Policies Towards Foreign Direct Investment

Angola’s business environment remains one of the most difficult in the world. Investors must factor in pervasive corruption, an underdeveloped financial system, loss of U.S. corresponding banking relationships, abundant but unskilled labor, and extremely high operating costs. Surface transportation inside the country is slow and expensive, while bureaucracy and port inefficiencies complicate trade and raise costs.

The government continued to make concerted efforts to improve and diversify sources of foreign direct investment (FDI) which have been low, volatile and concentrated in the extractive sector. The New Private Investment Law (NPIL) approved by Presidential Decree 10/18, of June 26, 2018 eliminates preferential treatment to local investors and offers equal treatment to foreign investors. There are no laws or practices that discriminate against foreign investors, including U.S. investors. FDI is concentrated in the oil industry with negligible investments in the diamond, power generation, infrastructure, agriculture and health sectors. However, Angola has placed emphasis on investment in the agriculture sector to promote local production and help reduce its import bill. The NPIL also eliminated local content provisions for foreign investors, with local content provisions now only applicable to investments specific to the oil & gas, mining, banking and financial services, aviation, and shipping sectors.

Implementation of the New Private Investment Law (NPIL) remains slow and is not standardized. In November 2019, in collaboration with the American Chamber of Commerce in Angola (AmCham-Angola), the government launched the “Angola is Now” investment guide intended as a research tool to grant investors access to information on the business environment and investment opportunities in Angola. The guide contains information on Angola’s natural potential, private investment legislation, as well as the sectors of greatest interest, such as diamonds, other precious stones, iron ore, oil, agriculture, tourism, transportation, real estate and industry. Available in Portuguese and English, the guide also provides a wide range of information on the physical, geographical, environmental, economic and demographic characteristics of Angola’s 18 provinces and can also be accessed at: http://amchamangola.org/guide/ .

Limits on Foreign Control and Right to Private Ownership and Establishment

With the NPIL, the Angolan government eliminated the 35 percent local content requirement in foreign investments, and offered incentives to companies investing in the domestic economy, while maintaining minimal FDI screening processes, bringing it more in line with those of its sub-Saharan African neighbors. Foreign ownership remains limited to 49 percent in the oil and gas sectors, 50 percent in insurance, and 10 percent in the banking sectors. There are several objectives that the GRA seeks to accomplish through its FDI screening process: 1) create jobs for Angolans or transfer expertise to Angolan companies as part of an “Angolanization” plan; 2) protect sensitive industries such as defense and finance; 3) prevent capital flight or any other behavior that could threaten the stability of the Angolan economy; and, 4) diversify the economy.

Other Investment Policy Reviews

Angola has been a member of the World Trade Organization (WTO) since 1996. The WTO performed a policy review of Angola in September 2015.

At the government’s request, on September 30, 2019, the United Nations Conference on Trade and Development (UNCTAD) completed the Investment Policy Review (IPR) of Angola’s business and economic environments. The IPR was part of an EU funded wider technical assistance project aimed to assist Angola in attracting and benefitting from FDI beyond the extractives industry and support the GRA’s objective of increasing economic diversification and sustainable development. The full report and policy recommendations are accessible at: https://unctad.org/en/PublicationsLibrary/diaepcb2019d4_en.pdf 

Business Facilitation

The World Bank Doing Business 2020 report ranked Angola 177 out of 190 countries and recorded an improvement in Angola’s monitoring and regulation of power outages, and in facilitating trade through the implementation of an automated customs data management system, ASYCUDA (Automated System for Customs Data) World, and by upgrading its port community system to allow for electronic information exchange between different parties involved in the import/export process. Launching a business typically requires 36 days, compared with a regional average of 27 days, with Angola ranked 146 out of the 190 economies evaluated.

The government has maintained the approximately twenty “Balcoes Unicos do Empreendedor” (“One Stop Shop” for Entrepreneurs) since 2012. In addition to the Balcoes Unicos process, new business owners must also complete processes at the Ministry of Commerce, the General Tax Administration (AGT) and the provincial court in the location where the business has its headquarters. The Angolan Private Investment and Export Promotion Agency (AIPEX) that replaced the Angolan Investment and Export Promotion Agency (APIEX) now serves as a one-stop shop to promote local and foreign investments, exports and the international competitiveness of Angolan companies. The new state-run private investment agency website is http://www.aipex.gov.ao/PortalAIPEX/#!/ . Contact Information: Departamento de Promoção e Captação do Investimento; Agencia de Investimento Privado e Promoção de Investimentos e Exportações de Angola (AIPEX). Rua Kwamme Nkrumah No.8, Maianga, Luanda, Angola Tel: (+244) 995 28 95 92| 222 33 12 52 Fax: (+244) 222 39 33 81

To encourage the flow of investors and to boost tourism, Presidential Decree 56/18, of February 20, 2018, exempts several neighboring countries from visa entry requirements, and as of March 30, visas upon arrival are available to 61 countries/regions, including the United States and the EU, upon presentation of proof of accommodation and financial support. The 2018 NPIL eliminates the 35 percent local partner stake in the capital structure of foreign investment in the electricity and water, tourism, transport and logistics, construction, media, telecommunications, and information technology (IT) sectors.

Angolan law provides equal access for women entrepreneurs and underrepresented minorities in the economy. However, in practice, the investment facilitation mechanisms do not provide added advantages to these groups. Programs to benefit female entrepreneurs and underrepresented groups such as startup projects, business capacity building and development, and financial assistance including micro credit, are mainly implemented by non-governmental organizations and international financial institutions such as the African Development Bank (AfDB), the World Bank (WB), and private sector companies.

Outward Investment

The Angolan Government does not promote or incentivize outward investment nor does it restrict Angolans from investing abroad. Investors are free to invest in any foreign jurisdiction. According to data from the BNA, in 2018, the government did not invest abroad but received