routine transactions.

Regulations in the areas of labor, health and safety, and the environment often go unenforced, or are selectively enforced. In addition, civil servants have threatened to enforce antiquated regulations that remain on the books to obtain favors or bribes. The government is aware of the problems and in recent years has launched a donor-funded effort to streamline procedures.

Draft bills are usually made available for public comments through the business associations or relevant sectors. Changes to laws and regulations are published in the National Gazette. Public comments are usually limited to input from a few private sector organizations, such as CTA. However, there have been complaints of short comment periods and that comments not being properly reflected in the National Gazette. The Association of Commerce and Industry, or ACIS, based in Beira, is a Mozambican non-profit business organization that represents the interests of over 300 companies, both national and international, including major U.S. companies. The GRM is considering a law that would make public consultation on future legislation mandatory.

International Regulatory Considerations

Mozambique is a member of SADC (Southern Africa Development Community). In June 2016, the GRM signed an Economic Partnership Agreement (EPA) with SADC. Besides Mozambique, the other signatory countries are Botswana, Lesotho, Namibia, South Africa, and Swaziland. Mozambique exports aluminum under the EPA agreement.

The GRM ratified the Trade Facilitation Agreement (TFA) in July 2016 and notified the WTO in January 2017. A National Trade Facilitation Committee was established to coordinate the implementation of the TFA. The U.S. Government serves as donor facilitator for this committee.

Legal System and Judicial Independence

Mozambique’s legal system is based on Portuguese civil law and customary law. In December 2005, the Parliament approved major revisions to the Commercial Code – the result of a collaborative effort starting in 1998 between the Mozambican government, the private sector, and donors. The previous Commercial Code was from the colonial period, with clauses dating back to the 19th century, and it did not provide an effective basis for modern commerce or resolution of commercial disputes. The revised code went into effect July 1, 2006, and is generally viewed as a positive development.

Laws and Regulations on Foreign Direct Investment

On February 21, 2017, the GRM approved a new regulation to facilitate visas for foreign nationals intending to invest in projects in Mozambique. The measure reduced the minimum investment amount required from $50 million to $500,000 for an investment visa. Under the new visa regulations, citizens of nations that have Mozambican embassies or consulates may now also request visas upon entry, although implementation of this law is unproven. The new border visa is valid for 30 days and allows two entries.

Decree 37/2016 of August 31 approved the regulation of Mechanisms and Procedures for Contracting Foreign Citizens. The regulation unequivocally clarifies that private employment agencies can contract foreign citizens only for their function and cannot contract for job placement. However, an exception is made for managing partners and representatives, but the foreign employee must have the required academic/professional qualifications and the contract must occur only if nationals do not have the required qualifications.

Competition and Anti-Trust Laws

Law 10/2013 of April 11, 2013, (the Competition Law), established a modern legal framework for competition in Mozambique and created the Competition Regulatory Authority (the Authority). Although the Competition Law lacks several provisions, an August 2014 statute expanded the law. The framework is inspired by the Portuguese competition enforcement system. Violating the prohibitions contained in the Competition Law (either entering into an illegal agreement or practice or implementing a concentration subject to mandatory filing) can result in a fine of up to 5% of the turnover of the company in the previous year.

Competition Regulatory Authority decisions may be appealed in court, namely to the Judicial Court in Maputo, in the case of procedures leading to the application of fines and other sanctions, and to the Administrative Court, with regard to merger control procedures and requests for exemptions relating to restrictive agreements. Companies with a presence in Mozambique are advised to carefully consider the impact of the law on their activities.

Expropriation and Compensation

While there have been no significant cases of nationalization since the adoption of the 1990 Constitution, Mozambican law holds that “when deemed absolutely necessary for weighty reasons of national interest or public health and order, the nationalization or expropriation of goods and rights shall (result in the owner being) entitled to just and equitable compensation.” The GRM has bought back land and property along the new circular road completed around the capital city of Maputo and in Catembe. No American companies have been subject to expropriation issues in Mozambique since the adoption of the 1990 Constitution.

Dispute Settlement

Mozambique acceded in mid-1998 to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. For disputes between U.S. and Mozambican companies where BIT violation is alleged, recourse via the international Alternative Dispute Resolution may also be available. No investment disputes in the past ten years have involved U.S. investors. Investors who feel they have a dispute covered under the BIT should contact the U.S. Embassy. In 1999, the Parliament passed Law no. 11/99 of July 8 (Law on Arbitration), which allows access to modern commercial arbitration for foreign investors. The Center for Commercial Arbitration, Conciliation, and Mediation (CACM) offers commercial arbitration with offices in in Maputo and Beira.

Bankruptcy Regulations

In June 2014, the GRM passed a comprehensive legal regime for bankruptcy, streamlining the bankruptcy process and settings the rules for business recovery. Globally, Mozambique stands at 65 in the ranking of 190 economies on the ease of resolving insolvency according the 2017 Doing Business Report.

Investment Incentives

The Code of Fiscal Benefits contains specific incentives granted to entities that intend to invest in certain geographical areas within Mozambique that have natural resource potential, but which lack infrastructure and have low levels of economic activity. Rapid Development Zones (RDZ) were also created to facilitate investment. Investments in these zones are exempt from import duties on certain goods and are granted an investment tax credit equal to 20% of the total investment (with a right to carry credit forward for five years). Additional modest incentives are available for professional training and in the construction and rehabilitation of public infrastructure, including but not limited to roads, railways, water supply, schools, and hospitals.

The Code of Fiscal Benefits, Law No. 4/2009, passed in January 2009, can be found at http://www.speed-program.com/Trade-Investment . The Regulations of the Code of Fiscal Benefits are set forth in Decree No. 56/2009 approved in October 2009.

Foreign Trade Zones/Free Ports/Trade Facilitation

The government established export processing zones called Industrial Free Zones in 1999. The decree set up an Industrial Free Zone Council, which approves companies as Industrial Free Zone enterprises, providing customs and tax exemptions and other benefits, including profit repatriation. A special labor and immigration tax scheme is available for industrial free zones.

Industrial Free Zone developers enjoy an exemption from customs duties, VAT, and tax on the importation of construction materials, machinery, equipment, accessories, accompanying spare parts and other goods destined for the establishment and operation of the Industrial Free Zone.

There are three essential requirements for Industrial Free Zone status: job creation for Mozambicans, the exportation of at least 85% of annual production, and a minimum investment of $50,000. Almost all industries, with the exception of prospecting and exploration of natural resources and processing of raw cashew nuts and seafood (including prawns), can participate. Free Zone concessions are granted for a renewable period of 50 years.

Special Economic Zones can be established on a case-by-case basis with the objective of developing specific geographical areas that benefit from exemption from custom duties and taxes, a free “off-shore” type foreign exchange regime, and special labor and immigration regimes. For example, a special tax and custom regime has been created for the Zambeze Valley until 2025.

Performance and Data Localization Requirements

Foreign workers may only be contracted where there are no Mozambicans with such qualifications or their number is insufficient. The Ministry of Labor enforces quotas for foreign workers as a percentage of the workforce within individual private companies. All investments must specify the number and category of Mozambican and foreign workers to be employed.

Specific performance requirements are built into mining concessions and management contracts, and sometimes into the sale contracts of private entities. Investments involving partnerships with the government usually include milestones that must be reached for projects to continue.

The government generally does not require investors to purchase from local sources, nor does it require technology or proprietary business information to be transferred to a local company; however, the proposed “Local Content” law could create additional requirements in this realm.

Regulations for new mining and petroleum laws might oblige investors to give preference in purchasing from local sources available in Mozambique, which are of an internationally comparable quality and that are offered at competitive prices, in terms of delivery. The government of Mozambique intends to codify local content requirements.

The government agency responsible for enforcing IT policy and rules is:

UTICT – Unidade Técnica de Implementação da Politica de Informática
Technical Implementation Unit for IT Policy
Tel: (258) 21 309 398; 21 302 241
Mobile (258) 305 3450
Email: cpinfo@infopol.gov.mz
URL: www.infopol.gov.mz 

Real Property

The legal system recognizes and protects property rights for buildings and movable property. Private ownership of land is not allowed in Mozambique, as land is owned by the State. The government grants land-use concessions for periods of up to 50 years with options to renew, called DUATs (Direitos de Uso e Aproveitamento de Terra, or a land-use title). Land-use concessions serve as proxies for land titles, but cannot be used as collateral. Although the overall land-related policy and legal framework is sound, there are some gaps in implementation of relevant laws and regulations, including a lack of clarity, limited capacity, unclear institutional arrangements, and low land tax and associated distortive incentives for land access.

There is not a robust market for land use rights, making land use titles difficult to transfer. The process to award land concessions is also not transparent. The government at times has granted overlapping land concessions. Since the 1999 regulations to the 1997 Land Law were adopted, the land registration agency has accelerated the bureaucratic process of granting concessions and has reduced the period for issuance of land titles to an average of 90 days for most of the concessions. However, a small percentage of land concessions continue to takes much longer, due to disputes and the complexity of the procedures. Land surveys are being conducted throughout the country to enable individuals to register their land concessions, although the process is moving slowly. Investors should be aware of the requirement to obtain endorsement of their projects in terms of land use and allocation at a local level from the affected communities.

Intellectual Property Rights

The Parliament passed a copyright and related rights bill in 2000. This bill, combined with the 1999 Industrial Property Act, brought Mozambique into compliance with the WTO agreement on the Trade Related Aspects of Intellectual Property Rights (TRIPS). The law provides for the security and legal protection of industrial property rights, copyrights, and other related rights. In addition, Mozambique is a signatory to the Bern Convention, as well as the New York and Paris Conventions.

Despite enforceable laws and regulations protecting intellectual property (IPR) and providing recourse to criminal or administrative courts for IPR violations, it remains difficult for investors to enforce their IPR. The registration process is relatively simple and private sector organizations have been working with various government entities on an IPR taskforce to combat IPR infringement and related public safety issues.

Intellectual property rights enforcement in Mozambique remains sporadic and inconsistent. Raids and prosecutions are extremely rare. Occasionally, media reports describe large-scale raids on pirated items, but threats of prosecution seem to have had little effect. Pirated copies of audio, videotapes, DVDs and other goods are commonly sold in Mozambique.

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/ .

Capital Markets and Portfolio Investment

The Mozambique Stock Exchange (BVM – Portuguese acronym) is a public institution under the guardianship of the Minister of Economy and Finance. Corporate and government bonds are traded on the Stock Exchange and there is only one dealer that operates in the country, with all other brokers incorporated into commercial banks, which act as the primary dealers for treasury bills. The secondary market in Mozambique remains underdeveloped.

Credit is allocated on market terms but eligibility requirements exclude much of the population form obtaining credit. Banks request collateral, but since land cannot be used as collateral, the majority of individuals don’t qualify for loans. Foreign investor export activities in critical areas related to food, fuel and health markets have access to credit in foreign and local currencies. All other sectors have access to credit only in the local currency. Available credit instruments include medium and short term loans, syndicated loans, foreign exchange derivatives, and trade finance instruments, such as letters of credit and credit guarantees.

The Government of Mozambique notified the International Monetary Fund (IMF) that it has accepted the obligations of Article VIII sections 2, 3, and 4 of the IMF Articles of Agreement, effective May 20, 2011.

Money and Banking System

Since 2015, the banking sector in Mozambique has seen several actions from the Central Bank (Bank of Mozambique), tightening the monetary position due to low foreign exchange reserves, inflationary pressures, currency devaluation, and weak banking institutions. Presently, the local banking sector is stable, after the Central Bank took administrative control over Moza Banco, Mozambique’s fourth largest commercial bank, dissolving its board and replacing it with a provisional board. Moza Banco’s shareholders failed to recapitalize the bank in March 2017, effectively putting the bank up for sale, which looks likely, as there are already numerous credible offers to purchase the bank. The Central Bank also revoked the license of Nosso Banco due to severe liquidity and management problems, the first and only bank to be liquidated in Mozambique. The Central Bank increased interested rates and the amount that commercial banks must hold in reserves with the Central Bank. As of April 2017, the Central Bank implemented a new monetary policy intervention rate.

There are 17 commercial banks operating in this market. In 1992, the GRM approved Law 1/92 that made preservation of the local currency the main objective of the Central Bank. The Central Bank also manages monetary policy and supervises local financial institutions. Mozambique allows foreign banks to establish operations in the country.

Foreign Exchange and Remittances

Foreign Exchange

The currency is freely convertible at banks and exchange houses for recurring transactions, while capital transactions have to be approved by the Central Bank. Guidelines for capital transactions with the Central Bank are normally outlined in the investment approval documents and can only be performed through a local bank. Foreign Direct Investment (FDI) into Mozambique must be registered with the Central Bank within 90 days to allow for the monitoring of foreign exchange. Private individuals are limited to a maximum of $5,000 per foreign exchange transaction and larger transactions must receive the approval of the Central Bank. The administrative procedures required for the repatriation of capital, profits and dividends, all of which are foreign exchange transactions, can take a significant amount of time and require coordination with the Ministry of Economy and Finance to obtain tax clearance. Investors should raise any foreign exchange concerns early in the negotiation process with the GRM and ensure that profit, dividends and other repatriation of foreign currency is included in their investment approval documents to avoid future issues. In early 2016, the Central Bank encouraged commercial banks to limit the sale of foreign exchange, making it difficult to obtain foreign currency in some instances.

Mozambique has officially had a free-floating exchange rate since 1992. The exchange rate remained stable until the middle of 2015, when declining reserves prevented the Central Bank from artificially supporting the metical. The metical lost significant value starting in the final quarter of 2015 and continuing through 2016. In December 2015, the Central Bank required that external payments made with a credit and/or debit card could not exceed $14,000 per year. However, the Central Bank will end this measure by April 2017.

Transfers of currency are protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

Remittance Policies

The Foreign Exchange Law (Law no. 11/2009 of 11 March) and its subordinate regulation (Decree no. 83/2010 of 31 December) require companies to remit their export earnings to Mozambique and convert 50% to local currency, commonly referred to as an “export surrender” requirement.

Sovereign Wealth Funds

The GRM is exploring establishing a sovereign wealth fund for liquefied natural gas revenues expected in the next decade. Currently there is an off-budget account for capital gains revenues. Article 5 of the 2017 Budget Law authorizes the government to save or spend windfall revenues on investment projects, debt repayment, and emergency programs. However, there are limited details on how off-budget spending should be planned and approved.

State-owned enterprises (SOEs) have their origin in the socialist period directly following Mozambique’s independence in 1975. There are a variety of SOEs that compete with the private sector in the Mozambique economy. Government participation varies depending on the company and sector, and SOEs are managed by the Institute for the Management of State Participation (IGEPE-Portuguese acronym). Following past privatization and restructuring programs, IGEPE holds majority and minority interests in 128 firms, down from 156.

Some of the largest SOEs, such as Telecommunications of Mozambique (Information & Communication – landline telephones), Airports of Mozambique (ADM) and Airlines of Mozambique (Travel – airports and air transportation), and Electricity of Mozambique (Energy & Mining – electrical utility), have monopolies in their respective industries. In some cases, SOEs enter into joint ventures with private firms to deliver certain services. For example, Ports and Railways of Mozambique (CFM-Portuguese acronym) offers concessions for some of its ports and railways. Some of these SOEs benefit from state subsidies. In some instances, SOEs have benefited from non-competed contracts that by law should have been competitively tendered. SOE accounts are generally not transparent and are not audited by the Supreme Audit Institution. SOEs represent unknown, but potentially significant contingent liabilities for the GRM.

SOEs are listed here: http://www.igepe.org.mz/index.php?option=com_content&view=article&id=76&Itemid=72&lang=pt 

Privatization Program

Mozambique’s privatization program has been relatively transparent, with tendering procedures that are generally open and competitive. Most remaining parastatals operate as state-owned public utilities, with government oversight and control, making their privatization more politically sensitive. While the government has indicated an intention to include private partners in most of these utility industries, progress has been slow.

Larger companies and foreign investors in Mozambique tent to follow their own responsible business conduct (RBC) standards. For some large investment projects, RBC-related issues are negotiated directly with the GRM. RBC is an increasingly high-profile issue in Mozambique, especially for large mining companies, which have had to relocate entire small communities to gain access to concession sites. Major LNG projects in the province of Cabo Delgado will also require resettlement of some communities. The Mozambican corporate social responsibility network (www.pactum.co.mz) was created to promote sound initiatives and provide technical assistance to companies wishing to invest in the communities where they operate.

Business integrity initiatives are mainly supported by business associations, civil society organizations, such as the League of Human Rights (LDH-Portuguese acronym), and some multinational companies. CTA is preparing a “Business Code of Conduct” which will include monitoring, sanctions, and an enforcement mechanism. IoDmz promotes business integrity initiatives, including the adoption of a Business Code of Ethics and a Business Pact against Corruption (BIPAC) in procurement and political funding. ACIS (Commercial, Industrial and Services Association), with their Code of Business Principles, also promotes RBC. Mozambique is Extractive Industries Transparency Initiative (EITI) compliant.

The National Assembly passed an anti-corruption bill in 2004. Mozambique established an Anti-Corruption Unit in the Office of the Attorney General (renamed Central Office for the Combat of Corruption in 2005) to investigate corruption-related crimes. In 2005, the government passed Decree 22/2005, which created provincial-level offices to combat corruption. The 2012 Law on Public Integrity banned government officials and parliamentarians from simultaneously holding positions in SOEs. This and other legislative reforms provide a sound basis for combating corruption, but implementation is often lacking. Mozambique passed a Right to Information law in 2014, which was publicly released in January 2016, although there have been cases of some journalists being denied requests for information.

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

Mozambique ranked 142th out of 176 countries on Transparency International’s 2016 Corruption Perceptions Index. Corruption is a concern across the government, and senior officials often have conflicts of interest between their public roles and their private business interests. The problem of corruption and bribery also remain a major problem for Mozambican police forces.

A few civic organizations and journalists, with support from the U.S. Government, remain vocal on corruption-related issues. One NGO, the Center for Public Integrity (CIP), continues to be active in publicly pressuring the government to act against corrupt practices. In a 2016, CIP and Transparency International assessed integrity and transparency in Mozambique’s business environment, giving it a zero out of 100 for enforcement of laws prohibiting bribery of public officials. The assessment further noted that since so many local businesses are closely linked to the government, they have little incentive to promote transparency. The assessment concluded that despite strong rules prohibiting bribery of public officials, enforcement, and evidence of sanctions is poor.

Resources to Report Corruption

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

Ana Maria Gemo
Central Anti-Corruption Office (Gabinete Central de Combate à Corrupção)
Avenida 10 de Novembro, 193
(258) 823034576
gabinetecorrupção@yahoo.com.br or
anagemo@teledata.mz

Mozambique experienced waves of politically motivated violence between 2013 and 2016 as a result of the armed conflict between GRM forces and main opposition party Renamo. Following a short detente after a September 2014 peace agreement, the October 2014 national elections resulted in minor, targeted disruptions and isolated violence and demonstrations. Violence flared up again in 2015 when Renamo rejected the national elections results and demanded to govern six central and northern provinces. Renamo’s leader was forced into hiding later that year after surviving two alleged convoy attacks and a forced entry into his home by GRM forces.

Tensions peaked in 2016, a year which saw GRM forces deploy armed convoys along the country’s two main commercial highways in response to Renamo attacks against vehicles and administrative posts. Thousands of Mozambicans sought asylum in neighboring Malawi. International human rights organizations described alleged human rights violations against the refugees and their families carried out by GRM forces, as well as allegations of mass graves. There was also a shooting of an independent journalist and the political assassination of a prominent Renamo negotiating team member. However, a cessation of hostilities was declared in December 2016. Since then, there have been few reports of politically motivated violence and a new phase of peace negotiations has begun.

Both the general and economic environments have grown increasingly politicized over the last several years. This is due in part to the discovery of large natural gas deposits (currently estimated to be 100 trillion cubic feet or more of gas) in the Rovuma Basin in northern Mozambique, with projected annual revenues potentially reaching beyond $2.5 billion. With the anticipated resource economic windfall, there has been pressure from both ruling party Frelimo and Renamo to increase their political power and maximize opportunities for resource capture. In 2016, the political and economic situation was further stressed by the revelation of $2 billion in GRM-backed debt to three private companies majority owned by government bodies that resulted in allegations of malfeasance carried out by the former administration. As a result, the IMF and donors suspended direct budget support and an independent, forensic audit into the debt is currently underway.

Though the recent cessation of hostilities has ameliorated the situation to some extent and relative calm has returned to the country, a lasting peace is far from secured. Two bipartisan commissions with additional independent experts are currently negotiating decentralization and military affairs ahead of the upcoming 2018 local and 2019 national elections, and a Contact Group comprised of seven accredited local ambassadors (of which the U.S. is co-chair) is providing technical support. Political and economic tensions will likely continue at low levels until a bipartisan agreement between Frelimo and Renamo is reached on the issue of decentralization and military participation. If that does not happen, Mozambique risks sliding back into conflict.

The labor market is dominated by the informal economy. The vast majority of people (approximately 80%) work in agriculture, particularly in rural areas, while people in cities often work in informal trade.

There is an acute shortage of skilled labor in Mozambique. As a result, many employers import foreign employees to fill these skill gaps. The government passed a labor regulation in 2016 strengthening the requirement for employers of foreign nationals to devise a skills transfer program to train Mozambican nationals to eventually replace the foreign workers. The GRM maintains quotas that limit the number of foreign nationals a business can employ in relation to the number of Mozambican citizens it employs.

The constitution and law provide that workers, with limited exceptions, may form and join independent trade unions, conduct legal strikes, and bargain collectively. The law requires government approval to establish a union. The government has 45 days to register an employers’ or workers’ organization, a delay the International Labor Organization (ILO) deemed excessive. Approximately three percent of the labor force is affiliated with trade unions. An employee fired with cause does not have a right to severance, while employees terminated without cause do. Unemployment insurance doesn’t exist and other social safety net programs do not exist for workers laid off for economic reasons.

The Overseas Private Investment Corporation (OPIC) is an independent U.S. government agency that can assist with project finance, through loans or loan guaranties, and political risk insurance in Mozambique, for projects with U.S. involvement ranging from $500,000 to $400 million.

OPIC signed an investment incentive agreement with Mozambique in 1999, which was ratified in 2000. In 2011, at least one company, led by an American, sought an OPIC loan to set up business operations in Mozambique. Following a 2012 visit to Mozambique by OPIC President and CEO Elizabeth Littlefield, at least three more companies expressed interest in future OPIC loans. Potential for OPIC investment is likely to increase in line with Mozambique’s own expected economic growth due to commercialization of Mozambique’s natural resources.

*National Statistics Institute (INE); Investment Promotion Center (CPI)

Table 3: Sources and Destination of FDI

Damon DuBord
Economic Officer
+258 21 492797
DubordDA@STATE.GOV

Policies Towards Foreign Direct Investment

In 1995 the Nigerian Investment Promotion Commission Act dismantled years of controls and limits on foreign direct investment (FDI). This intervention facilitated 100 percent foreign ownership in all sectors (with the exception of the petroleum sector, where FDI is limited to joint ventures or production sharing contracts), and creating the Nigerian Investment Promotion Commission (NIPC) with a mandate to encourage and assist investment in Nigeria. The NIPC features a One-Stop Investment Center (OISC) that nominally includes participation of 27 governmental and parastatal agencies (not all of which are physically present at the OSIC) in order to consolidate and streamline administrative procedures for new businesses and investments. Foreign investors receive largely the same treatment as domestic investors in Nigeria, including tax incentives. However, without strong political and policy support, and because of the unresolved challenges to investment and business in Nigeria, the ability of the NIPC to attract new investment has been limited.

The Government of Nigeria (GoN) has continued to promote import substitution policies for various reasons. In the face of dwindling foreign exchange reserves because of lower oil prices, the GoN hopes to boost local production and reduce demand for foreign exchange. The GoN believes that trade restrictions and local content requirements will attract investment that will develop domestic capacity to produce and manufacture products and services that would otherwise be imported. The import bans and high tariffs used to advance Nigeria’s import substitution goals have been undermined by smuggling of targeted products (most notably rice and poultry) through the country’s porous borders, and by corruption in the import quota systems developed by the GoN to incentivize domestic investment. Despite the GoN’s stated goal to attract investment, investors generally find Nigeria a difficult place to do business.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign control of investments in Nigeria. The NIPC Act of 1995 liberalized the ownership structure of business in Nigeria, so that foreign investors can now own and control 100 percent of the shares in any company (as opposed to the earlier arrangement of 60 percent-40 percent in favor of Nigerians).

The NIPC Act of 1995 allows 100 percent foreign ownership of firms, except in the oil and gas sector where investment is limited to joint ventures or production-sharing agreements. Laws restrict industries to domestic investors if they are considered crucial to national security, such as firearms, ammunition, and military and paramilitary apparel. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The Act prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest. Lack of transparency and corruption in government are endemic.

Nigerian laws apply equally to domestic and foreign investors. These laws include the Nigerian Oil and Gas Content Development Act 2010, Nigerian Minerals and Mining Act of 2007, Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007, Central Bank of Nigeria Act of 2007, Electric Power Sector Reform Act of 2005, Money Laundering Act of 2003, Investment and Securities Act of 2007, Foreign Exchange Act of 1995, Banking and Other Financial Institutions Act of 1991, and National Office of Technology Acquisition and Promotion Act of 1979.

Other Investment Policy Reviews

The OECD completed an investment policy review of Nigeria in May 2015. (http://www.oecd.org/countries/nigeria/oecd-investment-policy-reviews-nigeria-2015-9789264208407-en.htm ). The WTO published a trade policy review of Nigeria in 2011 which also includes a brief overview and assessment of Nigeria’s investment climate. That review is available at https://www.wto.org/english/tratop_e/tpr_e/tp347_e.htm .

The United Nations Council on Trade and Development (UNCTAD) published an investment policy review of Nigeria and a Blue Book on Best Practice in Investment Promotion and Facilitation in 2009, (available at unctad.org ). The recommendations from the report continue to be valid: Nigeria needs to diversify FDI away from the oil and gas sector by improving the regulatory framework, investing in physical and human capital, taking advantage of regional integration and reviewing external tariffs, fostering linkages and local industrial capacity, and strengthening institutions dealing with investment and related issues.

Business Facilitation

Nigeria does not have an on-line single window business registration website, as noted by Global Enterprise Registration (www.GER.co ). The Nigerian Corporate Affairs Commission maintains an information portal. On average, it takes 12 procedures and 44 days to establish a foreign-owned limited liability company (LLC) in Nigeria (Lagos), slightly faster than the regional average for Sub-Saharan Africa. The time required is likely to vary in different parts of the country. Only a local counsel accredited by the Corporate Affairs Commission can incorporate companies in Nigeria. According to the Nigerian Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, foreign capital invested in the LLC must be imported through an authorized dealer, which will issue a Certificate of Capital Importation. This certificate entitles the foreign investor to open a bank account in foreign currency. Finally, a company engaging in international trade must get an import-export license from the Nigerian customs service.

The Nigerian Investment Promotion Commission has established a One Stop Investment Center, co-locating relevant government agencies to one location in order to provide more efficient and transparent services to investors. Investors may pick up documents and approvals that are statutorily needed to set up an investment project in Nigeria. The Center assists with company incorporation, business permits and registration, tax registration, immigration, and customs issues. The Nigerian government has not established uniform definitions for micro, small, and medium enterprises (MSMEs) with different agencies using different definitions.

Outward Investment

The Nigerian Export Promotion Council administered an Export Expansion Grant (EEG) scheme to improve non-oil export performance, but the government ended the program in 2014 due to concerns about corruption on the part of companies who collected the grants but did not actually export. The federal government’s Economic Recovery and Growth Plan 2017-2020, released in February 2017 proposes reviving the EEG in the form of tax credits for companies. The Nigerian Export-Import Bank (NEXIM) provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused. NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports.

Agencies created to promote industrial exports remain burdened by uneven management, vaguely-defined policy guidelines, and corruption. Nigeria’s inadequate power supply and lack of infrastructure and the associated high production costs leave Nigerian exporters at a significant disadvantage. Many Nigerian businesses fail to export because they find meeting international packaging and safety standards is too difficult or expensive. Similarly, firms often are unable to meet consumer demand for a consistent supply of high quality goods in quantities sufficient to support exports as well as the domestic market. The vast majority of Nigeria’s manufacturers remain unable to compete in the international market, and have little intention of doing so, given the size of Nigeria’s domestic market.

The GoN signed a Trade and Investment Framework Agreement (TIFA) with the United States in 2000. Nigeria has bilateral investment agreements with Algeria, Austria, Bulgaria, Canada, China, Egypt, Ethiopia, France, Finland, Germany, Italy, Jamaica, Republic of Korea, Kuwait Morocco, The Netherlands, Romania, Russia, Serbia, Singapore South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey, Uganda, and The United Kingdom. Fifteen of these treaties (those with China, France, Finland, Germany, Italy, Republic of Korea, The Netherlands, Romania, Serbia, South Africa, Spain, Sweden, Switzerland, Taiwan and The United Kingdom) have been ratified by both parties. GoN officials blame treaty partners for the lack of ratification, but the ratification process within the GoN has not proven proactive or well-organized. U.S. and Nigerian officials held their latest round of TIFA talks in April 2016.

Nigeria is a party to double taxation agreements with thirteen countries, the latest of which (with the Philippines) became effective January 1, 2014. Nigeria does not have such an agreement with the United States.

Transparency of the Regulatory System

Nigeria’s legal, accounting, and regulatory systems comply with international norms, but enforcement remains uneven. Opportunities for public comment and input into proposed regulations sometimes occur. Professional organizations set standards for the provision of professional services, such as accounting, law, medicine, engineering, and advertising. These standards usually comply with international norms. No legal barriers prevent entry into these sectors.

Ministries and regulatory agencies develop and make public anticipated regulatory changes or proposals and publish proposed regulations before their enactment. The general public has opportunity to comment through targeted outreach including business groups and stakeholders. There is no specialized agency and time period for comment may vary. Ministries and agencies do conduct impact assessments including environmental assessments but impact assessment methodology may vary. The National Bureau of Statistics reviews regulatory impacts impact assessments conducted by other agencies. Laws and regulations are publicly available.

International Regulatory Considerations

Nigeria is not a party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO). Nigeria generally regulates investment in line with the World Trade Organization’s Trade-Related Investment Measures (TRIMS) Agreement, but the GoN’s local content requirements in the oil and gas sector along with guidelines applying local content requirements to the information technology sector may conflict with Nigeria’s commitments under TRIMS. Foreign companies operate successfully in Nigeria’s service sector, including telecommunications, accounting, insurance, banking, and advertising. The Investment and Securities Act of 2007 forbids monopolies, insider trading, and unfair practices in securities dealings.

In December 2013, the National Information Technology Development Agency (NITDA), under the auspices of the Federal Ministry of Communication Technology (MCT), issued the Guidelines for Nigerian Content Development in the ICT sector. These guidelines require ICT original equipment manufacturers, within three years from the effective date of the guidelines to use 50 percent local manufactured content and to use Nigerian companies in providing 80 percent of value added on networks. In addition, the guidelines require multinational companies operating in Nigeria to source all hardware products locally; all government agencies to source and procure all computer hardware only from NITDA-approved original equipment manufacturers; and ICT companies to host all consumer and subscriber data locally, to use only locally manufactured SIM cards for telephone services and data, and to use indigenous companies to build cell towers and base stations.

The goal is to promote development of domestic production of ICT products and services for the Nigerian and global markets, but the guidelines post impediments and risks to foreign investment and U.S. companies by interrupting their global supply chain, increasing costs, disrupting global flow of data, and stifling innovative products and services. Industry representatives have expressed concern about whether the guidelines would be implemented in a fair and transparent way towards all Nigerian and foreign companies. All ICT companies, including Nigerian companies, use foreign manufactured products as Nigeria does not have the capacity to supply ICT hardware that meets international standards.

In October 2015, MCT and NITDA published a notice requiring government and ICT service, network and equipment companies to report their local integration status by November 16. On November 5, 2015, NITDA informed U.S. ICT companies that it would not require in-country product manufacturing due to the difficult business environment in Nigeria, but noted that it would continue to press for local ICT capacity building programs. As of September 2016, NITDA is under new leadership. Embassy contacts indicate that the new Director General, Dr. Isa Ali Ibrahim Pantami, is showing positive signs in adjusting NITDA to a more business friendly position on local content. However, the GoN’s history of mixed signals on enforcement of local content requirements and their implications continues to create uncertainty over local content enforcement.

Nigeria is a member of the Economic Community of West African States (ECOWAS), which implemented a Common External Tariff (CET) beginning in 2015 with a five-year phase in period. Under the CET, Nigeria applies five tariff bands: zero duty on capital goods, machinery, and essential drugs not produced locally; 5 percent duty on imported raw materials; 10 percent duty on intermediate goods; 20 percent duty on finished goods; and 35 percent duty on goods in certain sectors that the Nigerian government seeks to protect. Under the CET, ECOWAS member governments are permitted to assess duties on imports higher than the maximum allowed in the tariff bands (but not to exceed a total effective duty of 70 percent) for up to 3 percent of the 5,899 tariff lines included in the ECOWAS CET.

Legal System and Judicial Independence

Nigeria has a complex, three-tiered legal system composed of English common law, Islamic law, and Nigerian customary law. Common law governs most business transactions, as modified by statutes to meet local demands and conditions. The Supreme Court sits at the pinnacle of the judicial system and has original and appellate jurisdiction in specific constitutional, civil, and criminal matters as prescribed by Nigeria’s constitution. The Federal High Court has jurisdiction over revenue matters, admiralty law, banking, foreign exchange, other currency and monetary or fiscal matters, and lawsuits to which the federal government or any of its agencies are party. The Nigerian court system is slow and inefficient, lacks adequate court facilities and computerized document-processing systems, and poorly remunerates judges and other court officials, all of which encourages corruption and undermines enforcement.

Although the constitution and law provide for an independent judiciary, the judicial branch remains susceptible to pressure from the executive and legislative branches. Political leaders have influenced the judiciary, particularly at the state and local levels. Understaffing, underfunding, inefficiency, and corruption have at times prevented the judiciary from functioning adequately. Judges have frequently failed to appear for trials. In addition, the pay for court officials is low, and they often lack proper equipment and training.

The World Bank’s publication, Doing Business 2017, ranked Nigeria 139 out of 189 on enforcement of contracts, unchanged from its 2016 ranking (Data used was the same as 2016). The Doing Business report noted that there can be significant variation in performance indicators between cities in Nigeria (as in other developing countries). For example, resolving a commercial dispute takes 720 days in Kano but 447 days in Lagos. In the case of Lagos, the 447 days includes 40 days for filing and service, 265 days for trial and judgment and 140 days for enforcement of the judgment with total costs averaging 62 percent of the claim. In comparison, in OECD countries the corresponding figures are an average of 553 days and averaging 21.3 percent of the claim and in sub-Saharan countries an average of 655.2 days and averaging 44.3 percent of the claim.

Laws and Regulations on Foreign Direct Investment

The NIPC Act of 1995 allows 100 percent foreign ownership of firms, except in the oil and gas sector where investment stays limited to joint ventures or production-sharing agreements. Laws restrict industries to domestic investors if they are considered crucial to national security, such as firearms, ammunition, and military and paramilitary apparel. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990. The Act prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest, but the Embassy is unaware of specific instances of such interference by the government.

Nigerian laws apply equally to domestic and foreign investors. These laws include the Nigerian Oil and Gas Content Development Act 2010, Nigerian Minerals and Mining Act of 2007, Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007, Central Bank of Nigeria Act of 2007, Electric Power Sector Reform Act of 2005, Money Laundering Act of 2003, Investment and Securities Act of 2007, Foreign Exchange Act of 1995, Banking and Other Financial Institutions Act of 1991, and National Office of Technology Acquisition and Promotion Act of 1979.

Nigeria does not have an on-line single window business registration website, as noted by Global Enterprise Registration (www.GER.co ). The Nigerian Corporate Affairs Commission (http://new.cac.gov.ng/home ) maintains an information portal.

Competition and Anti-Trust Laws

Nigeria has no consolidated competition law. Under the Investment and Securities Act, the Nigerian Securities and Exchange Commission (NSEC) is empowered to determine whether any business combination is likely to substantially prevent or lessen competition. There are also sector-specific antitrust regulations. Several consolidated competition bills have been drafted and considered by Nigeria’s National Assembly in the last 15 years, but none have passed into law. Nigerian businesses have been known to seek to protect and expand market share through political connections and economic protections, rather than through free and fair competition, and vested interests may seek to retain such a system. The currently pending version (Federal Competition and Consumer Protection Bill of 2016) would repeal the Consumer Protection Act of 2004 and replace the current Consumer Protection Council with a Federal Competition and Consumer Protection Commission and a Competition and Consumer Protection Tribunal. Under the terms of the bill, businesses would be able to lodge anti-competitive practices complaints against other firms in the Tribunal. In March 2016, the President of the Nigerian Senate noted that the Competition and Consumer Protection Bill was included in a group of nine bills that a UK Department for International Development expert panel recommended in order to reform Nigeria’s business environment. In March 2017, the U.S. Federal Trade Commission provided capacity building training to NSEC staff in Abuja on evaluating the competitive impact of mergers and acquisitions.

Expropriation and Compensation

The GoN has not expropriated or nationalized foreign assets since the late 1970s, and the NIPC Act of 1995 forbids nationalization of a business or assets unless the acquisition is in the national interest or for a public purpose. In such cases, investors are entitled to fair compensation and legal redress. A U.S.-owned waste management investment expropriated by Abia State in 2008 is the only known U.S. expropriation case in Nigeria.

Dispute Settlement

ICSID Convention and New York Convention

Nigeria is a member of the International Center for Settlement of Investment Disputes. Nigeria is a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (also called the “New York Convention”). The Arbitration and Conciliation Act of 1988 provides for a unified and straightforward legal framework for the fair and efficient settlement of commercial disputes by arbitration and conciliation. The Act created internationally-competitive arbitration mechanisms, established proceeding schedules, provided for the application of the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules or any other international arbitration rule acceptable to the parties, and made the New York Convention applicable to contract enforcement, based on reciprocity. The Act allows parties to challenge arbitrators, provides that an arbitration tribunal shall ensure that the parties receive equal treatment, and ensures that each party has full opportunity to present its case. Some U.S. firms have written provisions mandating International Chamber of Commerce (ICC) arbitration into their contracts with Nigerian partners. Several other arbitration organizations also operate in Nigeria.

Investor-State Dispute Settlement

Nigeria’s civil courts have jurisdiction over disputes between foreign investors and the GoN as well as between foreign investors and Nigerian businesses. The courts occasionally rule against the GoN. Nigerian law allows the enforcement of foreign judgments after proper hearings in Nigerian courts. Plaintiffs receive monetary judgments in the currency specified in their claims.

Section 26 of the NIPC of 1995 provides for the resolution of investment disputes through arbitration as follows:

“Where a dispute arises between an investor and any Government of the Federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement. Any dispute between an investor and any Government of the Federation in respect of an enterprise to which this Act applies which is not amicably settled through mutual discussions may be submitted at the option of the aggrieved party to arbitration as follows:

• in the case of a Nigerian investor, in accordance with the rules of procedure for arbitration as specified in the Arbitration and Conciliation Act;
• or in the case of a foreign investor, within the framework of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties;
• or in accordance with any other national or international machinery for the settlement of investment disputes agreed on by the parties.

Where in respect of any dispute, there is disagreement between the investor and the Federal Government as to the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Dispute Rules shall apply.”

Nigeria is a signatory to the 1958 Convention on Recognition and Enforcement of Foreign Arbitral Awards. Nigerian Courts have generally recognized contractual provisions that call for international arbitration. Nigeria does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States.

Bankruptcy Regulations

Reflecting Nigeria’s business culture, entrepreneurs generally do not seek bankruptcy protection. Claims often go unpaid, even in cases where creditors obtain judgments against defendants. Under Nigerian law, the term bankruptcy generally refers to individuals where as corporate bankruptcy is referred to as insolvency. The former is regulated by the Bankruptcy Act of 1990, as amended by the Bankruptcy Decree 109 of 1992. The latter is regulated by Part XV of the Companies and Allied Matters Act Cap 59 1990 (CAMA) which replaced the Companies Act, 1968. The Embassy is not aware of U.S. companies that have had to avail themselves of the insolvency provisions under Nigerian law.

Investment Incentives

The GoN maintains different and overlapping incentive programs. The Industrial Development/Income Tax Relief Act Number 22 of 1971, amended in 1988, provides incentives to pioneer industries deemed beneficial to Nigeria’s economic development and to labor-intensive industries, such as apparel. There are currently 71 industries defined as pioneer industries for the purposes of this incentive. Companies that receive pioneer status may benefit from a non-renewable, 100 percent tax holiday of five years (seven years, if the company is located in an economically-disadvantaged area). Industries that use 60 to 80 percent of local raw materials in production may benefit from a 30 percent tax concession for five years, and investments employing labor-intensive modes of production may enjoy a 15 percent tax concession for five years. Additional tax incentives are available for investments in domestic research and development, for companies that invest in local government areas (LGAs) deemed disadvantaged, for local value added processing, for investments in solid minerals and oil and gas, and for a number of other investment scenarios. For a full list of incentives, refer to the Nigerian Investment Promotion Commission website at nipc.gov.ng.

The Nigerian Export Promotion Commission administered an Export Expansion Grant (EEG) scheme to improve non-oil export performance, but the government shut down the program in 2014 due to concerns about corruption on the part of companies who collected the grants but did not actually export. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused. NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports.

Agencies created to promote industrial exports remain burdened by uneven management, vaguely-defined policy guidelines, and corruption. Nigeria’s inadequate power supply and lack of infrastructure and the associated high production costs leave Nigerian exporters at a significant disadvantage. Many Nigerian businesses fail to export because they find meeting international packaging and safety standards to be too difficult or expensive. As noted earlier in this report, the vast majority of Nigeria’s manufacturers remain unable to compete in the international market and have little interest in doing so, given the size of the domestic market.

The NIPC states that up to 120 percent of expenses on (R&D) are tax deductible, provided that such R&D activities are carried out in Nigeria and are connected with the business from which income or profits are derived. Also, for the purpose of R&D on local raw materials, 140 percent of expenses are allowed. For cases in which the research is long-term, it will be regarded as a capital expenditure and will be written off against profit.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Nigerian Export Processing Zone Authority (NEPZA) allows duty-free import of all equipment and raw materials into its export processing zones. Up to 25 percent of production in an export processing zone may be sold domestically upon payment of applicable duties. Investors in the zones are exempt from foreign exchange regulations and taxes and may freely repatriate capital. The GoN also encourages private sector participation and partnership with state and local governments under the free trade zones (FTZ) program, resulting in the establishment of the Lekki FTZ (owned by Lagos state), and the Olokola FTZ (which straddles Ogun and Ondo states and is owned by those two states, the federal government, and private oil companies). Workers in FTZs may unionize, but may not strike for an initial ten-year period.

Nigeria ratified the WTO Trade Facilitation Agreement (TFA) in 2016 which entered into force in February 2017. Nigeria already implements items in Category A under the TFA and has identified, but not yet implemented, its Category B and C commitments. In August 2016, Nigeria requested additional technical assistance to implement and enforce its Category C commitments. (See https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm )

Performance and Data Localization Requirements

Foreign investors must register with the NIPC, incorporate as a limited liability company (private or public) with the Corporate Affairs Commission, procure appropriate business permits, and register with the Securities and Exchange Commission (when applicable) to conduct business in Nigeria. Manufacturing companies sometimes must meet local content requirements. Expatriate personnel do not require work permits, but they remain subject to needs quotas requiring them to obtain residence permits that allow salary remittances abroad. Authorities permit larger quotas for professions deemed in short supply, such as deep-water oil-field divers. U.S. companies often report problems in obtaining quota permits. The Nigerian Oil and Gas Content Development Act, 2010 (NOGCDA) restricts the number of expatriate managers to five percent of the total number of personnel for companies in the oil and gas sector.

Technology Transfer Requirements

The National Office of Industrial Property Act of 1979 established the National Office of Technology Acquisition and Promotion (NOTAP). NOTAP’s main objective is to regulate the international acquisition of technology while creating an environment conducive to local technology. To this end, NOTAP recommends local technical partners to Nigerian users in a bid to reduce the level of imported technology which currently accounts for over 90 percent of technology in use in Nigeria. One of NOTAP’s major activities is the review of Technology Transfer Agreements (TTAs), a requirement for importing technology into Nigeria and for companies operating in Nigeria to access foreign currency. NOTAP reviews three major aspects prior to approval of TTAs and subsequent issuance of a certificate:

• Legal – ensuring that the clauses in the agreement are in accordance with Nigerian laws and legal frameworks within which NOTAP operates;
• Economic – ensuring prices are fair for the technology offered; and
• Technical – ensuring transfer of technical knowledge.

One of the chief complaints among American firms concerning the TTA is the length of the approval process which can take up to three months. NOTAP states that by the end of April 2017 it plans to have an automated system in place to streamline the TTA process thereby reducing the approval process to one month or less.

In cooperation with the Ministry of Finance, NOTAP administers 120 percent tax deductions for research and development carried out in Nigeria and 140 percent tax deductions for research and development using local raw materials. The NOGCDA has technology-transfer requirements that may violate a company’s intellectual property rights.

Data Storage

The Guidelines for Nigerian Content Development in the ICT sector issued by NITDA on December 3, 2013, require ICT companies to host all consumer and subscriber data locally and for government ministries, departments and agencies to source and procure software from only local and indigenous software development companies. Enforcement of the guidelines is largely absent as the GoN lacks capacity and resources to monitor digital data flows. Federal government data is hosted locally in data centers that meet international standards.

Customs

The Nigerian Customs Service (NCS) and the Nigerian Ports Authority (NPA) exercise exclusive jurisdiction over customs services and port operations. Nigerian law allows importers to clear goods on their own, but most importers employ clearing and forwarding agents to minimize tariffs and lower their landed costs. Others ship their goods to ports in neighboring countries, primarily Benin, after which they transport overland and smuggle into the country. The GoN implements a destination inspection scheme whereby all inspections occur upon arrival into Nigeria, rather than at the ports of origin. In December 2013, the NCS regained the authority to conduct destination inspections, which had previously been contracted to private companies. NCS also introduced an online system for filing customs documentation via a Pre-Arrival Assessment Report (PAAR) process.

Shippers report that efforts to modernize and professionalize the NCS and the NPA have reduced port congestion and clearance times. These efforts include an ongoing program to achieve 48-hour cargo clearance, particularly at Lagos’ Apapa Port, which handles over 40 percent of Nigeria’s legal trade. Nevertheless, bribery of customs agents and port officials remains common, and often necessary to avoid extended delays clearing imported goods through the NPA and NCS. Smuggled goods routinely enter Nigeria’s seaports and cross its land borders.

Visa Requirements

Investors sometimes encounter difficulties acquiring entry visas and residency permits. Foreigners must obtain entry visas from Nigerian embassies or consulates abroad, seek expatriate position authorization from the NIPC, and request residency permits from the Nigerian Immigration Service. Investors report that this cumbersome process can take from two to 24 months and cost from USD 1,000 to USD 3,000 in facilitation fees. The GoN announced a new visa rule in August 2011 to encourage foreign investment, under which legitimate investors can obtain multiple entry-visas at points of entry into Nigeria. These changes have not been fully implemented, and the costs to obtain multiple entry visas on entry are not clearly set or standardized with each point of entry. U.S. businesses have reported being solicited for bribes in the visa on entry program. Obtaining a visa prior to traveling to Nigeria is strongly encouraged.

Real Property

The GoN recognizes secured interests in property, such as mortgages. The recording of security instruments and their enforcement remain subject to the same inefficiencies as those in the judicial system. In the World Bank publication, Doing Business 2017, Nigeria ranked 182 out of the 189 countries surveyed for registering property, unchanged from its 2016 ranking. In Lagos, property registration required an average of 13 procedures over 77 days at a cost of 10.1 percent of the property value while in Kano registering property averages 9 procedures over 45 days at a cost of 11.8 percent of the property value.

Fee simple property rights remain rare. Owners transfer most property through long-term leases, with certificates of occupancy acting as title deeds. Property transfers are complex and must usually go through state governors’ offices, as state governments have jurisdiction over land ownership. Authorities have often compelled owners to demolish buildings, including government buildings, commercial buildings, residences, and churches, even in the face of court injunctions. Therefore, acquiring and maintaining rights to real property can be problematic.

Clarity of title and registration of land ownership remain significant challenges throughout rural Nigeria, where many smallholder farmers have only ancestral or traditional use claims to their land. Nigeria’s land reforms have attempted to address this barrier to development but with limited success. A major American investment in an industrial-scale farm in rural Nigeria was cancelled in 2015 in part because the land ownership and the relocation of smallholder farmers was not carried out as promised by the state government, which is vested with such power under Nigerian law.

Intellectual Property Rights

Nigeria’s legal and institutional infrastructure for protecting intellectual property rights remains in need of further development and more funding, even though there are laws on the books to deal with enforcing most IPR violations. The areas where the legislation is deficient include online piracy, geographical indications, and plant and animal breeders’ rights. No new IPR legislation was enacted in 2016.

Copyright protection in Nigeria is governed by the Copyright Act of 1988, as amended in 1992 and 1999, which provides an adequate basis for enforcing copyright and combating piracy. That Act is administered by the Nigerian Copyright Commission (NCC), a division of the Ministry of Justice. The International Anti-Counterfeiting Coalition (IACC) has long noted that the Copyright Act should be amended to provide stiffer penalties for violators. In October 2015, the NCC released a draft Revised Copyright bill, with a public comment period open until early January 2016. The U.S Patent and Trademark Office (USPTO) coordinated U.S. interagency comments on the draft text which post provided to the NCC in April 2016. In late 2016, after considering all comments received, the NCC completed a further revision of the draft bill and submitted it to the Office of the Attorney General for approval prior to introduction in the National Assembly. The NCC declined post’s request for a copy of that revised draft bill but sought to assure post the draft had given significant weight to the comments provided by USG experts. Although the NCC hoped that the Attorney General would approve the draft in time for consideration by the National Assembly in 2017, prospects for passage remain unclear.

Nigeria is a member of the World Intellectual Property Organization (WIPO) but has not yet passed legislation to ratify two WIPO treaties that it signed in 1997: the Copyright Treaty and the Performances and Phonograms Treaty. These treaties address important digital communication and broadcast issues that have become increasingly relevant in the 18 years since Nigeria signed them.

Local content guidelines issued by the Ministry of Communication Technology (MCT) in 2013 (Guidelines for Nigerian Content Development in Information and Communications Technology) have raised IPR concerns about, among other things, the future ability of the GoN to protect data and trade secrets, due to the localization processes requiring the disclosure of source code and other sensitive design elements as a condition of doing business. The IT industry in Nigeria has pushed back strongly against several of the measures in those guidelines, which remain in effect but have not been fully enforced. While the National Information Technology Development Agency (NITDA) does not currently require in-country product manufacturing due to the difficult business environment in Nigeria, it has noted that it would continue to press for local ICT capacity building programs.

Violations of Nigerian IPR laws continue to be widespread, due in large part to a culture of inadequate enforcement. That culture stems from several factors, including insufficient resources among enforcement agencies, lack of GoN political will and focus on IPR, porous borders, entrenched trafficking systems that make enforcement difficult (and sometimes dangerous), and corruption. The NCC, which has primary responsibility for copyright enforcement, is widely viewed as understaffed and underfunded relative to the magnitude of the IPR challenge in Nigeria. Nevertheless, the NCC continues to carry out enforcement actions on a regular basis. According to its report for 2016, the NCC conducted 51 anti-piracy operations and seized 140,663 copyrighted works, including DVDs, books, MP3s, and software. Anti-piracy operations in 2016 led to 103 arrests. Although the quantity of seizures and market value of seizures declined from 2015, the number of anti-piracy operations increased nearly 25 percent

The NCS has general authority to seize and destroy contraband. Under current law, copyrighted works require a notice issued by the rights owner to Customs to treat such works as infringing, but implementing procedures have not been developed and this procedure is handled on a case by case basis between the NCS and the Nigerian Copyright Commission (NCC). Once seizures are made, the NCS invites the NCC to inspect and subsequently take delivery of the consignment of fake goods for purposes of further investigation because the NCC has the statutory responsibility to investigate and prosecute copyright violations. The cost of moving and storing infringing goods is to be borne by the NCC. If, after investigations, any persons are identified with the infringing materials, a decision may be taken to prosecute. Where no persons are identified or could be traced, the Commission may obtain an order of court to enable it destroy such works. The Commission works in cooperation with rights owners associations and stakeholders in the copyright industries on such matters.

Many USG agencies, including the Department of Justice, the U.S. Patent and Trademark Office, the U.S. Copyright Office, the Department of Homeland Security, the Internal Revenue Service, and others have all led or participated in IPR capacity building efforts in recent years that have included participants from Nigeria’s Economic and Financial Crimes Commission, the Nigerian Customs Service, the Nigerian Police, the Nigerian Copyright Commission, the Nigerian Trademarks, Patents, and Designs Registry, the Standards Organization of Nigeria, and the National Agency For Food and Drug Administration and Control.

Nigeria was not listed in the 2017 Special 301 report but was included in the 2016 Notorious Markets Report, which specifically noted two physical markets in Lagos.

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/ .

Capital Markets and Portfolio Investment

The NIPC Act of 1995 liberalized Nigeria’s foreign investment regime, which has facilitated access to credit from domestic financial institutions. Foreign investors who have incorporated their companies in Nigeria have equal access to all financial instruments. Some investors consider the capital market, specifically the Nigerian Stock Exchange (NSE), a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments.

2016 witnessed continuing declines in stock market value owing to Nigeria’s economic recession: the equity market declined 6.12 percent in 2016, following a 17.6 percent decline in 2015. As of December 2016, the NSE claimed over 247 listed companies and a total market capitalization of USD 53.1 billion, a 4.8 percent decline from 2015. Roughly half of that figure is represented by the market capitalization value of just four companies. The GON has considered forcing companies in certain sectors or over a certain size to list on the NSE, as a means to encourage greater corporate participation and sectoral balance in the NSE, but those proposals have not been enacted to date.

The Government employs debt instruments, with the GoN issuing bonds of various maturities ranging from two to 20 years since the return to civilian rule in 1999. The GoN has issued bonds to restructure the GoN domestic debt portfolio from short-term to medium- and long-term instruments. Some state governments have issued bonds to finance development projects, while some domestic banks have used the bond market to raise additional capital. The Nigerian Securities and Exchange Commission (NSEC) has issued stringent guidelines for states wishing to raise funds on capital markets, such as requiring credit assessments conducted by recognized credit rating agencies.

Money and Banking System

The Central Bank of Nigeria (CBN) currently licenses 22 deposit–taking commercial banks in Nigeria. Following a 2009 banking crisis, CBN officials intervened in eight of 24 commercial banks (roughly one third of the system by assets) due to insolvency or serious undercapitalization and established the government-owned Asset Management Company of Nigeria (AMCON) to address bank balance sheet disequilibria via discounted purchases of non-performing loans. The Nigerian banking sector emerged stronger from the crisis thanks to AMCON and a number of other reforms undertaken by the Central Bank of Nigeria (CBN), including the adoption of uniform year-end IFRS financial reporting to increase transparency, a stronger emphasis on risk management and corporate governance, and the nationalization of three distressed banks. In 2013 the CBN introduced a stricter supervision framework for the country’s top eight banks, identified as “Systematically Important Banks” (SIBs) given they account for more than 70 percent of the industry’s total assets, loans and deposits, and their failure or collapse could disrupt the entire financial system and the country’s real economy. These eight banks are: First Bank of Nigeria, United Bank for Africa, Zenith Bank, Access Bank, Ecobank Nigeria, Guaranty Trust Bank, Skye Bank, and Diamond Bank. Under the new supervision framework, the operations of SIBs are closely monitored with regulatory authorities conducting stress tests on the SIBs’ capital and liquidity adequacy. Moreover, SIBs are required to maintain a higher minimum capital adequacy ratio of 15 percent. Although Nigerian Deposit Insurance Corporation (NIDC) officials have estimated non-performing loans stood at 10 percent of outstanding loans at the end of 2016, the actual figure is likely higher. NDIC also reported 13.5 percent non-performing loans in September 2017. GoN and private sector analysts assess that the volume of non-performing loans may be higher than these figures, owing in part to banks not reporting non-performing insider loans made to banks’ owners and directors.

The CBN supports non-interest banking. Both Jaiz Bank International Plc and Stanbic IBTC Plc have established Islamic banking operations in Nigeria. Jaiz Bank International commenced operations in 2012. There are five licensed merchant banks.

The CBN has issued regulations for foreign banks for mergers with or acquisitions of existing local banks in the country. Foreign institutions’ aggregate investment must not be more than 10 per cent of the latter’s total capital.

Foreign Exchange and Remittances

Foreign Exchange

Foreign currency for most transactions is procured through local banks in the inter-bank market. The official Central Bank of Nigeria (CBN) window for procuring foreign exchange, namely the Retail Dutch Auction System, was discontinued for most of 2015 and 2016 in conjunction with the CBN’s systematic restrictions on foreign exchange undertaken to support the value of the naira in the face of weaker forex inflows. Local banks also issue foreign currency-denominated debit cards to customers who have domiciliary accounts. ATM naira-denominated cards issued by local banks can be used internationally for transactions and cash withdrawals, but such transactions have a ceiling of the daily local cash withdrawal limit of Naira 150,000 (approximately USD 750). Low value foreign exchange may also be procured at a premium from foreign exchange bureaus, called Bureaus De Change (BDCs).

The CBN’s foreign exchange reserves varied during 2016, falling as low as $23 billion but ending the year at $29 billion, approximately the same level it held at the end of 2015 With the decline in oil prices, the CBN has closely managed the interbank forex market in order to prop up the naira – a move that has created dollar shortages and a vigorous parallel currency market with prices that varied widely from the official interbank rate. After a year of Central Bank efforts to peg the currency at 196-199N/$1, in June 2016 the Central Bank allowed the naira to depreciate substantially from 199N/$1 to 282N/$ 1 and finally to 310-320N/$1. The naira subsequently depreciated even further on the parallel market, falling to 460-480N/$1 by the end of the year with the official rate stabilizing between 310/-320N/$1. Nigerian, American, and other foreign businesses frequently have expressed strong concern about the CBN’s foreign exchange restrictions, which they report prevent them from importing needed equipment and goods and from repatriating naira earnings. Foreign exchange demand remains high because of the dependence on foreign inputs for manufacturing and refined petroleum products.

In 2015 the CBN published a list of 41 product categories which could no longer be imported using official foreign exchange channels. Affected businesses (American and Nigerian) have complained publicly and privately that the policy in effect bans the import of some 700 individual items and severely hampers their ability to source inputs and raw materials. While the CBN has often referred to the 41-item list as temporary, the restriction remains in place with no indication it will be removed. In February 2017, the CBN began providing more foreign exchange to the interbank market via wholesale and retail forward contract auctions, in order to meet some of the demand that had been forced to the parallel market. These actions satisfied some of the pent-up demand for dollars in the economy and resulted in a strengthening of the naira at the parallel market from a low of 520/dollar in January 2017 to around 390/dollar as of April 2017.

Remittance Policies

The NIPC guarantees investors unrestricted transfer of dividends abroad (net a 10 percent withholding tax). Companies must provide evidence of income earned and taxes paid before externalizing dividends from Nigeria. Money transfers usually take no more than 48 hours, if individuals provide the necessary documentation. In 2015, the CBN implemented restrictions on foreign exchange remittances. All such transfers must occur through banks. Such remittances may take several weeks depending of the size of the transfer and the availability of foreign exchange at the remitting bank. Transfers of currency are protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

Nigeria is not a member of the Financial Action Task Force. It is a member of Intergovernmental Action Group Against Money Laundering in West Africa (GIABA).

Sovereign Wealth Funds

The Nigeria Sovereign Investment Authority (NSIA) is the manager of Nigeria’s sovereign wealth fund. It was created by the Nigeria Sovereign Investment Authority Act in 2011 and began operation the following year with seed capital of USD 1 billion. It’s most recent annual report (calendar year2015) reported total assets of USD 1.1billion, a 20.1 percent increase from 2014. It was created to receive, manage and grow a diversified portfolio that will eventually replace government revenue drawn from non-renewable resources, primarily hydrocarbons.

The NSIA is a public agency that subscribes to the Santiago Principles which are a set of 24 guidelines that assign “best practices” for the operations of Sovereign Wealth Funds globally. The NSIA invests through three funds: the Future Generations Fund for diversified portfolio of long term growth, the Nigeria Infrastructure Fund for domestic infrastructure development, and the Stabilization Fund to act as a buffer against short-term economic instability. NSIA does not take an active role in management of companies. The Embassy has not received any report or indication that the activities of the NSIA limit private competition.

The Government of Nigeria does not have an established practice that is consistent with the OECD guidelines on Corporate Governance for SOEs, but SOEs do have enabling legislation that governs their ownership. To legalize the existence of SOEs, provisions have been made in the Nigerian constitution under socio-economic development in section 16 (1) of the 1979 and 1999 constitutions respectively. The government has privatized many former State-Owned Enterprises (SOEs) to encourage more efficient operations, most recently the state-owned telecommunications company, NITEL, and its mobile subsidiary, MTEL.

Nigeria does not operate a centralized ownership system for its SOEs. The enabling legislation for each SOE stipulates its ownership and governance structure. The Boards of Directors are usually appointed by the President on the recommendation of the relevant Minister. The Boards operate in line with their enabling legislation and are appointed in line with the enabling legislation which usually stipulates the criteria for appointing Board members. Directors are appointed by the Board within the relevant sector. In a few cases, however, some Board appointments have been viewed as a reward to political affiliates. In the case of Nigeria’s most prominent SOE, the Nigerian National Petroleum Corporation (NNPC), Board appointments are made by the presidency but the day to day running of business is overseen by the Group Managing Director (GMD). The GMD reports to the Minister of Petroleum, although in the current administration the President has retained that ministerial role for himself, so the GMD reports primarily to the Minister of State for Petroleum.

Responsible for exploration, refining, petrochemicals, products transportation and marketing, the NNPC is Nigeria’s biggest and arguably most important state-owned enterprise. It owns and operates Nigeria’s four refineries (one each in Warri and Kaduna and two in Port Harcourt), all of which operate far below their original installed capacity. In a bid to attract investment in refineries; the GON says it plans to deregulate the downstream sector fully. In 2016, the Buhari administration took steps to reorganize NNPC into seven independent operational units: Upstream, Downstream, Gas and Power, Refineries, Ventures, Corporate Planning and Services, and Finance and Accounts.

The NNPC has typically operated as an autonomous entity. Until 2016, there was little or no information available on its finances, internal controls, or quasi-fiscal obligations. The Minister of Petroleum Resources grants licenses for oil exploration, while the Department of Petroleum Resources, under the Minister, oversees the licensing process and regulates the sector. While there is open bidding, the Minister of Petroleum Resources exercises wide discretion in awarding licenses. The legislative branch has limited oversight of the process. Nigeria’s tax agency receives taxes on petroleum profits and other hydrocarbon-related levies, while the Department of Petroleum Resources collects rents, royalties, license fees, bonuses, and other payments. In an effort to provide greater transparency in the collection of revenues that accrue to the government, the Buhari administration requires these revenues, including some from the NNPC, to be deposited in the Treasury Single Account.

Another key SOE is the Transmission Company of Nigeria (TCN), responsible for the operation of Nigeria’s national electrical grid. Private power generation and distribution companies have accused the TCN grid of significant inefficiency and inadequate technology. The TCN incorporated in November 2005 and emerged from the defunct National Electric Power Authority (NEPA). It was the only major component of Nigeria’s electric power sector not to have been privatized in 2013.

Privatization Program

The Privatization and Commercialization Act of 1999 established the National Council on Privatization, the policy-making body overseeing the privatization of state-owned enterprises (SOEs), and the Bureau of Public Enterprises (BPE), the implementing agency for designated privatizations. The BPE has focused on the privatization of key sectors, including telecommunications and power, and calls for core investors to acquire controlling shares in formerly state-owned enterprises.

Since 1999, the BPE has privatized and concessioned more than 140 enterprises, including an aluminum complex, steel complex, cement manufacturing firms, hotels, petrochemical plant, aviation cargo handling companies, vehicle assembly plants, and electricity generation and electricity distribution companies. The transmission company remains state-owned. Foreign investors can and do participate in the BPE’s privatization process. The BPE also retains partial ownership in some of the privatized companies. (It holds a 40 percent stake in the power distribution companies, for instance.)

The National Assembly has questioned the propriety of some of these privatizations, with one case related to an aluminum complex privatization recently the subject of a Supreme Court ruling on ownership. Nevertheless, the GoN’s long-delayed sale in December 2014 of the state-owned Nigerian Telecommunications and its mobile arm, Mobile Telecommunications, shows a continued commitment to the privatization model. The GoN remains interested in developing public-private partnerships to attract foreign capital to support basic infrastructure development, such as the Design-Build-Operate-Transfer of the Lagos-Ibadan Expressway, a major highway in the southwestern part of the country.

There is no specific Responsible Business Conduct (RBC) law in Nigeria. Several legislative acts incorporate within their provisions certain expectations that directly or indirectly regulate the observance or practice of Corporate Social Responsibility. In order to reinforce responsible behavior, various laws have been put in place for the protection of the environment. These laws stipulate criminal sanctions for non-compliance. There are also regulating agencies which exist to protect the rights of consumers when breached by these entities.

Large local and foreign enterprises generally follow RBC principles as a way to identify with the communities in which they operate and display support for GoN initiatives. Numerous large local and foreign firms have published policies and guidelines for responsible business conduct. Nigeria participates in the Extractive Industries Transparency Initiative (EITI) and is an EITI compliant country. Specifically, in January 2017 the EITI Board determined that Nigeria had made meaningful progress toward the EITI standard. The next EITI validation study of Nigeria will occur in 2018.

Major infrastructure projects require an Environmental Impact Assessment certification pursuant to the EIA Act. This law ensures that the significant environmental issues are identified and studied before public and private sector development projects or activities are commenced and that any potential negative effects can be prevented, reduced or mitigated.

The Department of Petroleum Resources (DPR), an arm of the Ministry of Petroleum Resources, also ensures comprehensive standards and guidelines to direct the execution of projects with proper consideration for the environment. The DPR Environmental Guidelines and Standards (EGAS) of 1991 for the petroleum industry is a comprehensive working document with serious consideration for the preservation and protection of the Niger Delta. While the GoN has no specific action plan regarding OECD RBC guidelines, most government procurements are done transparently and in line with the Public Procurement Act which stipulates advertisement and a transparent bidding process.

The GoN provides oversight of consumer and environmental protection issues. The Consumer Protection Council (CPC), NAFDAC, SON and other entities have the authority to impose fines, and ensure the destruction of harmful substances which otherwise may have sold to the general public. Environmental pollution by multinational oil companies have resulted in fines being imposed locally while some cases have been pursued in foreign jurisdictions resulting in judgment being granted in favor of the oil producing communities.

The main regulators and enforcers of corporate governance are the Securities and Exchange Commission (SEC) and the Corporate Affairs Commission (which register all incorporated Companies). Nigeria has adopted multiple reforms on corporate governance. Examples include Code of Corporate governance best practice in 2003 issued by Securities Exchange Commission (SEC). Similarly, in 2006, the Central Bank of Nigeria (CBN) issued a Code of Corporate Governance for banks’ post consolidation. In order to improve corporate governance, the SEC in September 2008 inaugurated a National Committee for the reviewing the Code of Corporate Governance for public companies in Nigeria. It is stipulated that the Board should report annually on the nature and extent of its social, ethical, safety, health and environmental policies and practices. The Securities Exchange Commission issued another Code of Corporate Governance in 2011.

The Companies Allied Matter Act 1990 (CAMA) and the Investment Securities Act provide basic guidelines on company listing. More detailed regulations are covered in the Nigeria Stock Exchange Listing rules. Publicly listed companies are expected to disclose such information in their Annual Financial Reports.

The Banks and other Financial Institution Act 1991 empowers the Central Bank of Nigeria (CBN) to register and regulate bank and other financial institutions. The Insurance Act of 2003 ensures the regulation of insurance companies through the National Insurance Commission (NAICOM).

The Institute of Chartered Accountant of Nigeria (ICAN), the Association of Accountant of Nigeria (ANAN), and Institute of Directors (IoD) also play various roles in promoting effective corporate governance systems in Nigeria. They promote their goals through conferences, seminars and symposiums on compliance with the code of corporate governance practices for listed firms.

Government Procurement

Foreign companies, whether incorporated in Nigeria or not, may bid on government projects and generally receive national treatment in government procurement, but may also be subject to a local content vehicle (e.g., partnership with a local partner firm or the inclusion of one in a consortium) or other prerequisites which are likely to vary from tender to tender. Corruption and lack of transparency in tender processes has been a far greater concern to U.S. companies than any discriminatory policies based on foreign status. In 2016, in competing for tenders related to rehabilitation of Nigeria’s railways, one U.S. company described the process as “fairly transparent,” but intimating that corruption concerns still persist. Government tenders are published in local newspapers, a “tenders” journal sold at local newspaper outlets, and on occasion in foreign journals and magazines. The Nigerian government has made modest progress on its pledge to conduct open and competitive bidding processes for government procurement. Reforms have also improved transparency in procurement by the state-owned Nigerian National Petroleum Company (NPPC). Although U.S. companies have won contracts in a number of sectors, difficulties in receiving payment are not uncommon and can inhibit firms from bidding. Supplier of foreign government subsidized financing arrangements appear in some cases to be a crucial factor in the award of government procurements. Nigeria is not a signatory to the WTO Agreement on Government Procurement.

The Public Procurement Law of 2007 established the Bureau of Public Procurement (BPP) as the successor agency to the Budget Monitoring and Price Intelligence Unit (BMPIU). The BPP acts as a clearinghouse for government contracts and procurement and monitors the implementation of projects to ensure compliance with contract terms and budgetary restrictions. Procurements above 100 million naira (about USD 641,000) reportedly undergo full “due process.” Some of the 36 states of the federation have also passed public procurement legislation.

In July 2016, Nigeria announced its participation in the Open Government Partnership (OGP), a potentially significant step forward on public financial management and fiscal transparency. In December 2016, the Ministry of Justice presented Nigeria’s National Action Plan (NAP) for the OGP, which was set to be implemented starting in January 2017. The NAP covers five major themes: ensuring citizens’ participation in the budget cycle, implementation of open contracting and the adoption of open contracting data standards, increasing transparency in the extractive sectors, adopting common reporting standards like the Addis Tax initiative, and improving the ease of doing business. Full implementation of the NAP would be another significant step forward for Nigeria’s fiscal transparency.

Businesses report that bribery of customs and port officials remains common, and often necessary to avoid extended delays in the port clearance process, and that smuggled goods routinely enter Nigeria’s seaports and cross its land borders.

Domestic and foreign observers identify corruption as a serious obstacle to economic growth and poverty reduction. Nigeria scored 28 out of 100 in Transparency International’s 2016 Corruption Perception Index (CPI), placing it in the 128th position out of the 176 countries ranked, a two point improvement from its 2015 score of 26. (From 2012-2016, the country’s average score has been 26.6) The Economic and Financial Crimes Commission (EFCC) Establishment Act of 2004 established the EFCC to prosecute individuals involved in financial crimes and other acts of economic “sabotage.” Traditionally, the EFCC has encountered the most success in prosecuting low-level Internet scam operators. A relative few high-profile convictions have taken place, such as a former governor of Adamawa state, a former governor of Bayelsa State, a former Inspector General of Police, and a former Chair of the Board of the Nigerian Port Authority. However, in the case of the convicted governor of Bayelsa State, the President of Nigeria pardoned him in March 2013. The case of the former governor of Adamawa, who was convicted in 2017, is under appeal and he is currently free on bail.

Since taking office in 2015, President Buhari has focused on implementing a campaign pledge to address corruption. Since then, the EFCC arrested a former National Security Advisor (NSA), a former Minister of State for Finance, a former NSA Director of Finance and Administration and others on charges related to diversion of funds intended for government arms procurement.

The Corrupt Practices and Other Related Offences Act of 2001 established an Independent Corrupt Practices and Other Related Offences Commission (ICPC) to prosecute individuals, government officials, and businesses for corruption. The Act punishes over 19 offenses, including accepting or giving bribes, fraudulent acquisition of property, and concealment of fraud. Nigerian law stipulates that giving and receiving bribes constitute criminal offences and, as such, are not tax deductible. Since its inauguration, the ICPC has secured convictions in some 71 cases (through 2015 latest data available) with numerous cases still open and pending. In April 2014, a presidential committee set up to review Nigeria’s ministries, departments, and agencies (MDAs) recommended that the EFCC, the ICPC, and the Code of Conduct Bureau (CCB) be merged into one organization. The federal government, however, rejected this proposal to consolidate the work of these three anti-graft agencies.

Nigeria gained admittance into the Egmont Group of Financial Intelligence Units (FIUs) in May 2007. The Paris-based Financial Action Task Force (FATF) removed Nigeria from its list of Non-Cooperative Countries and Territories in June 2006. In October 2013, the FATF decided that Nigeria had substantially addressed the technical requirements of its FATF Action Plan and agreed to remove Nigeria from its monitoring process conducted by FATF’s International Cooperation Review Group (ICRG). However, Nigeria is still seeking FATF membership and has been working toward meeting FATF requirements.

The Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007 provided for the establishment of the NEITI organization, charged with developing a framework for transparency and accountability in the reporting and disclosure by all extractive industry companies of revenue due to or paid to the GON. NEITI serves as a member of the international Extractive Industries Transparency Initiative (EITI), which provides a global standard for revenue transparency for extractive industries like oil and gas and mining. Nigeria is party to the United Nations Convention against Corruption. Nigeria is not a member of the OECD and not party to the OECD Convention on Combating Bribery.

Resources to Report Corruption

Economic and Financial Crimes Commission
Headquarters: No. 5, Fomella Street, Off Adetokunbo Ademola Crescent, Wuse II, Abuja, Nigeria. Branch offices in Ikoyi, Lagos State; Port Harcourt, Rivers State; Independence Layout, Enugu State; Kano, Kano State; Gombe, Gombe State.
Hotline: +234 9 9044752 or +234 9 9044753

Independent Corrupt Practices and Other Related Offences Commission:
Abuja Office – Headquarters
Plot 802 Constitution Avenue, Central District, PMB 535, Garki Abuja
Phone/Fax: 234 9 523 8810 Email: info@icpc.gov.ng

Political, religious, and ethnic violence continue to affect Nigeria. The Islamist group Jama’atu Ahl as-Sunnah li-Da’awati wal-Jihad, popularly known as Boko Haram, has waged a violent campaign to destabilize the Government of Nigeria (GoN), killing tens of thousands of people, forcing over two million to flee to other areas of Nigeria or into neighboring countries and leaving approximately seven million people in need of humanitarian assistance in the country’s northeast. Boko Haram has targeted markets, churches, mosques, government installations, educational institutions, and leisure sites with Improvised Explosive Devices (IEDs) and Suicide Vehicle-borne IEDS across nine Northern states and in Abuja. In 2011, Boko Haram bombed the National Police Force headquarters and conducted a suicide car bombing of the United Nations headquarters in Abuja. Attacks on innocent civilians accelerated from late 2013 through 2014. In 2013, Boko Haram claimed responsibility for raiding educational institutions and murdering students. In 2014, Boko Haram began using young girls as agents of suicide bomb attacks. Over the course of late 2014 and early 2015, Boko Haram took over large swaths of territory in the northeastern states of Adamawa, Borno, and Yobe.

President Buhari has focused on matters of insecurity in Nigeria and in neighboring countries. In 2015, the Nigerian military drove Boko Haram forces out of much of its territory, leaving the group only in control of some rural areas of Borno state. Nevertheless, Boko Haram is still capable of carrying out deadly suicide bombings and limited attacks across the Northeast. The Nigerian military continues to advance on remaining Boko Haram strongholds, but Boko Haram IEDs and logistical issues have slowed their movement. Boko Haram pledged allegiance to the Islamic State and changed its name to Islamic State in West Africa Province (ISWAP) in early 2015. Recent infighting split the organization into two, with one group loyal to longtime chief Abubakar Shekau and the second existing as ISWAP, which disagreed with Shekau’s failure to adhere to Islamic State guidance to avoid indiscriminate killing of Muslim civilians. Nigerian security forces have touted the split as a sign of the group’s weakness; however, some security analysts caution that the uncertain leadership could make the group more unpredictable.

Due to challenging security dynamics in the North, the U.S. Diplomatic Mission to Nigeria has significantly limited official travel north of Abuja. Such trips occur only with security measures designed to mitigate the threats of car-bomb attacks and abductions.

Decades of neglect, persistent poverty, and environmental damage caused by oil spills have left Nigeria’s oil rich Niger Delta region vulnerable to renewed violence. Though each oil-producing state receives a 13 percent derivation of the oil revenue produced within its borders, and several government agencies, including the Niger Delta Development Corporation (NDDC), are tasked with implementing development projects, bureaucratic mismanagement and corruption have prevented these investments from yielding meaningful economic and social development in the region. Niger Delta residents often feel that violence is the only effective way to draw attention to their grievances, and local militants have demonstrated their ability to attack and severely damage oil instillations at will.

Nigeria’s skilled labor pool has declined over the past decade due to inadequate educational systems, limited employment opportunities, and the migration of educated Nigerians to other countries, including the United Kingdom, the United States, and South Africa. The low employment capacity of Nigeria’s formal sector means that almost three-quarters of all Nigerians work in the informal and agricultural sectors or are unemployed. Companies involved in formal sector businesses such as banking and insurance possess an adequately skilled workforce (often trained abroad in private institutions or at the better-funded universities). Manufacturing and construction sector workers often require on the job training. The result is that while individual wages are low, individual productivity is also low and overall labor costs can be high. The Buhari Administration is pushing reforms in the education sector to improve the supply of skilled works but this and other efforts run by state governors are in their initial stages.

Labor organizations in Nigeria remain politically active and are prone to call for strikes on a regular basis against the national and state governments. While most labor actions are peaceful, difficult economic conditions fuel the risk that these actions could become violent.

The Right of Association

Nigeria’s constitution guarantees the rights of free assembly and association and protects workers’ rights to form or belong to trade unions. Several statutory laws, nonetheless, restrict the rights of workers to associate or disassociate with labor organizations. Nigerian unions belong to one of two trade union federations, the Nigeria Labor Congress (NLC), which tends to represent junior (i.e., blue collar) workers, and the Trade Union Congress of Nigeria (TUC) representing the “senior” (i.e., white collar) workers. According to figures provided by the Ministry of Labor and Employment, total union membership stands at roughly 7 million. A majority of these union members work in the public sector, although unions exist across the private sector. The Trade Union Amendment Act of 2005 allowed non-management senior staff to join unions. Nigeria’s largest labor federation, the NLC, contains 42 industrial unions; the TUC includes 18.

Collective Bargaining

Collective bargaining occurred throughout the public sector and the organized private sector in 2014. However, public sector employees have become increasingly concerned about the GoN and state governments’ failure to honor previous agreements from the collective bargaining process. For instance, in 2013 a five-month strike by the Academic Staff Union of Universities (ASUU) was the result of the GoN failing to implement a 2009 agreement. President Jonathan signed legislation in 2011 amending the Minimum Wage Act to raise the minimum wage to 18,000 naira (or what was then about USD 110) per month. Union leaders have complained that some state governors did not fully implement the Act, citing its budget implications, and in response unions staged strikes in some states.

Collective bargaining in the oil and gas industry is relatively efficient compared to other sectors. Issues pertaining to salaries, benefits, health and safety, and working conditions tend to be resolved quickly through negotiations. One exception is a long-standing, unresolved dispute over the industry’s use of contract labor.

Workers under collective bargaining agreements cannot participate in strikes unless their unions comply with the requirements of the law, which includes provisions for mandatory mediation and referral of disputes to the GoN. Despite these restrictions on staging strikes, unions occasionally conduct strikes in the private and public sectors without warning. Localized strikes occurred in the education, government, energy, power, and healthcare sectors in 2015. The law forbids employers from granting general wage increases to workers without prior government approval, but the law is not often enforced.

The Nigerian Minister of Labor and Employment may refer unresolved disputes to the Industrial Arbitration Panel (IAP) and the National Industrial Court (NIC). In 2015, the National Industrial Court launched an Alternative Dispute Resolution Center. Union officials question the effectiveness and independence of the NIC, believing it unable to resolve disputes stemming from GON failure to fulfill contract provisions for public sector employees. Union leaders criticize the arbitration system’s dependence on the Minister of Labor and Productivity’s referrals to the IAP.

Child Labor

Nigeria’s laws regarding minimum age for child labor and hazardous work are inconsistent. Article 59 of the Labor Act of 1974 sets the minimum age of employment at 12, and it is in force in all 36 states of Nigeria. The Act also permits children of any age to do light work alongside a family member in agriculture, horticulture, or domestic service.

The Federal 2003 Child’s Right Act (CRA) codifies the rights of children in Nigeria and must be ratified by each State to become law in its territory. There were no new adoptions of the CRA during the reporting period. To date, 23 states and the Federal Capital Territory have ratified the CRA, with 12 of the remaining 13 states located in northern Nigeria.

The CRA states that the provisions related to young people in the Labor Act apply to children under the CRA, but also that the CRA supersedes any other legislation related to children. The CRA restricts children under the age of 18 from any work aside from light work for family members; however, Article 59 of the Labor Act applies these restrictions only to children under the age of 12. This language makes it unclear what minimum ages apply for certain types of work in the country.

While the Labor Act forbids the employment of youth under age 18 in work that is dangerous to their health, safety, or morals, it allows children to participate in certain types of work that may be dangerous by setting different age thresholds for various activities. For example, the Labor Act allows children age 16 and older to work at night in gold mining and the manufacturing of iron, steel, paper, raw sugar, and glass. Furthermore, the Labor Act does not extend to children employed in domestic service. Thus, children are vulnerable to dangerous work in industrial undertakings, underground, with machines, and in domestic service. In addition, the prohibitions established by the Labor Act and CRA are not comprehensive or specific enough to facilitate enforcement. In 2013, the National Steering Committee for the Elimination of the Worst Forms of Child Labor in Nigeria (NSC) validated the Report on the Identification of Hazardous Child Labor in Nigeria. Currently, the report is with the MOLP for the promulgation of guidelines for operationalizing the report.

The GoN adopted the Trafficking in Persons (Prohibition), Enforcement and Administration Act of 2015 on March 26, 2015. While not specifically directed against child labor, many sections of the new law support anti-child labor efforts. The Violence against Persons Prohibition Act was signed into law in on May 25, 2015 and again while not specifically focused on child labor, it covers related elements such as “depriving a person of his/her liberty,” “forced financial dependence/economic abuse,” and “forced isolation/separation from family and friends” and is applicable to minors.

Acceptable Conditions of Work

Nigeria’s Labor Act provides for a 40-hour work week, two to four weeks of annual leave, and overtime and holiday pay for all workers except agricultural and domestic workers. No law prohibits compulsory overtime. The Act establishes general health and safety provisions, some of which specifically apply to young or female workers, and requires the Ministry of Labor and Productivity inspect factories for compliance with health and safety standards. Under-funding and limited resources undermine MOLP oversight capacity, and construction sites and other non-factory work sites are often ignored. Nigeria’s labor law requires employers to compensate injured workers and dependent survivors of workers killed in industrial accidents.

Draft legislation, such as a new Labor Standards Act which includes provisions on child labor, and an Occupational Safety and Health Act that would regulate hazardous work, have remained under consideration in the National Assembly since 2006.

Foreign Workers

Admission of foreign workers is overseen by the Federal Ministry of the Interior. Employers must seek the consent of the Ministry in order to employ foreign workers by applying for an “expatriate quota.” The quota allows a company to employ foreign nationals in specifically approved job designations as well as specifying the validity period of the designations provided on the quota.

There are two types of visas which may be granted, depending on the length of stay. For short-term assignments, an employer must apply for and receive a temporary work permit, allowing the employee to carry out some specific tasks. The temporary work permit is a single-entry visa, and expires after three months. There are no numerical limitations on short-term visas, and foreign nationals who meet the conditions for grant of a visa may apply for as many short-term visas as required.

For long-term assignments, the employer should apply for a “subject-to-regularization” visa (STR). To apply for an STR, an employer must apply for and obtain an expatriate quota. The expatriate quota states positions in the company that will be occupied by expatriate staff. Upon arrival in Nigeria, the employee will need to validate his or her visa by applying for a work and residence permit.

The U.S. Overseas Private Investment Corporation (OPIC) offers all its credit and risk products to U.S. investors in Nigeria. OPIC has a number of active projects in Nigeria, which include those in the field of power generation and the American International School in Abuja. Nigeria concluded an investment incentive agreement with OPIC in 1999.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Data not available.

Trade and Investment Officer
EconNigeria@state.gov
Plot 1075 Diplomatic Drive
Abuja, Nigeria
+234 9 461 4000

Policies Towards Foreign Direct Investment

On paper, PNG has a liberal investment regime, and the government has recently placed a priority on the downstream processing of its extractive resources to spur economic growth. Prime Minister Peter O’Neill is known for his business friendly-stance, and has been hailed for providing the political impetus to allow ExxonMobil massive LNG project to proceed and produce gas ahead of schedule. At almost every opportunity, Prime Minister O’Neill continues publicly to welcome international investment and business into the country. Many businesses in PNG are foreign-owned, although this has caused some PNG nationals – and politicians – to raise concerns that foreign investment engagement does not allow for a fair operating environment for PNG entrepreneurs.

ExxonMobil successfully acquired PNG-based InterOil in 2016 and early 2017. Early in the process, monopoly and competition concerns were raised by the Independent Consumer and Competition Commission. These concerns were allayed by ExxonMobil by pointing out that InterOil was solely an exporter of oil and gas with no “downstream” or retail presence in the PNG market.

GPNG has made progress by creating policies and systems to streamline the regulatory and administrative requirements for foreign investors. The 1992 Investment Promotion Authority (IPA) promotes and facilitates investment and acts as a one-stop shop for investors. Foreign investment does require government approval and the procedure is implemented by the government with the assistance of the IPA per the Investment Promotion Act. More information on the IPA can be found on IPA’s website .

The IPA facilitates investment proposals, identifies relevant government departments, and helps investors obtain the required approvals, licenses, and permits, all free of charge. Fees are however applicable for company registrations, foreign enterprise certification, and registration of intellectual property.

While delays in the IPA’s certification process have a direct effect on investment, this challenge is not unknown to foreign investors and it affects them all in the same manner. In December 2013, the IPA introduced an online registry system hoping that it would significantly speed up the registration of companies. The registry is now online  and available for use.

Certification conditions apply to IPA approval, and the IPA may suspend or cancel a certificate if a foreign enterprise breaches its terms. A certified foreign enterprise must notify the IPA of certain changes in control of the enterprise (other than one that is a public company listed on a stock exchange that is a member of the Federation Internationale des Bourses de Valeurs) and would need to obtain a re-certification. Certified enterprises wishing to expand or diversify their operations have to submit an Application for Variation to the IPA. Registering a new or overseas company takes between 24 hours to three weeks and costs Papua New Guinean Kina (PGK)500, which is approximately USD 157. Certifying a foreign company takes two to five weeks and costs PGK 2,000 (USD 629).

While there are no formal investor dialogues with the government, there are active chambers of commerce throughout the country that actively represent members’ interests to the government. PNG has recently improved its ranking in the World Bank’s Ease of Doing Business index. In 2017, it ranked 119^th, up from 133^rd in 2016. However, the increase was mostly due to better access to credit. Its ranking on “Starting a Business” remains 130^th.

Limits on Foreign Control and Right to Private Ownership and Establishment

While foreign individuals and foreign companies cannot own land, they are allowed all other aspects of owning and operating a business in PNG. Most businesses utilize long-term leases in order to build and retain facilities.

The GPNG is responsible for screening all foreign direct investment (FDI) proposals. When reviewing an FDI proposal, the IPA may consider a number of factors, including the:

• Potential for positive development of human and natural resources;
• Investor’s past record in PNG and elsewhere;
• Creation of additional employment and income-earning opportunities;
• Likelihood the proposal will generate additional government revenue and contribute to economic growth;
• Transfer of technologies and skills and the contribution to training citizens of PNG.

There is no specific capital requirements for investments. The IPA may, however, pursuant to Section 28(7) of the Investment Promotion Act require an applicant for Certification to deposit the prescribed amount prior to a Certificate being issued. The prescribed amounts are per Section 6B of the Investment Promotion Regulation:

• Individual – PGK 50,000 (USD 15,725);
• Partnership – PGK 50,000 (USD 15,725) per partner; and
• Corporate Body – PGK 100,000 (USD 31,450).

The purpose of the screening mechanism is to assess the net economic benefit of a proposed investment and its consistency with the national interest. The possible outcomes of a review are prohibition, divestiture, and imposition of additional requirements. The IPA and other regulatory bodies in particular sectors make the decision on the outcome.

Appeal processes differ among the sectors. For IPA specifically related matters, a company must submit its appeal to the Ministry of Commerce and Industry. An accompanying fee of PGK 200 (USD 63) is required. Appeals may be lodged in response to any decision made by the IPA, including rejection of an application or the cancellation of a registration.

In addition to the government’s approval, the Bank of Papua New Guinea, PNG’s Central Bank, also has to approve all foreign investment proposals. Such proposals include the issue of equity capital to a non-resident, the borrowing of funds from a non-resident investor or financial intermediary, and the supply of goods and services on extended terms by a non-resident. In its review, the Bank is mostly concerned that the terms of the investment funds are reasonable in the context of prevailing commercial conditions and that full subscription of loan funds are promptly brought to Papua New Guinea. A debt/equity ratio of 5:1 is generally imposed with respect to overseas borrowings and a ratio of 3:1 with respect to local borrowings.

Other Investment Policy Reviews

PNG has not undergone any recent Investment Policy Reviews by UNCTAD or the OECD.

PNG has been a World Trade Organization (WTO) member since 1996. Its last Trade Policy Review (TPR) conducted by the WTO was in 2010, and that report can be found online .

The review found that PNG’s resource-rich economy remains heavily reliant on subsistence agriculture, heavily dependent on trade (both on primary exports and manufactured imports, including inputs), and deeply vulnerable to world commodity price movements.

The TPR found that PNG’s trade policy has been focused on domestication of value added across sectors, especially fishing, to promote processing, import substitution, and as an effort to diversify the economy. Although PNG adopted an Export Driven Economic Recovery and Growth strategy in 2002, reform of outdated trade-related laws has generally been slow and incoherent, somewhat handicapped by PNG’s limited institutional, and technical capacities. PNG controls certain imports predominantly for national health, safety, security, and environmental reasons. The review also found that government procurement, while reformed, is an important instrument of industrial policy. Contracts worth less than PGK 1 million (USD 315,000) are reserved for local suppliers, who also receive a preferential margin of 7.5 percent on larger contracts up to PGK 10 million (USD 3.15 million). SOEs dominate many key utilities and service industries such as power, telecommunications, aviation, water, sewerage, postal services, and the administration of ports.

More recently, PNG requested an external review of the five regulatory regimes covered by the Ease of Doing Action Plan launched at the APEC’s 21st Annual Ministerial Meeting in Singapore in November 2009. In response to this request, in 2013 an assessment was carried out through the APEC Technical Assistance Training Facility (TATF), a USAID-funded program.

Business Facilitation

The Investment Promotion Authority is the lead agency for GPNG’s business facilitation efforts. It can be reached online at http://www.ipa.gov.pg/ . The new “Do It Online” section allows both overseas and domestic business registration. Previously, the processing times were substantial, but the current processing time is for IPA is seven days. A foreign company must firstly register under the Companies Act of 1997. Foreign companies have two options for registration in PNG: to incorporate a new company in PNG or to register an overseas company under the Companies Act of 1997. In practice, most foreign companies incorporate a new PNG subsidiary when entering the PNG market.

Once incorporated and registered with the IPA, a newly incorporated PNG company or overseas company should also register with the Internal Revenue Commission for tax and employment purposes. Typically, this process takes nine days.

Outward Investment

The government does not maintain any incentives for outward investment from PNG. Similarly, there are no explicit legal restrictions. The most likely barrier for this type of investment would be sufficient access to foreign currency. There have been no recent large-scale outward investments originating from PNG

PNG has signed Bilateral Investment Treaties (BITs) with Australia, China, Germany, Japan, Malaysia, and the United Kingdom. There is no BIT in place with the U.S. PNG has a free trade agreement (FTA) with the countries of the Melanesian Spearhead Group: Solomon Islands, Vanuatu, and Fiji.

PNG does not have a bilateral taxation treaty with the U.S. It currently has “double tax treaties” with the following countries: Australia, Canada, China, Fiji, Germany, Indonesia, South Korea, Malaysia, New Zealand, Singapore, and the United Kingdom. PNG also has a tax information exchange agreement with Australia.

Transparency of the Regulatory System

The ICCC (Independent Consumer and Competition Commission) is charged with fostering competition across PNG’s economy. While there are transparent policies in place, the competition regime works more towards the regulation of existing monopolies and does little to foster competition. Tax, labor, environment, health, and safety and other laws do not distort or impede investment. However, the lack of implementation of existing laws by some government entities frustrates some investors. For example there are long bureaucratic delays in the processing of work permits and frequent complaints about corruption and bribery in government departments.

The IPA and the GPNG are moving, with the assistance of the International Finance Corporation, towards more investment promotion and a much more streamlined regulatory framework to encourage foreign investment. The IPA’s implementation of an online registration process for businesses is evidence of this.

There are informal regulatory processes managed by non-governmental organizations and private sector associations. There are impediments to the licensing of skilled foreign labor that are imposed by local professional associations, such as the Papua New Guinea Institute of Engineers and the Law Society, both of which have their own regulatory processes, that foreigners must go through before they can work or practice in the country.

Proposed laws and regulations are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers. Legal, regulatory, and accounting systems are transparent and consistent with international norms, but there are delays in the dispute resolution system due to a lack of human resources in the judiciary. The GPNG has tried to address this by appointing more judges in recent years.

There are no private sector and/or government efforts to restrict foreign participation in industry standards-setting consortia or organizations.

International Regulatory Considerations

PNG is not part of any regional economic block. When international standards are used in PNG, they are most often Australian due to PNG’s colonial past and the continuing close economic ties with Australia. PNG is a member of the WTO, but has only submitted one technical barrier to trade (TBT) notification. That notification covered food safety concerns and was issued in 2006.

Legal System and Judicial Independence

PNG’s legal system is based on English common law. The Supreme Court is the nation’s highest judicial authority and final court of appeal. Other courts are the National Court; district courts, which deal with summary and non-indictable offenses; and local courts, established to deal with minor offenses, including matters regulated by local customs. The judiciary system is widely viewed as independent from government interference.

Contract law in PNG is very similar to and applies in much the same way as in other common law countries such as Great Britain, Australia, Canada, and New Zealand. There is, however, considerably less statutory regulation of the application and operation of contracts in PNG than in those other countries.

The Supreme Court is the ultimate appeal court in the country. It has original jurisdiction in matters of constitutional interpretation and enforcement and has appellate jurisdiction in appeals from the National Court, certain decisions of the Land Titles Commission, and those of other regulatory entities as prescribed in their own Acts. The National Court also has original jurisdiction for certain constitutional matters and has unlimited original jurisdiction for criminal and civil matters. The National Court has jurisdiction under the Land Act in proceedings involving land in PNG other than customary land.

In addition to the courts mentioned above, there is also a system of Village Courts established under the Constitution and the Village Courts Act. Matters involving customary law claims are likely to arise at the Village Court level. There is no jury system in PNG. Lawyers operating in PNG are governed by the Papua New Guinea Law Society, and only lawyers registered with the Society should be engaged for investment or other disputes.

Under the Reciprocal Enforcement of Judgments Act, certain judgments of certain foreign courts are recognized and enforceable in PNG by a process of registration. The Act establishes a system of reciprocity of recognition and enforcement of foreign judgments of designated courts within the prescribed countries, including the U.S., Australia, the United Kingdom, and New Zealand. Even if a foreign money judgment is not from a designated court, it may still be recognized and enforced in PNG by commencing a separate action in the National Court to sue on the judgment under local rules of private international law.

Laws and Regulations on Foreign Direct Investment

Foreign investors can choose to either incorporate their company in PNG as a subsidiary of an overseas company or under the laws of another country and therefore registered as an overseas company under the Companies Act 1997.

The 1997 Companies Act and 1998 Companies Regulation oversee matters regarding private and public companies, both foreign and domestic. All foreign business entities must have IPA approval and must be certified and registered with the government before commencing operations in PNG. While government departments have their own procedures for approving foreign investment in their respective economic sectors, the IPA provides investors with the relevant information and contacts. The regulations governing foreign investments in PNG include:

• Free Trade Zone Act 2000;
• Investment Promotion Act 1992;
• Papua New Guinea Companies Act 1997;
• Forestry Act 1991;
• Mining Act 1992;
• Fisheries Act 1994; and
• Oil and Gas Act 1998.

In 2014, the government amended the 1997 Companies Act to improve corporate governance and ease regulatory burdens. This amendment allowed IPA to begin using its online company registry. The main six changes to the act are as follows:

1. Increased protection and benefits for shareholders;
2. Clarification of duties imposed upon directors;
3. A more transparent and streamlined process of issuing shares;
4. Increased protection of creditors, including a more disciplined liquidation process;
5. A clearer process for filing annual returns; and
6. Streamlined filing requirements in anticipation of implementing an online registration.

A summary of the changes to the Act can be found on the IPA website .

In 2013, the government amended the Takeovers Code to include a test for foreign companies wishing to buy into the ownership of local companies. The new regulation states that the Securities Commission of Papua New Guinea (SCPNG) shall issue an order preventing a party from acquiring any shares, whether partial or otherwise, if the commission views that such acquisition or takeover is not in the national interest of PNG. This applies to any company, domestic or foreign, registered under the PNG Companies Act, publicly traded, with more than 5 million PGK (USD 1.6 million) in assets, with a minimum of 25 shareholders, and more than 100 employees.

In recent years, this law has not been used to prevent ExxonMobil’s acquisition of InterOil or Chinese company Zijin Mining’s purchase of 50 percent of the Porgera Joint Venture gold mine.

Competition and Anti-Trust Laws

The 2002 Independent Consumer and Competition Commission Act, is the law that governs in the area of competition. It also established the Independent Consumer & Competition Commission (ICCC), the country’s premier economic regulatory body and consumer watchdog; introduced a new regime for the regulation of utilities, in particular in relation to prices and service standards; and allowed the ICCC to take over the price control tasks previously undertaken by the Prices Controller as well as the consumer protection tasks previously undertaken by the Consumer Affairs Council.

The Act’s competition laws, contained in Part VI of the Act, prohibit:

• Entering into, or giving effect to contracts, arrangements or understandings having the purpose, effect or likely effect of substantially lessening competition (Section 50);
• Arrangements between competitors that contain exclusionary provisions, which have the purpose of preventing, restricting or limiting dealings with any particular person or class of persons who are in competition with one or more of the parties to the arrangement;
• Price fixing agreements between competitors (but fixing prices of joint venture products, recommended prices and joint buying and promotion arrangements, are not absolutely prohibited, although they may still be subject to the prohibition on contracts, arrangements, and understandings that substantially lessen competition) (Sections 53-56);
• A person with a substantial degree of market power from taking advantage of that power for the purpose of restricting the entry of a new competitor into a market, preventing or deterring a competitor from engaging in competitive conduct, or eliminating a competitor from that market (Section 58);
• The practice of resale price maintenance, which occurs where a supplier tries to specify a price below which a reseller may not sell the supplier’s product. This prohibition also applies to third parties seeking to insist that products not be resold below a specified price (Sections 59-64); and
• Mergers or acquisitions that would have the effect or likely effect of substantially lessening competition in a market (Section 69).

Additional information is available on the ICCC’s website , however it is unclear whether that site is being maintained. Interested parties may instead want to go to the ICCC’s Facebook page  for information on changes in policies and regulations.. A paper by the ICCC on competition law in PNG is available online .

Expropriation and Compensation

Although the judicial system upholds the sanctity of contracts, and the Investment Promotion Act of 1992 expressly prohibits expropriation of foreign assets, the GPNG’s September 2013 nationalization of the country’s largest taxpaying company, Ok Tedi Mining Limited, raised concerns about the government’s policy. Some observers saw this event as a special case, given that much of the company’s profits are held in trust for the people of PNG, and its effective ownership by a company – the PNG Sustainable Development Program’s (PNGSDP) – would transfer benefits from the mine back to the people. By a unanimous vote in Parliament, the government annulled PNGSDP’s share in the mine and issued new shares to the State. This vote also removed BHP Billiton’s immunity from environmental liability and gave the state the right to restructure PNGSDP. As there have been no other expropriating acts since late 2013, the Ok Tedi Mining Limited nationalization does appear to have been a one-off issue.

Dispute Settlement

ICSID Convention and New York Convention

Since 1978, PNG has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention). In agreements with foreign investors, GPNG traditionally adopts the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL model law).

Investor-State Dispute Settlement

Investment disputes can be settled through diplomatic channels or through the use of local remedies before having such matters adjudicated at the International Centre for the Settlement of Investment Disputes or through another appropriate tribunal of which PNG is a member. The Investment Promotion Act 1992 that is administered by the IPA also protects against expropriation, cancellation of contracts, and discrimination through the granting of most favored nation treatment to investors. As PNG does not have a Bilateral Investment Treaty (BIT) with the United States, no claims can be made under such an agreement. There is not a recent history of international judgments against GPNG nor is there a recent history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

There is not a recognized domestic arbitration body or mechanism in PNG, and most recent instances of arbitration has occurred in international jurisdictions. A 2015 arbitration decision in London in favor of Interoil and against Oil Search was respected in PNG.

Under the Reciprocal Enforcement of Judgments Act, judgments from foreign courts are recognized and enforceable. The Act establishes a system of reciprocity of recognition and enforcement of foreign judgments of designated courts within prescribed countries including Australia, the U.S., the United Kingdom, and New Zealand. Even if a foreign money judgment is not from a designated court, it may still be recognized and enforced in PNG by commencing a separate action in the National Court to sue on the judgment under the local rules of private international law.

There have not been any recent investment disputes involving SOEs.

Bankruptcy Regulations

PNG’s bankruptcy laws are included in Chapter 253 of the Insolvency Act of 1951 and Sections 254-362 of the 1997 Companies Act, which covers receivership and liquidation. Bankruptcy and litigation searches can only be conducted in person at the National Court in Port Moresby.

According to the World Bank’s Doing Business Report, resolving insolvency in PNG takes an average of three years, and typically costs 23 percent of the debtor’s estate. The average recovery rate is 24.9 cents on the dollar. Globally, PNG stands at 137 out of 189 economies on the Ease of Resolving Insolvency.

Investment Incentives

Performance requirements and incentives are applied uniformly to both domestic and foreign investors. The investment incentives currently available are designed primarily to encourage the development of industries that are considered desirable for the country’s long-term economic development or specific underdeveloped regions within the country. These incentives are for investments outside the mineral sector.

The Investment Promotion Act contains guarantees that there will be no nationalization or expropriation of foreign investors’ property except in accordance with law, for a public purposes defined by law or in payment of compensation as defined by law.

Accelerated depreciation rates are available for new manufacturing and agricultural plants, generous deductions are available for capital expenditure on land used for primary production, and accelerated deductions are available for mining and petroleum companies. For more details, see Price Waterhouse Cooper’s Global Tax Solutions page .

A 10-year exemption from taxes are available where certain new businesses are established in specified rural development areas. Businesses, residents, or non-residents, engaged in the following activities qualify for this exemption:

• Agricultural production of any kind;
• Manufacturing of any kind;
• Construction;
• Transport, storage and communications;
• Real estate;
• Business services; and
• Provision of accommodation, motels or hotels.

The following have been specified as rural development areas:

• Central province – Goilala;
• Enga province – Kandep, Lagalp, Wabag, Wapenamunda;
• Gulf province – Kaintiba, Kikori;
• Eastern Highlands province – Henganofi, Lufa, Okapa, Wonenave;
• Southern Highlands province – Jimi, Tambal;
• Madang province – Bogia, Rai Coast, Ramu;
• Milne Bay province – Losula, Rabaraba;
• Morobe province – Finschaffen, Kabwum, Kaiapit, Menyamya, Mumeng;
• East New Britain province – Pomio;
• West New Britain province – Kandrian;
• East Sepik province – Ambuti, Angoram, Lumi, Maprik;
• West Sepik province – Amanab, Nuku, Telefomin; and
• Simbu province – Gumine, Karimui.

The exemption does not apply to businesses in areas in which a special mining lease or a petroleum development license is granted.

Businesses that manufacture and export qualifying goods are exempt from income tax on the profits derived from those sales for the first three years. For the following four years, the profit derived from the excess of export sales over the average export sales of the three previous years is exempt from income tax. The list of qualifying goods include, among other items, motor vehicles, matches, paint, refined petroleum, soaps, wooden furniture, dairy products, flour, chopsticks, artifacts, clothing and manufactured textiles, and jewelry.

A wage subsidy is payable to new businesses that manufacture new manufactured products. The business will receive a prescribed percentage of the value of the minimum wage paid by the business, multiplied by the number of PNG citizens permanently employed by the business.

Eligible products are, broadly, all products listed under division D of the International Standard Classification of All Economic Activities (Third Revision), provided the products are not subject to quota pricing without import pricing or to tariff protection.

Registered foreign companies must file an annual certification with the Registrar of Companies accompanied by audited financial statements. A foreign company must apply for Certification under the Investment Promotion Act 1992 within 14 days of registering. Any foreign company automatically falls under this category and therefore must complete the same process.

However, a company may apply to be exempted from certain requirements. A company which chooses to conduct business through a branch registered in PNG can repatriate its profits without being subject to withholding tax. On the other hand, the dividends of a PNG incorporated subsidiary may attract dividend withholding tax. A higher rate of income tax is imposed on non-resident companies. If a foreign company merely wishes to have a representative office in PNG, it may be exempt from lodging tax returns if it derives no income in PNG. The Companies Act adopts similar principles and standards of corporate regulation to those in place in New Zealand. Companies registered in PNG must lodge an annual return every year with the Registrar of Companies within six months of the end of its financial year. GPNG made changes to the Companies Act in 2015 that included increased protection of shareholders, clearer guidelines on directors’ duties, quicker and easier process of issuing shares, increased protection of creditors, and a clearer process of filing annual returns. Full details on the changes are available on the IPA’s site .

There are no discriminatory or preferential export and import policies affecting foreign investors, and there are low levels of import taxes.

Foreign Trade Zones/Free Ports/Trade Facilitation

Papua New Guinea has not established any geographically defined duty-free export zones.

Performance and Data Localization Requirements

All non-citizens seeking employment in PNG must have a valid work permit before they can be hired. The work permit must be granted by the Secretary of the Department of Labor and Industrial Relations (DLIR) in accordance with the Employment of Non-Citizens Act of 2007. It can take up to six weeks to obtain both a work permit and visa for non-citizens to work in the country, and delays are common due to a lengthy bureaucratic clearance process. In the past, the government has used its immigration powers to block visas for personnel to come to PNG to fill positions that it believes can be filled by Papua New Guineans.

PNG does not follow forced localization.

The U.S. Embassy is not aware of any requirements for foreign IT providers to turn over source code and/or provide access to surveillance. Likewise, the Embassy is not aware of any rules on maintaining a certain amount of data storage within the country.

Real Property

PNG’s legal system does not allow direct foreign ownership of land. To get around this limitation, investors will acquire long-term government leases. The legal system protects and facilitates acquisition and disposition of all property rights, but there are substantial delays in bureaucratic procedures, particularly within the Department of Lands.

The majority of land (over 80 percent) is “customarily owned” meaning that there is little legal documentation. The lack of documentation makes acquisition difficult as even after a transaction settles, it can be challenged by an individual that also claims customary ownership. The government has been working to standardize and document customary ownership, but the problem persists.

Intellectual Property Rights

Protections for intellectual property rights relating to the reproduction and sale of counterfeit and pirated products, particularly music and movies, are insufficient. Such counterfeit products are openly sold on the streets and in shops. Sales persist despite sporadic law enforcement action. Other counterfeit products that infringe on copyrights, patents, and/or trademarks are often imported from Asian countries and sold in PNG. Customs periodically seizes such shipments, but there are significant gaps in their enforcement regime. Adequate protection for trade secrets and semiconductor chip layout design exist in law, and minimal infringements appear to occur. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles .

Capital Markets and Portfolio Investment

Portfolio investments are unregulated and limited to the availability of stocks.

PNG has one stock market in Port Moresby, POMSoX. It was founded in 1999. It is closely aligned with the Australian Stock Exchange (ASX), and its procedures are the same as ASX.

There is no factor market, and the free flow of remission of funds offshore is subject to approval by the Central Bank (Bank of Papua New Guinea) and the International Revenue Commission. Owing to a persistent lack of foreign currency at the Bank of Papua New Guinea, companies have struggled to make international remissions. In its most recent Article IV consultation, the IMF found multiple restrictions on current international payments and two multiple currency practices (MCPs) that are inconsistent with Article VIII of the IMF’s Articles of Agreement.

Credit is allocated on market terms, and foreign investors are able to get credit on the local market, much more so than in previous years due to the liberalization of policies, provided that foreign investors have a good credit history. Credit instruments are limited to leasing and bank finance.

Money and Banking System

There is no private bond market. In terms of sufficient liquidity in the markets, there is a considerable money supply but a limited pool of borrowers. Bank South Pacific is the country’s only nationally-owned bank and is the largest in the country with total assets of K18.2 billion (USD 5.7 billion) as of year-end 2015. Branches and subsidiaries of two Australian banks represent the other financial institutions operating in the country. The Australia and New Zealand (ANZ) Bank had total assets of USD 914.9 billion at year’s end 2015, and Westpac Bank had USD 839 billion in total assets at the end of 2015. While much of PNG is quite rural, banking penetration is geographically broad with bank branches in most major towns and cities. The banking system in PNG is sound.

Domestic banks in PNG have struggled to maintain correspondent banking relationships due to compliance concerns by U.S. correspondent banks.

Foreign Exchange and Remittances

Foreign Exchange

On June 4, 2014, the Central Bank introduced measures which have effectively pegged the kina at levels that led to foreign exchange shortages. While the kina does fluctuate somewhat in value, it only trades in a tight band as allowed by the Central Bank (Bank of Papua New Guinea). Falling commodity revenues have only worsened the foreign exchange situation. Many businesses have been increasingly unable to convert kina into foreign currencies to pay for imports or other services from foreign providers. Further, PNG-based subsidiaries of foreign companies have struggled to pay dividends to their parent companies. Foreign exchange and capital transactions face various documentation requirements and government approvals. The central bank recently required almost all businesses to convert their foreign currency accounts to kina. Even with an appeals process, almost all requests to maintain foreign currency accounts were denied. Under the country’s tax clearance system, certain payments require approval from the Central Bank and the Internal Revenue Commission. The tax clearance period is between two to four weeks, and routine payments take about two weeks. Additional delays may be encountered if companies are not financially up to date with the Internal Revenue Commission.

Remittance Policies

Remittance is done only through direct bank transfers. All remittances overseas in excess of PGK 50,000 (USD 15,725) per year require a tax clearance certificate issued by the Internal Revenue Commission (IRC). In addition, approval of the Central Bank is required for annual remittances overseas in excess of PGK 500,000 (USD 157,249). Remittances related to the payment of trade-related goods are not taken into account. There are no specific restrictions on the repatriation of capital owned by or due to non-residents. The Central Bank’s principal objectives in assessing applications for capital repayments are to ensure that the funds are due and payable to a non-resident and that PNG assets are not sold at an artificial value.

Sovereign Wealth Funds

In 2012, the PNG government passed legislation to establish a Sovereign Wealth Fund (SWF) to manage resource revenues. This fund was supposed to be held offshore and managed on-shore by an independent Board of Directors. However, in 2014, the government re-opened this draft, citing an error in how it was introduced and passed in Parliament. As of mid-2014, the government had also introduced new methods of managing the SWF, which deviated substantially from the original draft. The Sovereign Wealth Fund Bill was passed on July 30, 2015. Falling commodity prices have led to a dramatic decrease in government revenues meaning that the start of contributions has been delayed. While a legal entity, it is not currently operational.

State-owned enterprises (SOEs) are active in the airline, telecommunications, port facilities and management, power generation and transmission, water and sewerage facilities/management, and motor vehicle insurance industries/sectors. PNG’s SOEs are: National Petroleum Company PNG, Air Niugini, Eda Ranu (water/sewage company for Port Moresby), Motor Vehicle Insurance Ltd, National Development Bank, PNG Ports Corporation, PNG Power, Post PNG, PNG Water Board, BeMobile, PNG DataCo, and Telikom PNG with the last three companies being merged into one.

GPNG has increased the size and reach of SOEs. The overall value of its holdings increased from USD 1.58 billion in 2012 to USD 6.32 billion by the end of 2015. The SOEs have been consolidated and brought entirely under Kumul Consolidated Holdings, SOE holding company. Information about Kumul Consolidated Holdings is available through the Independent Public Business Corporation (IPBC), which manages PNG’s SOEs.

There are regularly concerns about unfair advantages given to SOEs. Recent examples include the awarding of international routes to Air Niugini and as opposed to granting them to a privately-owned airline. Further, the merger of BeMobile, PNG DataCo, and Telikom PNG has led to concerns that the wholesale data market will not treat all operators fairly.

Privatization Program

There is no privatization program in place and thus no guidelines or structure on when and how foreign investors are allowed to participate in privatization programs. The government has funding available for privatization and is currently using the Public Private Partnership (PPP) structure as a model for privatization. The current trend has been towards growing existing SOEs as opposed to privatization. The cumulative asset value of SOEs grew from USD1.58 billion in 2012 to USD6.32 billion by the end of 2015.

PNG does not have a national action plan on responsible business conduct (RBC). However, most multinational companies in PNG do operate with a sense of standards. The concept of a social license to operate is pervasive in the extractive industries and guides interactions with all stakeholders. Due to limited infrastructure in the areas surrounding most resource projects, resource companies often build schools, hospitals, and other common infrastructure in and around resource project areas. Companies have also spent substantial money on projects that empower women and girls, provide for environmental conservation, and improve health outcomes.

There are currently no non-government organizations specifically monitoring RBC in PNG.

PNG participates in the EITI, but does not have a specific policy on the Voluntary Principles on Security and Human Rights. However, several companies in the extractive industry do use the principles.

Corruption is widespread in PNG, particularly the misappropriation of public funds and nepotism.

U.S. firms routinely identify corruption as a challenge to FDI. Some critical areas in which corruption is pervasive include budget management, forestry, fisheries, and public procurement. Giving or accepting a bribe is a criminal act, with penalties differing for Members of Parliament (MPs), public officials, and ordinary citizens. For MPs the penalty is imprisonment for no more than seven years; for public officials the penalty is imprisonment for no more than seven years and a fine at the discretion of the court; for ordinary citizens the penalty is a fine not exceeding PGK 400 (USD 126) or imprisonment of no more than one year. A bribe by a local company or individual to a foreign official is a criminal act. A local company cannot deduct a bribe to a foreign official from taxes.

While there are adequate laws, regulations and penalties for corruption, enforcement and implementation are weak due to a lack of political will. In addition, enforcement is further constrained by limited financial and human capacity within the bodies tasked with addressing corruption, including the Ombudsman Commission, the Police, the Auditor General’s office, the Audit Inspections Division of the Treasury Department, the Finance and Provincial Affairs Department, and the Public Prosecutor’s office. The Asian Development Bank (ADB) has repeatedly highlighted critical areas of concern including budget management, forestry, fisheries, and public procurement. Some foreign investors, particularly in the forestry and fisheries sectors, have been known to contribute to government corruption by bribing public officials either to fast-track paperwork, award discretionary concessions, or ignore illegal activities occurring at project sites.

The Ombudsman Commission, the Police, the Auditor General’s office, the Audit Inspections Division of the Department of Treasury, the Finance and Provincial Affairs Departments, and the Public Prosecutor’s office are responsible for combating corruption. Transparency International has a local PNG branch – Transparency International Papua New Guinea.

Prime Minister O’Neill initially made combating corruption a central focus of his administration following years of mismanaged public funds and failing services in PNG. Since its inception in August 2011, his Task Force Sweep has led to arrests for the misuse of government funds, including current and former government officials. However, O’Neill disbanded the task force for investigating his own allegedly corrupt activities and seeking a warrant for his arrest. As of July 2014, O’Neill had fired or suspended for their roles in pursuing the investigation into allegations of corruption against him, the Attorney General, Solicitor General, Deputy and Assistant Police Commissioners, and the chairman of Task Force Sweep. The former head of this task force has complained that recovering stolen government funds is complicated by the fact that tens of millions of dollars are transferred to Australian bank accounts or invested in Australian real estate, principally in Cairns.

The government encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Most of the larger domestic companies and international firms from Europe, North America, Japan, Australia, and New Zealand have effective internal controls, ethics, and compliance programs to detect and prevent bribery. Many firms from elsewhere in East and Southeast Asia, particularly those in the resource extraction sectors, lack such programs.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

PNG has signed and ratified the UN Convention against Corruption, however it is not a party to the UN Convention against Transnational Organized Crime or the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption.

Dickson Morehari
Director of Corporate Services
Ombudsman Commission
1st Floor, Deloitte Tower
+675 308 2618<
Dickson.morehari@ombudsman.gov.pg

Contact at “watchdog” organization:

Jerry Bagita
Director of Operations
Transparency International
2nd Floor, IPA Haus, Konedobu, NCD
P.O. Box 591, Port Moresby, NCD
+675 320 2182
opmtipng@gmail.com

Incidents of damage to projects and/or installations over the past few years have not been specifically politically motivated. The majority of disruption and damage caused to projects is due to disputes between landowners and the central government, which are fueled by a perception in certain cases that the central government has failed to uphold its financial commitments to landowners. Landowners in these disputes have taken out their frustration with the central government by damaging the infrastructure or disrupting the operations of foreign investments in their regions. Periodic tribal conflicts occur, particularly in the Highlands and Sepik regions of the country. While foreign investors or interests are not the target of these often violent confrontations, their project infrastructure can occasionally be inadvertently damaged or their operations disrupted due to the prevailing security situation.

The central bureaucracy is increasingly politicized, which has eroded the capacity of government departments and allowed nepotism and political cronyism to thrive in parts the public service. Civil disturbances have been triggered by the government’s failure to deliver financial and development commitments, particularly to landowners in the resource project areas. They have also occurred in major urban areas based on disputes between long-term residents and newly arrived migrants and/or between competing criminal networks.

High levels of crime persist in PNG’s cities. These are generally crimes of opportunity and are often violent. Urban civil disturbances have resulted in looting and retail property destruction, which often targets Asian-owned retail businesses. The country’s police force, the Royal Papua New Guinea Constabulary, lack the capacity to prevent and respond to these incidents, and companies therefore have to devote significant resources to private security.

In addition to a lack of overall capacity, PNG’s capacity to respond to crime and other threats is also hindered by longstanding tensions between the police and military. For example, in early December 2014, police and military were involved in several armed clashes against each other in Port Moresby. Originating after police encountered a group of drunken soldiers and arrested them, several shots were exchanged and four soldiers were hospitalized with gunshot injuries on the first day of the conflict. On the second day, police and military troops set up defensive roadblocks against each other around the police station and barracks while opportunists took advantage of the tension and looted several supermarkets and other local stores. Tensions continued with roadblocks and sporadic fighting between the forces for another two days before a reconciliation ceremony was held to cool tempers. A joint task force of police and army officials was formed to investigate the violence but did not release their report on the specified deadline. A repeat of the violence occurred in January 2016 when a dispute between police and soldiers turned violent. Fortunately, the violence in 2016 was short-lived and contained. The most recent clash was on New Year’s Day in 2017 which saw one officer injured and shots fired into the air.

The situation in the Autonomous Region of Bougainville has improved dramatically since the signing of a peace agreement between the central government and separatists in 2001. Despite improvements, there remain regions of Bougainville that are essentially closed to outsiders, and foreign investment in the region’s mineral resources is viewed with suspicion by many. As the region approaches a possible referendum on its future, there is a possibility of renewed violence. There are no nascent insurrections, belligerent neighbors, or other politically motivated activities in PNG.

PNG has a severe skilled labor shortage, which presents a major constraint to business and investment, as investors are forced to recruit from abroad. Such recruitment is expensive given the country’s very high cost of living. The country spends up to PGK 750 million (USD 236 million) a year to bring in foreign consultants to fill gaps in the workforce. This figure represents 3.6 percent of the GDP. The government generally adheres to the International Labor Organization (ILO) conventions protecting worker rights, and labor unions are very active in the country. Problem areas that persist, however, include child labor and trafficking in persons.

In late June 2014, the PNG government raised the minimum wage from PGK 2.29 (USD 0.72) to PGK 3.50 (USD 1.10) per hour.

The Overseas Private Investment Corporation (OPIC) had a project worth USD 10.2 million to expand cellular phone service in Papua New Guinea in 2012. There have been no new OPIC programs announced in PNG.

Table 3: Sources and Destination of FDI

Data for the sources and destination of FDI in PNG are not available.

Table 4: Sources of Portfolio Investment

Data for the sources of portfolio investment in PNG are not available.

Brad Coley
Economic Officer
U.S. Embassy Port Moresby
P.O. Box 1492, Douglas Street
Tel: +675-321-1455, ext. 2116
Fax: +675-321-1593
econportmoresby@state.gov

Policies Towards Foreign Direct Investment

The Government of Senegal welcomes foreign investment and generally maintains a level playing field for foreign investors to participate in most sectors. There are no barriers to ownership of businesses by foreign investors in most sectors (exceptions are discussed below).

The government conducts ongoing dialog with the private sector through the Conseil Presidentiel de l’Investissement (presidential council on investment, or “CPI”). Among other activities, the CPI usually sponsors an annual forum at which investors comment on the government’s policies and actions. Details are available at cpi-senegal.com. Another important venue for dialog is the annual Assises de l’Entreprises sponsored by the Conseil National du Patronat, the national employers’ association. More information can be found at www.cnp.sn.

Limits on Foreign Control and Right to Private Ownership and Establishment

Senegal allows foreign investors equal access to ownership of property and does not impose any general limits on foreign control of investments. Senegal’s Investment Code includes guarantees for equal treatment of foreign investors, including the right to acquire and dispose of property. There is no provision in Senegalese law permitting domestic businesses to adopt articles of incorporation or association that limit or control foreign investment. There is no pattern of discrimination against foreign firms making investments in Senegal.

There are restrictions on foreign ownership of water and electricity utilities and seaports. State-owned companies have responsibility for infrastructure in these sectors, while private companies, both domestic and foreign, are allowed to provide services via that infrastructure.

The government does some screening of proposed investments, primarily to verify compatibility with the country’s overall development goals and compliance with environmental regulations. If the government is involved in project financing, the Finance Ministry will also review financing arrangements to ensure compatibility with budget and debt policies. The government’s investment promotion agency, APIX (Agence pour la Promotion des Investissements et Grands Travaux), can facilitate, where relevant, government review of investment proposals and the project approval process.

Other Investment Policy Reviews

As part of its PSE, the government has prepared a series of reports to outline sector policies and business opportunities in priority sectors including agriculture and agribusiness, tourism, fishing, health care and other sectors.

Business Facilitation

Among other services, APIX operates an online point of entry for registering a business at www.investinsenegal.com .Through the APIX one-stop shop, the Administrative Procedures Facilitation Center, it is possible to register a business in two days. This center enables entrepreneurs to perform all business registration procedures with government, local authorities, and public institutions. Under legislation passed in 2008, there are special preferences for investment in small- and medium-sized enterprises, including reduced interest rates for Senegalese-owned companies. Senegal defines medium-sized as an enterprise with fewer than 251 employees. Small enterprises have fewer than 21.

Outward Investment

The government neither promotes nor restricts outward investment.

The bilateral investment treaty between Senegal and the United States took effect in 1990. The agreement provides for Most Favored Nation treatment for investors, internationally recognized standards of compensation in the event of expropriation, free transfer of capital and profits, and procedures for dispute settlement, including international arbitration. A copy of the Bilateral Investment Treaty can be found at: http://investmentpolicyhub.unctad.org/IIA/country/186/treaty/2890 

Senegal has signed similar agreements for protection of investment with France, Switzerland, Denmark, Finland, Spain, Italy, the Netherlands, South Korea, Romania, Japan, Australia, China, Iran, Morocco, and Sudan. Senegal has concluded tax treaties with France, Mali, and member states of the West African Economic and Monetary Union. There is currently no tax treaty between the United States and Senegal.

Transparency of the Regulatory System

Senegal has made progress towards developing independent regulatory institutions, including regulators for the energy, telecommunications, and financial sectors. The government also seeks to increase transparency of its regulatory system. The government has made good governance and transparency in the management of public affairs a high priority. While Senegal lacks established procedures for a public comment process for proposed laws and regulations, the government frequently holds public hearings and workshops to discuss proposed initiatives.

Authority to make rules and regulate rests with the relevant government ministry unless there is a separate regulatory authority for a particular industry. But in some instances, a ministry or the president will exert authority over regulatory matters—e.g., determining electricity tariffs. Local government bodies do not have a decisive role in regulatory decisions.

In 1988, the government established the Commission de Regulation du Secteur de l’Electricite (CRSE) as an independent agency that regulates the electricity sector. The government is preparing to expand the CRSE’s role to include regulation of hydrocarbon fuels. The CRSE holds public consultations every three years as part of its technical process for reviewing electricity tariffs. The Autorite de Regulation des Telecommunications et des Postes is responsible for licensing and regulation of telecommunications and postal services in Senegal. The regulator of financial institutions is the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), the regional central bank for the eight-member West African Economic and Monetary Union (WAEMU). In October 2013, Senegal was approved as a candidate country for the Extractive Industries Transparency Initiative (EITI). The government of Senegal is working to comply with EITI requirements and submitted its first EITI in 2015.

Senegal is a member of UNCTAD’s international network of transparent investment procedures. At senegal.eregulations.org there is detailed information on administrative procedures applicable to investment and income generating operations. This includes the number of steps required, name and contact details of the entities and persons in charge of procedures, required documents, and conditions, costs, processing time and legal bases for procedures.

Legal, regulatory and accounting systems closely follow French models and WAEMU countries present their financial statements in accordance with the SYSCOA system, which is based on Generally Accepted Accounting Principles in France.

International Regulatory Considerations

As a member of the Economic Community of West African States (ECOWAS), Senegal adheres to regional requirements concerning the movement of people and goods. Similarly, financial and fiscal-policy directives of WAEMU are also enforced in Senegal, as are regulations issued by the BCEAO. Senegal is a member of the World Trade Organization (WTO) and notifies draft regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

While Senegal has well-developed commercial and investment laws and a legal framework for resolving business disputes and enforcing property rights, settlement of disputes is cumbersome and slow. Senegal’s legal system is based on French traditions and practice. While Senegal’s legal system is one of the most effective in francophone Africa, it presents a challenging environment for resolution of commercial disputes. Court cases tend to proceed slowly, with ample opportunity for the parties involved to prolong the proceedings. Even when courts issue judgments, companies may encounter challenges in implementing court decisions and enforcing their contractual rights. Investors may consider including provisions for binding arbitration in their contracts in order to avoid prolonged entanglements in Senegalese courts. To alleviate the growing backlog and delays in resolution of commercial disputes, the government of Senegal has taken steps to establish commercial courts, as part of its investment climate reforms.

Senegal’s constitution states that the judiciary is independent of the legislature and executive. In practice, however, the executive’s influence over the courts is occasionally evident though generally not overt. Executive interference in judicial matters is, however, rare in strictly commercial matters. While often cumbersome and time-consuming, judicial processes in Senegal are, as a rule, procedurally competent. Companies may seek judicial redress against regulatory decisions. Such cases are heard in administrative tribunals that specialize in adjudicating claims against the state.

Laws and Regulations on Foreign Direct Investment

Senegal’s 2004 Investment Code provides basic guarantees for equal treatment of foreign investors and repatriation of profit and capital. It also specifies tax and customs exemptions according to the investment volume, company size and location, with investments outside of Dakar eligible for longer tax exemptions. A law to enhance transparency in public procurement and public tenders entered into force in 2008, establishing a public procurement regulatory body, the Autorite de Regulation des Marches Publics(ARMP), which publishes annual reviews of public procurement. The government enacted a law on public-private partnerships in 2014 to facilitate expedited approval of projects that include a minimum share of domestic investment.

More information on Senegal’s legal and regulatory environment, including texts of the investment code, the mining code, and many other reference documents can be found at www.investinsenegal.com.

Competition and Anti-Trust Laws

Senegal’s national competition commission, the Commission Nationale de la Concurrence, is responsible for reviewing transactions for competition-related concerns.

Expropriation and Compensation

Senegal’s Investment Code includes protection against expropriation or nationalization of private property, with exceptions for “reasons of public utility” that would involve “just compensation” in advance. In general, Senegal has not pursued expropriations against private companies. The government may sometimes use eminent domain justifications to procure land for public infrastructure projects, with compensation provided to land owners. Senegal’s bilateral investment treaty with the United States also specifies that international legal standards are applicable to any cases of expropriation of investment and the payment of compensation.

Dispute Settlement

ICSID Convention and New York Convention

Senegal is a member of the International Center for the Settlement of Investment Disputes (ICSID) and a signatory of the Convention on the Recognition and Enforcement of Arbitral Awards (the New York Convention). Senegal is a signatory to the Organization for the Harmonization of Corporate Law in Africa Treaty (OHADA). This agreement supports enforcement of awards under the New York Convention.

Investor-State Dispute Settlement

Senegal has growing experience in using international arbitration for resolution of investment disputes with foreign companies, including some cases involving tax disputes with U.S. firms. The government has also prevailed in some arbitration cases, including a 2013 arbitration decision in a high-profile case with a multinational company over an integrated mining/railway/port project, fostering greater confidence within the government to the arbitration process. Senegal’s bilateral investment treaty with the United States includes provisions to facilitate the referral of investment disputes to binding arbitration.

International firms have pursued a variety of investment disputes during the last decade, including at least two U.S. firms involved in tax and customs disputes. One U.S. energy firm was involved in a tax dispute and ultimately prevailed in arbitration. Another company has an ongoing case over whether imported industrial inputs would be subject to customs duties. Other foreign companies in the mining and telecommunications sectors have pursued commercial disputes over licensing. These disputes have often been resolved through arbitration or an amicable settlement.

Senegal has no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The government has initiated several programs to establish commercial courts and use alternative dispute resolution mechanisms in order to reduce the time required for resolving business disputes. Under the OHADA treaty, Senegal recognizes the corporate law and arbitration procedures common to the 16 member states in western and central Africa. Senegalese courts routinely recognize arbitration clauses in contracts and agreements. It is not unusual for courts to rule against state-owned enterprises in disputes involving private enterprises.

Bankruptcy Regulations

Senegal has commercial and bankruptcy laws that address liquidation of business liabilities. Foreign creditors receive equal treatment under Senegalese bankruptcy law in making claims against liquidated assets. Monetary judgments are normally in local currency. Under the OHADA treaty, Senegal permits three different types of bankruptcy liquidation through a negotiated settlement, company restructuring, or complete liquidation of assets. Senegalese law does not treat bankruptcy as a criminal matter. Senegal ranked in 101st place of 190 countries on the “Resolving Insolvency” indicator in the World Bank’s 2017 Doing Business survey.

Investment Incentives

Senegal’s Investment Code provides for investment incentives, including temporary exemption from customs duties and income taxes for investment projects. Eligibility for investment incentives depends upon a firm’s size and type of activity, the amount of the potential investment, and the location of the project. To qualify for significant investment incentives, firms must invest above CFA 100 million (approximately USD 165,000) or in activities that lead to an increase of 25percent or more in productive capacity. Investors may also deduct up to 40percent of retained investment over five years. However, for companies engaged strictly in “trading activities,” investment incentives may not be available.

Eligible sectors for investment incentives include agriculture and processing of agricultural produce, fishing, livestock and related industries, manufacturing, tourism, mineral exploration and mining, banking, and others. All qualifying investments benefit from the “Common Regime,” which includes two years of exoneration from duties on imports of goods not produced locally for small and medium sized firms, and three years for all others. Also included is exoneration from direct and indirect taxes for the same period.

Exoneration from the Minimum Personal Income Tax and from the Business License Tax can be granted to investors who use local resources for at least 65percent of their total inputs within a fiscal year. Enterprises that locate in less industrialized areas of Senegal may benefit from exemption of the lump-sum payroll tax of 3percent, with the exoneration running from 5 to 12 years, depending on the location of the investment. The investment code provides for exemption from income tax, duties, and other taxes, phased out progressively over the last three years of the exoneration period. Most incentives are automatically granted to investment projects meeting the above criteria.

An existing firm requesting an extension of such incentives must be at least 20 percent self-financed. Large firms—those with at least 200 million CFA (330,000 USD) in equity capital—are required to create at least 50 full-time positions for Senegalese nationals, to contribute the foreign-exchange equivalent of at least 100 million CFA (165,000 USD), and keep regular accounts that conform to Senegalese standards. In addition, firms must provide APIX with details on company products, production, employment, and consumption of raw materials.

Foreign Trade Zones/Free Ports/Trade Facilitation

Based on legislation passed in 2007, the government has plans to create a special economic zone outside of Dakar, adjacent to the city’s new international airport. Businesses operating within this zone are to benefit from tax exemptions and exemption from certain labor regulations. As of April 2017, both the new international airport and the special economic zone remained under construction. Information about incentives to be associated with the special economic zone is available at http://investinsenegal.com/Zone-Economique-Speciale-Integree,202.html .

Performance and Data Localization Requirements

The government does not, by statute, impose specific conditions or performance requirements on investment activities. But the government does negotiate with potential investors on a case-by-case basis to support local employment or ensure incentives for investors to meet their contractual commitments. The bilateral investment treaty between the United States and Senegal includes provisions for companies to freely engage professional, technical, and managerial assistance necessary for planning and operation of investments. Acquiring work permits for foreign staff is typically straightforward. Citizens of ECOWAS member countries are permitted to work freely in Senegal. Senegal does not have any requirements for localization of data storage, nor does it restrict access to encryption. The National Commission on Personal Data is responsible for oversight of the privacy of personal data.

Real Property

The Senegalese Civil Code provides a framework, based on French law, for enforcing private property rights. The code provides for equality of treatment and non-discrimination against foreign-owned businesses. Senegal has systems for title to real property and registration of land ownership, but application is uneven. Outside of urban areas, there are also locations where land tenure is governed by custom rather than law. Confirming ownership rights to real estate can be difficult. But once established, ownership is protected by law.

The government has undertaken several reforms to make it easier for investors to acquire and register property. It has streamlined procedures and reduced associated costs for property registration. The government has developed new land tenure models that are intended to facilitate land acquisition by resolving conflicts between customary tenure and formal land ownership. If the new models are widely adopted, the government and donors expect they will facilitate land acquisition and investment in the agricultural sector while providing benefits to traditional landowners in local communities.

The government generally pays compensation when it takes private property through eminent domain actions. Commercial banks can and do make mortgage loans, but the majority of households in Senegal do not have bank accounts. Senegal’s housing finance market is underdeveloped and few long-term mortgage financing vehicles exist. There is no secondary market for mortgages or other bundled revenue streams. The judiciary is inconsistent when adjudicating property disputes. Senegal ranked 142nd out of 190 countries in the 2017 Doing Business indicator for registering property.

Intellectual Property Rights

Senegal maintains a legal framework for protection of intellectual property (IP), but there is not sufficient institutional capacity to implement this framework and enforce IP protections. Senegal has been a member of the World Intellectual Property Organization (WIPO) since its inception. Senegal is also a member of the African Organization of Intellectual Property (OAPI), a grouping of 15 francophone African countries with a common system for obtaining and maintaining protection for patents, trademarks, and industrial designs. Local statutes recognize reciprocal protection for authors or artists who are nationals of countries adhering to the 1991 Paris Convention on Intellectual Property Rights.

Patents are protected for 20 years and an annual charge is levied during this period. Registered trademarks are also protected for a period of 20 years. Trademarks may be renewed indefinitely by subsequent registrations. Senegal is a signatory to the Bern Copyright Convention. The Senegalese Copyright Office, part of the Ministry of Culture, attempts to enforce copyright obligations. The bootlegging of music cassettes and CDs is common and of concern to the local music industry. The Copyright Office has taken actions to combat media piracy, including seizure of counterfeit cassettes and CD/DVDs.

Despite an adequate legal and regulatory framework, Senegal’s enforcement of intellectual property rights is weak. In general, government agencies lack capacity to combat IPR violations or to seize counterfeit goods. Customs screening for counterfeit goods coming from China, Nigeria, Dubai, and other centers of illegal production is weak. Confiscated goods occasionally re-appear in the market. Nonetheless, the government has made efforts to raise awareness of the impact of counterfeit products on the Senegalese marketplace, and officers have participated in training provided by manufacturers to identify counterfeit products.

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/ .

Capital Markets and Portfolio Investment

Senegalese authorities take a generally benign view of portfolio investment. The government relies on a smoothly functioning debt market to manage its finances, regularly issuing debt instruments in local currency on the regional market. The government also issues debt instruments denominated in U.S. dollars, as with its 2014 and 2011 Eurobond offerings.

A handful of Senegalese have listings on the West African Regional Stock Exchange (BRVM), headquartered in Abidjan, Cote d’Ivoire. The BVRM also has local offices in each of the WAEMU member countries, offering additional opportunities to attract foreign capital and access diversified sources of financing.

The government does not restrict payments for current international transactions.

Money and Banking System

While Senegal’s banking system is generally sound, the financial sector is generally under-developed. Senegal’s twenty commercial banks, primarily based in France, Nigeria, Morocco, and Togo, follow generally conservative lending guidelines, with collateral requirements that most potential borrowers cannot meet. Few firms are eligible for long-term loans, and small- and medium-sized enterprises have little access to credit. According to the results of a government survey conducted in 2014, less than 5 percent of enterprises receive financing from commercial banks. Senegal’s banking sector is regulated by the BCEAO, the regional central bank, and the WAEMU regional banking commission.

Foreign Exchange and Remittances

Foreign Exchange

As one of the eight WAEMU countries, Senegal uses the CFA franc as its currency. The CFA franc is pegged to the euro. Senegal’s Investment Code includes guarantees for access to foreign exchange and repatriation of capital and earnings, though transactions are subject to procedural requirements of financial regulators. Commercial transfers are routinely carried out by local financial institutions without delays. The government limits the amount of foreign exchange that individual travelers may take outside Senegal. Departing travelers may take a maximum of 6 million CFA francs (approximately USD 10,000) in foreign currency and travelers checks upon presentation of a valid airline ticket. Senegal’s bilateral investment treaty with the United States includes commitments to ensuring free transfer of funds associated with investments.

Remittance Policies

There are no restrictions on the transfer or repatriation of capital and income earned, or on investments financed with convertible foreign currency. Remittances to Senegal from citizens living overseas are routine and provide a significant source of income for many Senegalese households. In 2013, the value of remittances, formal and informal, was estimated by Senegalese authorities at USD 1.7 billion or 12 percent of GDP. According to an IMF report, this was been the average level of remittances to Senegal relative to GDP between 2008 and 2015.

Sovereign Wealth Funds

In 2012, Senegal established a sovereign wealth fund (Fonds Souverain d’Investissements Strategiques, or FONSIS)) with a mandate to leverage public assets to support equity investments in commercial projects supporting economic development objectives. Senegal maintains several taxes and funds allocated for specific purposes such as expanding access to transportation, energy, and telecommunications, including the autonomous road maintenance fund and the energy support fund. For these funds, some information is included in budget annexes; these funds are subject to the same auditing and oversight mechanisms as ordinary budgetary spending. FONSIS reports that it abides by the Santiago Principles for sovereign wealth funds.

Senegal has progressively reduced government involvement in state-owned enterprises (SOEs) during the last three decades and only a handful remain. The principal SOEs are the national electricity company, Dakar’s public bus service, the Port of Dakar, and the national water utility. The state-owned electricity company, SENELEC, retains control over power transmission and distribution, but it relies increasingly on independent power producers to generate power. The government has also retained control of the national oil company, Petrosen, which is involved in hydrocarbon exploration in partnership with foreign oil companies and operates a small refinery dependent on government subsidies. The government has modest and declining ownership of agricultural enterprises, including a state-owned company involved in rice production.

The Direction du Secteur Parapublic, an agency within the Ministry of Finance, exercises the government’s ownership rights in enterprises. The government’s budget includes financial allocations to these enterprises, including subsidies to SENELEC. SOE revenues are not projected in budget documents, but actual revenues are included in quarterly reports published by the Ministry of Finance. Senegal’s supreme audit institution (the Cour des Comptes) and Inspector General Office conduct audits of the public sector and SOEs. Their reports are publicly available at www.coursdescomptes.sn and www.ige.sn.

Privatization Program

Since the 1980s, Senegal has reduced the involvement of state-owned enterprises in most sectors of the economy. The government has privatized companies involved in the aviation, water, finance, real estate, and telecommunications sectors with no restriction on the participation of foreign investors. Several state-owned firms privatized in recent years were sold in part or in their entirety to foreign entities. The government has no program for privatizing the remaining SOEs.

Senegal participates in the Extractive Industries Transparency Initiative (EITI). In 2015, Senegal completed its first annual EITI report, providing data from 2013 on government revenues from extractive industries and also expanding the information available on natural resource concessions. In 2016, Senegal published its second EITI report, with data from 2014. Under the EITI process, Senegal has made significant progress in collecting and publicizing information on natural resource concessions.

The government publishes some information about natural resource concessions in its official gazette (www.jo.gouv.sn ), including details of the geographic area, resources under development, the companies involved and the duration of the contract

Since taking office in 2012, President Macky Sall has proclaimed his commitment to fighting corruption, increasing transparency, and promoting good governance. His government mounted investigations against former government officials suspected of corruption and secured several convictions. But there have been no similarly high-profile corruption prosecutions of currently-serving officials. Sall also created a new anticorruption agency, the Office National de la Lutte Contre la Fraude et la Corruption (OFNAC). A key responsibility of this agency is to take custody of asset declarations from public officials. The government has also taken steps to increase budget transparency in line with regional standards. Senegal ranked 64th out of 176 countries, in Transparency International’s 2016 Corruption Perception Index (CPI), representing a substantial improvement over its 2011 ranking at 99th place.

Notwithstanding Senegal’s positive reputation for corruption relative to regional peers, investors continue to report corruption as an issue at lower levels of the bureaucracy where officials with modest salaries may demand “tips” for advancing permits and other official paperwork. It is important for U.S. companies to assess corruption risks and develop an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. firms operating in Senegal can underscore to interlocutors in Senegal that they are subject to the Foreign Corrupt Practices Act in the United States and may consider seeking legal counsel to ensure compliance with anti-corruption laws both at home and abroad.

Senegal is a signatory of the United Nations Convention Against Corruption but it is not a signatory of the OECD Convention on Combatting Bribery.

Resources to Report Corruption

Mme. Seynabou Ndiaye Diakhate
Presidente
OFNAC
37, Avenue du President Lamine Gueye
+221 33 889 98 38
www.ofnac.sn 

M. Mouhamadou Mbodj
Coordonnateur General
Forum Civil
40 Avenue Malick Sy (1er etage) – B.P. 28 554 – Dakar
+221 33 842.40.44

forumcivil@orange.net

Senegal has long been regarded as an anchor of stability in West Africa, a region vulnerable to political unrest. It is the only mainland West African country that has never had a coup d’etat since gaining independence in 1960. Voting in the 2012 election proceeded peacefully and reinforced Senegal’s reputation as the strongest democracy in West Africa. Public protests occasionally spawn isolated incidents of violence when unions, opposition parties, merchants, or students demand better salaries, working conditions or other benefits. Petty banditry sometimes causes violence in the Casamance region, which has suffered from a 35-year separatist rebellion in which a de facto ceasefire has held for over five years as the government and rebel groups move toward negotiations.

Senegal has an abundant supply of unskilled and semi-skilled labor. Skilled workers in engineering and technical fields are in short supply. While Senegal has one of the best systems of higher education in West Africa and produces a substantial pool of educated workers, a lack of suitable job opportunities in Senegal leads many to look outside of the country for employment.

Relations between employees and employers are governed by the labor code, industry wide collective bargaining agreements, company regulations, and individual employment contracts. There are two powerful industry associations that represent management interests: the Conseil National du Patronat (the national council of employers, or “CNP”) and the Conseil National des Employeurs du Senegal (national employers’ association of Senegal, or “CNES”). The principal labor unions are the Confederation Nationale des Travailleurs du Senegal (national confederation of Senegalese workers, or “CNTS”), and the Union Nationale des Syndicats Autonomes du Senegal (the national union of autonomous trade unions of Senegal, or “UNSAS”), a federation of independent labor unions.

Senegalese law permits all workers to form unions, with some exceptions for law-enforcement officials, including police and gendarmes, customs officers, and judges. The labor code requires prior authorization from the Ministry of Interior before a trade union may be legally recognized. The law allows unions to conduct their activities without interference and provides for the right to bargain collectively. Collective bargaining agreements, however, apply only to an estimated 44 percent of union workers. Trade unions organize on an industry-wide basis, similar to the French system of union organization, though most workers have informal occupations in which they are self-employed and not subject to the labor code.

The inflexibility of the labor code, the complexity of labor issues, and arbitrary court rulings in labor cases are often high on the list of complaints voiced by investors and foreign companies. Foreign firms are often sued in the Senegalese courts by terminated employees seeking to recover damages and return to their former positions. Although adverse court decisions are sometimes overturned on appeal, the appeals process is costly and time consuming.

OPIC has an agreement in Senegal and offers financing and investment insurance to support U.S. investment projects in Senegal. OPIC is currently supporting several investment projects in Senegal, including three energy projects, one microfinance project, and an agribusiness project. Senegal is a member of the Multilateral Investment Guarantee Agency, an arm of the World Bank.

Table 3: Sources and Destination of FDI

No data available.
Table 4: Sources of Portfolio Investment

No data available.

Youhanidou Wane Ba
Commercial Specialist
U.S. Embassy, Route des Almadies, B.P. 49, Dakar, Senegal
+221 33 879 4238
wanebay@state.gov

Policies Towards Foreign Direct Investment

Though the Government of Tanzania (GoT) generally speaks favorably about foreign direct investment (FDI), it does little to follow a policy program to effectively attract it. The 2016 World Investment Report of UN Conference on Trade and Development’s (UNCTAD) reported that Tanzania attracted $1.532 billion in 2015 compared to $2.049 in 2014, a decrease of 25%. Some stakeholders are concerned that the government’s current approach toward the private sector increases the perceived risk of investment and, thereby, limits FDI. Some of the concerns mentioned by stakeholders relate to the difficulty of hiring foreign workers, reduction in profits caused by revenue raising measures, increased local content requirements, a perceived unstable regulatory environment, lack of private sector consultations, a preference for government ownership, and forced public offering listings in select markets.

The theme of Tanzania’s National Five Year Development Plan 2016-21 (FYDP 2) is “Nurturing Industrialization for Economic Transformation and Human Development.” Much of Tanzania’s focus on industrialization is in line with the East African Community Strategy to Implement Industrialization Policy (2012-2032). Tanzania aims to increase the productivity of its agriculture sector to serve as a basis for creating more value-added products through its industrialization efforts.

The Tanzania Investment Center (TIC), established by the Tanzanian Investment Act of 1997, serves as “the primary agency of the government to coordinate, encourage, promote, and facilitate investment in Tanzania.” The agency acts as a one stop center for investors, helping to obtain permits, licenses, visas, and land access among other support. Registering with TIC is not mandatory, but offers incentives for joint ventures with Tanzanians and wholly owned foreign projects investing a minimum of $500,000.

TIC-approved projects receive TIC certificates of incentives which include VAT and import duty exemptions and 100% repatriation of profits, dividends, and capital after tax. Similar incentives are offered to investors in semi-autonomous Zanzibar through the Zanzibar Investment Promotion Authority (ZIPA). TIC promotes investment and trade opportunities in agriculture, mining, tourism, telecommunications, financial services, energy, and transportation infrastructure. The Tanzania Investment Regulations distinguish “strategic investors,” eligible for additional incentives, stating that such investors may be selected by the government based on a number of criteria including the size of the investment and its impact on the national economy, significant job creation potential, and the introduction of new technology. According to TIC, a minimum investment of $50 million is required for joint ventures with Tanzanians and wholly owned foreign projects to receive “strategic investor” status. However, investment incentives may be unpredictable; in 2015 the government moved to limit the scope of incentives by creating a new investment threshold of $300 million for a foreign investor to qualify as a “special strategic investor.” In addition, concerns over government treatment of a U.S.-based company with strategic investor status remain unresolved since 2016.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally receive treatment equivalent to domestic private investors in Tanzania but limits still exist in a number of sectors. TIC continues to improve investment facilitation services by providing joint venture opportunities between local and foreign investors. Despite improvements in recent years, investment challenges remain. The Tourism Act of 2008 bars foreign companies from engaging in mountain guiding activities and only Tanzanian citizens may operate travel agencies, car rental services, or engage in tour guide activities. The 2010 Mining Act gave the Minister of Energy and Minerals discretion to require foreign mining companies to give the government an ownership share in order to receive a Mining Development Agreement. The Mining (Minimum Shareholding and Public Offering) Regulations 2016 place foreign ownership limits and stock exchange listing obligations on certain mining companies. Moreover, the Finance Act of 2016 requires telecom companies to list 25 percent of their shares on the Dar es Salaam Stock Exchange (DSE). As of this writing, three telecom companies have started the process for listing.

Currently, there is no limit on foreign investment in shares of companies listed on the DSE. There are restrictions, however, on investments in government bonds. More specifically, regulations permit only East African residents to invest in government bonds (note that prior to 2014, only Tanzanian residents were permitted to invest and transact in DSE-listed government bonds). East Africans (excluding Tanzanian residents), however, are not allowed to sell government bonds bought in the primary market until after a one year lock-up period.

The country imposes foreign equity ownership restrictions on a number of service sectors. For example, foreign capital participation in the telecommunications sector is limited to a maximum of 75%. While the Broadcasting Services Act allows a maximum of 49% foreign ownership of Tanzanian TV stations, foreign capital participation in local nationwide newspapers is prohibited.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) Investment Policy Review of Tanzania published in 2013 came up with four key policy recommendations: (i) rationalize investor rights and obligations and make them easily accessible, (ii) increase land tenure security for agricultural investors, (iii) enhance private investment in public infrastructure, and (iv) better promote and facilitate investment for both domestic and foreign firms. The Review is the result of a self-assessment undertaken by a national task force composed of government agencies, the private sector, and civil society.

The World Trade Organization (WTO) also published a Trade Policy Review in 2013 that covers East African Community member states (Burundi, Kenya, Rwanda, Tanzania, and Uganda). The main suggested areas for improvement revolve around the five member countries implementing the common external tariff (CET) and their inability to harmonize trade, export, and tax policies.

Business Facilitation

According to Doing Business in Tanzania 2017, starting a business in Tanzania requires nine procedures. Globally, Tanzania ranks at 135 out of 190 economies on the World Bank’s ease of starting a business, dropping eight points from 127 in 2016. In Tanzania the Business Registration and Licensing Agency (BRELA) is responsible for business registration. BRELA issues certificates of compliance for foreign companies, certificates of incorporation for local companies, and certificates of registration for single proprietorship. Firms must then register their businesses with the Tanzania Revenue Authority (TRA), the National Social Security Fund (NSSF) or any of the other five social security schemes in Tanzania and, depending on their business activities. They also should obtain business licenses with the Ministry of Industry and Trade or from the municipality. The Tanzania Investment Center (TIC) provides online registration services for business registration with BRELA, as well as registration with the TRA and social security funds. (Simultaneous registration website – http://tiw.tic.co.tz/ )

Investment promotion and facilitation in Tanzania is driven by the Tanzania Investment Center (TIC), the Government’s investment promotion agency, which falls under the overall responsibility of the Ministry of Industry, Trade, and Investment (MITI). The agency deals with all enterprises whose minimum capital investment is not less than $500,000 if foreign owned or $100,000 if locally owned.

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 deal in securities with other EAC residents. In addition, FEAR provides opportunities for residents to engage in Foreign Direct Investment and acquire real assets outside the EAC.

Tanzania has bilateral investment treaties with 19 countries and seven other investment agreements with regional economic blocs. The country is also a signatory to global investment instruments such as the International Centre for Settlement of Investment Disputes (ICSID) convention, the New York Convention, and the UN Guiding Principles on Business and Human Rights.

Currently, the United States of America and Tanzania do not have bilateral investment or taxation agreements. Tanzania is a member of the East African Community (EAC), which signed a Trade and Investment Framework Agreement (TIFA) with the United States in July 2008. Under the U.S.-EAC Trade and Investment Partnership Initiative, the United States and EAC are seeking to expand trade and investment ties and dialogue with the private sector.

Transparency of the Regulatory System

Tanzania has formal processes in place for creating rules and regulations. Generally, after an Act is passed by Parliament, the creation of regulations is delegated to the Minister of the designated Ministry. In theory, stakeholders are legally entitled to an opportunity to comment on regulations before they are implemented. Stakeholders, however, often report that they either are not consulted or are given too little time to provide useful comment.

In 2016 the President signed the Access to Information Act into law. In theory, the Act gives citizens more rights to information. Some stakeholders, however, believe that the Act gives too much discretion to the GoT to withhold disclosure. At present, information, including rules and regulations, is available on the GoT’s “Government Portal” – http://www.tanzania.go.tz . However, much information is missing from the site and the information is not kept current. Alternatively, current and proposed regulations/rules can be obtained on the relevant Ministry’s website, but sometimes information is missing or not current on these sites as well.

Nominally independent regulators are mandated with impartially enforcing 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. For example, in 2017, the nominally independent Energy and Water Utilities Regulatory Authority approved an 8.5 percent increase in tariff charges after rejecting the State-owned electric utility’s request for an 18.2 percent increase. Several days later, the Minister of Energy and Minerals revoked the increase alleging that it was not adequately consulted. Critics of this justification pointed to documents and meeting attendance records as evidence that the Minister was aware of the proceedings.

International Regulatory Considerations

Tanzania is a member of the World Trade Organization (WTO) and its National Enquiry Point (NEP) for the WTO in Tanzania is the Tanzania Bureau of Standards (TBS). As NEP, TBS handles information on technical regulations and standards adopted or proposed to be adopted and conformity assessment procedures adopted or proposed to be adopted.

Tanzania is part of both the East African Community (EAC) and the Southern African Development Community (SADC). As a member of these regional blocks, Tanzania is often subject to their respective rules and regulations, such as the EAC common external tariff and rules on the free movement of workers, and the SADC Harmonized Seed Regulatory System for trade in approved seed varieties.

Legal System and Judicial Independence

The Tanzanian legal system is based on the English Common Law system. The first source of law is the Constitution of 1977 (although a new constitution, which was approved by a special Constituent Assembly, is awaiting a public referendum initially set for April 30, 2015 but subsequently postponed indefinitely); 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 the lower courts. The Court of Appeal of Tanzania, which handles all the appeals from Mainland Tanzania and Zanzibar, is the highest ranking court in the country, followed by the High Court of Tanzania, which handles all types of civil and criminal cases and commercial matters. 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 is without exclusive jurisdiction. District and Resident Magistrate Courts also have original jurisdiction in commercial cases involving monetary amounts up to TZS 50 million ($22,442), and TZS 300 million ($134,650), respectively. The High Court has original jurisdiction for cases exceeding that amount.

Apart from the formal systems of courts, there exist quasi-judicial bodies including the Tax Revenue Appeals Tribunal, which was established under the Tax Appeals Act, and the Fair Competition Tribunal, which was established under the Fair Competition Act. Notwithstanding the court and quasi-judicial bodies, Tanzania also has 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 a foreign judgment from a court in a listed country, the judgment holder has to 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 Judiciary in Tanzania was named as the third most corrupt institution, after the Tanzania Police Force and the Tanzania Revenue Authority (TRA), according to the 2015 Transparency International Global Corruption Barometer. The selection and appointment of judges in Tanzania is criticized for its non-transparent nature. The Judiciary Service Commission proposes a list of candidates to the President who then appoints them as judges. However, the criteria and process for identifying the candidates is unknown.

Laws and Regulations on Foreign Direct Investment

The Tanzania Investment Center (TIC), established by the Tanzanian Investment Act of 1997, was created to be “the primary agency of the government to coordinate, encourage, promote, and facilitate investment in Tanzania.” The agency acts as a one stop facilitative center for investors, helping to obtain permits, licenses, visas, and land access among other support. See www.tic.co.tz .

Competition and Anti-Trust Laws

The GoT passed the Fair Competition Act of 2003 to “promote and protect effective competition in trade and commerce and to protect consumers from unfair and misleading market conduct.” The Fair Competition Commission (FCC), established under the Act, is an independent government body mandated to intervene, as necessary, to prevent significant market dominance, price fixing, and extortion of monopoly rent to the detriment of the consumer, and market instability in the country. The FCC deals with all issues of anti-competitive conduct and has the authority to restrict mergers and acquisitions if the outcome is likely to create dominance in the market or lead to uncompetitive behavior.

Expropriation and Compensation

The GoT may expropriate property after due process for the purpose of national interest. The Tanzanian Investment Law guarantees:

• Payment of fair, adequate, and prompt compensation.
• A right of access to the Court or a right to arbitration for the determination of the investor’s interest or right and the amount of compensation.
• Any compensation shall be paid promptly and authorization for its repatriation in convertible currency, where applicable, shall be issued.

GoT authorities do not discriminate against U.S. investments, companies, or representatives in expropriation. Since 1985, the Government of Tanzania has not expropriated any foreign investments. There have been, however, several 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.

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). ICSID was established under the auspices of the World Bank by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. MIGA is World Bank-affiliated and issues guarantees against non-commercial risk to enterprises that invest in member countries.

Tanzania is a signatory to the New York Convention on the Recognition and Enforcement of Arbitration Awards, though the Arbitration Act of Tanzania does not give force of law in Tanzania to the provisions of the conventions. An arbitration award will be recognized as binding once it is filed in a Tanzanian court and will be enforceable as if it were a decree of the court, subject to the provisions of the Arbitration Act of Tanzania.

Investor-State Dispute Settlement

Under Tanzanian regulations, disputes between a foreign investor and a Tanzanian state entity that are not settled through negotiations may be submitted to arbitration through one of several options:

• Arbitration based on the arbitration laws of Tanzania.
• Arbitration in accordance with the rules of procedures of the International Centre for Settlement of Investment Disputes (ICSID).
• Arbitration within the framework of any bilateral or multilateral agreement on investment protection to which the government and the country of the investor are parties.
• Arbitration in accordance with the World Bank’s Multilateral Investment Guarantee Agency (MIGA), to which Tanzania is a signatory.
• Arbitration in accordance with any other international machinery for settlement of investment disputes agreed upon by the parties.

Despite the legal mechanisms in place, foreign investors sometimes complain that the GoT changes the general terms and conditions and does not honor agreements. Additionally, investors continue to face challenges receiving payment for services rendered for GoT projects. Press widely reported of an alleged breach of contract between a U.S. company and Tanzania Electric Supply Company (TANESCO). The dispute reportedly continues as the electricity plant lays idle.

There is also concern over Tanzania’s commitment to upholding International Centre for Settlement of Investment Disputes (ICSID) decisions after a case involving Standard Chartered Bank – Hong Kong (SCB HK) and TANESCO. On April 23, 2014, the Tanzanian High Court ordered both parties in on-going ICSID arbitration proceedings to refrain from “enforcing, complying with or operationalizing” a decision made by the Tribunal in ICSID proceedings from February 12, 2014. Some interpreted the ex-parte injunction as a clear breach of the provisions of the ICSID Convention and the actions of the High Court put Tanzania in violation of its international law obligations. After the case was reconsidered by the tribunal, SCB HK was awarded $148.4 million plus interest. SCB HK is currently attempting to get its award enforced by the Tanzanian High Court. Despite its efforts, SCB HK has yet to collect its award and the matter continues to be litigated in the Tanzanian High Court.

International Commercial Arbitration and Foreign Courts

Investment-related disputes in Tanzania can be protracted. The Commercial Court of Tanzania, established in 1999, is headquartered in Dar es Salaam and 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 one-week session every month at each of the sub-registries. The government said it intends to establish more branches in other regions including Mbeya, Tanga, and Dodoma in the coming years, although progress has stagnated. Court-annexed mediation is also a common feature of the commercial dispute resolution system.

Bankruptcy Regulations

The Bankruptcy Act Cap 25 regulates bankruptcy proceedings and the Companies Act No 12 2002 as amended regulates insolvency proceedings. According to the 2017 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 21 U.S. cents on the dollar, with judgments typically made in local currency.

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 $300,000 if foreign owned or $100,000 if locally owned is required. These incentives include:

• 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% 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 Government 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 be granted “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. (See http://www.tic.co.tz/menu/313 )

The Export Processing Zones Authority (EPZA) oversees Tanzania’s Export Processing Zones (EPZs) and Special Economic Zones (SEZs). EPZA aims to attract investment by creating a healthy business environment through the development of strong industrial and commercial infrastructures and by offering investment incentives and facilitation services. Minimum capital requirements for EPZ and SEZ investors are $500,000 for foreign investors and $100,000 for local investors. Investment incentives offered for EPZs include:

• An exemption from corporate taxes for 10 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 10 year exemption from corporate taxes.

The Zanzibar Investment Promotion Agency (ZIPA) and the Zanzibar Free Economic Zones Authority (ZAFREZA) offer roughly equivalent incentives as those offered by the Union’s TIC and EPZA policies.

Foreign Trade Zones/Free Ports/Trade Facilitation

Tanzania established export processing zones (EPZs) and special economic zones (SEZs) following the enactment of the Export Processing Act of 2002 and the Special Economic Zone Act of 2006. These economic zones are assigned geographical areas or industries designated to undertake specific economic activities with special regulations and infrastructure requirements. Industries operating in an EPZ are required to export 80% or more of the goods produced. Industries operating in a SEZ have no specific condition for export, allowing manufacturers to sell all or part of the goods produced in the domestic market. Currently there are six SEZ industrial parks and 52 stand-alone EPZ factories. Twenty regions have earmarked areas between 500 to 9,000 hectares specifically for EPZ/SEZ.

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 local hires before seeking work permits for foreign employees, and to develop plans to transition to local employees.

As the result of discovering offshore gas, the Tanzanian government established a comprehensive policy and legal framework to guide operations in the oil and gas industry. As a result, the GoT approved the Local Content Policy (LCP) for the sector in May 2015 and key items were embedded in the August 2015 Petroleum Act. The Ministry of Energy and Minerals (MEM) has drafted local content regulations under the Petroleum Act, but in the first quarter of 2017 was still accepting public comment and had not yet finalized the regulations.

Recognizing the local content initiative cuts across all economic sectors, the government decided that local content development and management 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 the implementation of local empowerment initiatives in Tanzania. Initially, local content development and management will be focused on selected sectors of the economy, starting with: Extractives; Energy; Construction; Transport; Agriculture, livestock and fisheries; Manufacturing and Production; Trade; public procurement; Science and Technology; Tourism; Financial (Banking and Insurance) and Environment. 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 the area of local data storage, the National Payment Systems Act of 2015 requires all banks, both local and foreign, to physically house computer servers in Tanzania. The Act comes with continued government effort to better monitor financial transactions and control cybercrime. Implementing regulations for the Act issued in 2015 include: The Payment Systems Licensing and Approval Regulations, and The Electronic Money Regulations.

Real Property

Land ownership remains restrictive in Tanzania. Under the Land Act of 1999, all land in Tanzania belongs to the State. Procedures for obtaining a lease or certificate of occupancy may be complex and lengthy, both for citizens and foreign investors. Less than 15% of land has been surveyed, and registration of title deeds is currently 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 through a granted right of occupancy. Foreign investors may also partner with Tanzanian leaseholders to gain land access.

Under the Tanzania Investment Act of 1997 and the Land Act of 1999, occupation of land by non-citizen investors is restricted to lands for investment purposes. Land may be leased for up to 99 years, but the law does not allow individual Tanzanians to sell land to foreigners. There are a number of 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). The GoT plans to expand TIC’s land bank and modernize its land titling and registration system, though both changes are long delayed in execution.

Secured interests in property, both movable and real, are recognized and enforced under various laws in Tanzania. There is no single comprehensive law to secure property rights. Though TIC maintains a land bank, restrictions on foreign land ownership may significantly delay investments. Land not already processed for investment in the land bank has to go through a lengthy review and approval process by local-level authorities, as well as the Ministry of Lands, Housing, and Human Settlements Development and the President’s Office, in order to be officially re-designated from “village land,” with customary rights of occupancy, to “general land,” which may be titled for investment and sale.

The Ministry of Lands, Housing, and Human Settlements Development handles registration of mortgages and rights of occupancies. The Office of the Registrar of Titles is responsible for issuing titles and registering mortgage deeds. Title deeds are recognized as a mortgage for securing loans from banks. Traditional Certificates of Occupancy for village land are still being piloted for use as collateral, and this is currently limited to groupings of village-level borrowers. The Registering Property rank in the World Bank’s 2017 Ease of Doing Business report indicates Tanzania went up one place from 133 in 2016 to 132 in 2017. According to the report, it takes eight procedures and 67 days to register a property.

In February 2016, the GoT launched the Land Tenure Support Program (LTSP) to improve transparency and efficiency in the land sector, and to ensure current and future demands for land leads to beneficial and equitable outcomes for rural populations. The program audits land ownership and usage in the country, targeting holdings that are 50 acres and above. Owners of land that is deemed uncultivated and serving no social or economic function could potentially have their title deed revoked. Any confiscated land parcels would be reallocated to a new owner with no land, and title deeds automatically expire after three years if the new owner fails to develop the allocated parcel.

Intellectual Property Rights

The Fair Competition Commission (FCC), housed in the Ministry of Industry and Trade, is charged with protecting property rights in Tanzania. The agency is responsive to requests for assistance from private companies, but lacks resources for comprehensive identification of counterfeits and nation-wide investigations.

The process for taking action against counterfeiters is as follows: the petitioner, who must be the owner of the brand or its legal representative, sends a letter requesting FCC action and pays an investigation fee of Tanzania shillings (TZS) 3 million ($1,346); following a consultation with the petitioner, the FCC raids the suspected offender and confiscates all counterfeit goods. The offender may choose to sign a written confession and pay a fine which ranges from TZS 200,000 ($90) to TZS 8 million ($3,591), depending on the value of the confiscated goods. Alternatively, the case may be forwarded to the Director of Public Prosecution (DPP) for a court hearing. If the offender is found guilty and convicted, he may be sentenced to jail for a period ranging from 4-15 years, receive a fine of between TZS 10-50 million ($4,489 – $22,443), or receive both a jail term and a fine. The confiscated goods are destroyed at the expense of the offender. The vast majority of offenders confess and pay the lower fine rather than engaging in the court process, which may drag on for years.

Registration of patents and trademarks is on a first-in-time, first-in-right basis, so companies should consider applying for trademark and patent protection in a quick manner. It is the responsibility of the rights’ holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors.

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

Capital Markets and Portfolio Investment

Tanzania’s Dar es Salaam Stock Exchange (DSE) was incorporated in 1996; trade on the DSE began in 1998. 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 in Tanzania. 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 Capital Markets and Securities Authority. In 2016, the IMF noted that capital market development, in particular total market capitalization, remained low. The DSE’s total market capitalization declined 7.5 percent during 2016.

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 the other East Africa Community (EAC) nations (Burundi, Kenya, Rwanda, South Sudan, Uganda) 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% of each security issued.

As part of the Finance Bill 2016, Tanzania’s government ordered telecoms companies registered within the country to float a 25 percent stake on the DSE by January 1, 2017. While the GoT has claimed that the DSE has sufficient liquidity to accommodate these listing, many stakeholders are concerned that the offerings are too large for DSE’s low market capitalization. Although several companies have expressed their intent to conduct an Initial Public Offering (IPO), only Vodacom has issued an IPO. The offer period opened on March 9, 2017 and was originally scheduled to close on April 19. The schedule close, however, was extended to May 11 to allow more time to sell unpurchased shares. The expected listing date, when shares will begin trading on the Dar es Salaam Stock Exchange (DSE), is June 6, 2017.

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. On February 24, 2017, however, the GoT surprised the industry by amending the regulations so that the 30 percent stake must now be floated by August 23, 2017, rather than October 7, 2018.

Obtaining credit on the local market is difficult for many investors, both foreign and domestic. In 2016, there was a sharp decrease in the money supply and liquidity was an issue of private sector concern.

Money and Banking System

2016 was a challenging year for banks as they adjusted to the imposition of new taxes, the GoT’s movement of a large amount of its deposits out of commercial banks and into the Bank of Tanzania (BoT), a sharp drop in market liquidity, and an increase in non-performing loans (NPL). According to the BoT, “the quality of the banking sector’s assets deteriorated as reflected by the ratio of non-performing loans to gross loans, which increased to 9.5 percent (as of the end December 2016) from 6.4 percent recorded at the end of December 2015. Despite challenges, the IMF reported in its January 2017 Fifth Review under the Policy Support Instrument that the “banking sector is well-capitalized, liquid and profitable on average.”

On March 6, 2017, in response to continuing market liquidity problems, the BoT decreased the interest rate which it charges for lending to other banks from 16 percent to 12 percent. The BoT hopes that this move will increase access to credit for the private sector, but it is still too early to assess the impact of the rate decrease.

As of June 30, 2016, the banking sector was composed of 41 full-fledged commercial banks, 3 financial institutions, 12 community banks, 4 deposit taking microfinance banks, 3 financial leasing companies, and 2 private credit reference bureaus. Despite growth in the number of financial institutions, the participation in the formal banking sector is still low. Depending on the study, formal banking sector participation ranges from 3 to 25 percent. Mobile money has been very successful in Tanzania and, according to recent reports, financial inclusion is dramatically increased when mobile banking is taken into account.

Private sector companies have access to a variety of commercial credit instruments including documentary credits (letters of credit), overdrafts, term loans, and guarantees. Credit to the private sector, however, has been negatively impacted by the decrease in market liquidity. Foreign investors may open accounts and make deposits in registered private commercial banks. Interest earned by non-residents or foreign investors from deposits in banks registered by the Bank of Tanzania (BOT) is exempt from income tax, in accordance with the Income Tax Act of 2004. Foreign exchange regulations have been eliminated to attract investors and simplify international transactions.

The Banking and Financial Institution Act of 2006 established a framework for a Credit Reference Bureau and permits banks and financial institutions to release information to licensed reference bureaus in accordance with regulations and allows credit reference bureaus to provide to any person, upon 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 $10,000 over a period of 40 days. Shortages of foreign exchange occur rarely. Bureaucratic hurdles continue to cause delays in processing and effecting transfers; delays may range from days to weeks. Investors rarely use convertible instruments.

Remittance Policies

The Embassy is not aware of any recent complaints from investors regarding delays in remitting returns and there have been no remittance policy changes this year.

Sovereign Wealth Funds

Tanzania has not established a Sovereign Wealth Fund.

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, railway, telecommunications, insurance, aviation, and port sectors. SOEs typically report to ministries and are led by a board. Typically, a presidential appointee chairs the board but it is also usually composed of 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. With emerging potentials in the oil and gas sector, investors continue to monitor the potential increase of governmental influence on these economic activities.

As of June 2015, the GoT’s Treasury Registrar reported shares and interests in 215 public parastatals, companies and statutory corporations. (See http://www.tro.go.tz ) Reported categories are as follows:

• Service oriented entities which receive government subvention – 142
• Service oriented entities which do not receive government subvention – 12
• Business oriented 100% owned by government – 16
• Business oriented majority share-holding owned by the government – 07
• Business oriented minority share-holding owned by the government – 31
• Social Security funds – 07

The SOEs are under relevant Government Minister depending on the functions they perform. The senior management of SOEs reports to the Board of Directors appointed by the relevant Ministry. The Minister appoints board members to serve preset terms, the selection process is usually competitive and applicants, including from private sector, are interviewed for the positions. Summary financial results for fiscal year 2015 of SOEs are included in the GoT’s consolidated financial statements which are available on the Ministry of Finance’s website.
(See http://www.mof.go.tz/mofdocs/anouncement/000-GoT%20FS%2030062015%20Final%20-%20With%20Audit%20Opinion.pdf )

Privatization Program

The government retains a strong presence in energy and mining. 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 privatization process is not always clear and transparent. In some instances, the GoT took back control as was the case in 2009-10 when the government nationalized formerly-privatized Tanzania Railways Limited, General Tyre, and Kilimanjaro International Airport due to mismanagement.

In 2010, the GoT enacted the Public Private Partnership (PPP) Act. According to the act, any ministry, government department or agency, or statutory corporation may act as a PPP procuring authority. The 2014 amendment of the PPP Act created a new PPP Center to be incorporated in the Office of the Prime Minister through merging the Coordination Unit and the Finance Unit. It also sets up a PPP Technical Committee to recommend PPP projects for approval by the National Investment Steering Committee. In spite of these developments, the Tanzania’s Five Year Development Plan (2016-2021) (FYDP II) recognized weaknesses in the PPP legal framework and inadequate understanding and operationalization of PPP concepts as impediments to private sector financing. As a result, FYDP II calls for an expanded role for the private sector through PPPs. Despite this goal, little progress has been made in this area.

Responsible business conduct (RBC) is practiced by a number of large foreign firms in the banking, mining, oil and gas, and telecommunications sectors and is generally viewed favorably. Responsible conduct includes respecting human rights, environmental protection, labor relations and financial accountability. Most large foreign companies practice corporate social responsibility (CSR) and typically pay for media coverage of their charitable activities.

Tanzania has laws covering labor and environmental issues. For example, the 2003 Occupational Health and Safety Act requires employers to institute safety measures for those working in potentially harmful environments such as providing protective clothing or periodic health examinations. In 2004, the Government of Tanzania overhauled its employment and labor laws and enacted the Employment and Labor Relations Act (ELRA) and the Labor Institutions Act (LIA).

The ELRA establishes labor standards, rights and duties, while the LIA specifies the government entities charged with administering labor laws. In 2007, subsidiary legislation was enacted to facilitate the enforcement of labor rights and standards stipulated in the ELRA – the most significant being the Employment and Labor Relations (Code of Good Practice) Rules, G.N. No. 42 of 2007.

The National Environment Management Council (NEMC) is a government institution that has the mandate to undertake enforcement, compliance, review and monitoring of environmental impact assessments; perform research; facilitate public participation in environmental decision-making; raise environmental awareness; and collect and disseminate environmental information. Stakeholders, however, have expressed concerns over whether the NEMC has sufficient funding and capacity to handle its broad mandate.

There are no requirements for public disclosure of RBC-related policies, procedure or practices unless specifically required by law and the GoT has not yet addressed executive compensation standards. Dar es Salaam Stock Exchange (DSE) listed companies must comply with listing conditions including releasing 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 in RBC policies or practices into procurement decisions, unless the law specifically necessitates otherwise. The government is responsible for enforcing local laws, however, the media regularly reports on corruption cases where offenders allegedly manage to avoid sanctions. There have also been reports where corporate entities in collaboration with local government carry out controversial undertakings that may not be in the best interest of the local population.

Conflicts between mining companies and neighboring communities have been reported mostly in gold mining areas, leading to intrusion into mining sites and frequent clashes with mining company guards and police. These communities generally protest the government decision to give mining rights to international mining companies. In July 2016, the GoT reportedly confirmed reports that a river was no longer a safe source of water due to activities at Acacia’s North Mara Gold mine. The GoT, however, stated it would send samples abroad for further testing to verify internal reports.

Forty six Tanzanian companies participate in the United Nations Global Compact Network which focuses on RBC. In addition, several local and foreign NGOs monitor and promote RBC issues in Tanzania, mostly in the extractive sector where foreign owned companies operate in remote areas and at time come into direct confrontation with the local population. Some foreign companies have engaged NGOs to mitigate violent conflict with the communities neighboring the extractive industries sites to avoid adversarial confrontations. In addition, some of the multinational mining companies who are signatory 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.

There are no specific requirements for local and foreign companies in Tanzania to comply with any foreign guidelines pertaining to RBC, they are only required to comply with local laws and regulations. The government does not maintain a National Contact Point (NCP) to work with the OECD with respect to multinational enterprises.

Tanzania is a member of EITI since 2009 and in 2015 Tanzania enacted the Extractive Industries Transparency and Accountability Act, which requires 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. Companies disclose what they have paid in taxes and other payments and the government discloses what it has received. These two sets of figures are compared and reconciled.

Tanzania has several laws and institutions designed to combat corruption and illicit practices, although the government does not implement the laws effectively and corruption is generally perceived to be rampant at all levels. The Economic and Organized Crime Control Act of 2016 established a special court to deal with economic crimes such as corruption. The Prevention and Combating of Corruption Bureau (PCCB) is a law enforcement institution established and mandated by the Prevention and Combating of Corruption Act No. 11 of 2007 to prevent corruption, educate society on the effects of this problem, and enforce laws against corruption. The Ethics Secretariat (ES), an independent department under President’s office entrusted with powers to monitor the ethical conduct of public leaders, was established to enforce standards of ethical behavior and conduct, by ensuring compliance with the Public Leadership Codes of Ethics Act 1995.

President Magufuli, who took office in November 2015, has voiced a desire to fight corruption. This has to some extent affected public discourse about the prevailing climate of impunity, and some officials are reportedly more reluctant to engage openly in corruption. Some critics question how effective the initiative will be in tackling deeper structural issues that have allowed corruption to thrive. There has been little effort to institutionalize President Magufuli’s ad hoc measures, a lack of prosecutions, and persistent underfunding of the country’s main anti-corruption bodies.

Companies/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.

Transparency International (TI) has consistently rated Tanzania poorly for its perceived corrupt business practices. TI’s 2016 Corruption Perception Index (CPI) placed Tanzania at 116 (117 in 2015) out of 176 (168 in 2015) countries surveyed, with a score of 32 (30 in 2015) for 2016. The score indicates the perceived level of public sector corruption on a scale of 0-100, where 0 means that the country is perceived as highly corrupt and 100 means it is perceived as clean. TI’s 2015 Global Corruption Barometer (GCB) for Tanzania reported that the police are perceived as the most corrupt institution followed by the tax authority and the judiciary.

Corruption persists in government procurement, privatization, taxation, and customs clearance and remains a major concern for foreign investors and donors. While giving or receiving a bribe (including bribes to a foreign official) is a criminal offense in Tanzania, enforcement of laws, regulations, and penalties to combat corruption is largely ineffective. Corruption is endemic, but measures to combat it are applied impartially to both foreign and domestic investors

Resources to Report Corruption

Government agency responsible for combating corruption:

The Director General
Prevention and Combating of Corruption Bureau
P.O. Box 4865
Dar es Salaam, Tanzania
Email: dgeneral@pccb.go.tz
Phone: +255 (0)22 215-0043
Website: http://www.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
Website: www.humanrights.or.tz 

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. Union government elections have been generally free of political violence. Elections on the semi-autonomous Zanzibar, however, have been marred by political violence several times since 1995.

The October 2015 general elections for the union government were conducted in a largely open and transparent atmosphere. The elections in Zanzibar, however, were controversially annulled, and a heavily criticized re-run election was held on March 20, 2016 despite an opposition boycott. During the intervening period, a series of explosions occurred in Zanzibar, and political parties and independent civil society organizations reported numerous but isolated instances of possibly election-related violence. In 2013, the government of Tanzania launched a constitutional review process, although that process was ultimately postponed and has not yet been rescheduled. The constitutional reform process yielded tensions and public debate on a number of controversial issues including the status of the Union between mainland Tanzania and Zanzibar.

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 feel that foreign investment has led to exploitation of Tanzanian resources. This has resulted in conflict between investors and residents in some areas. In Arusha, some of these conflicts have led to violence, prompting the GoT to emphasize its commitment to supporting foreign inve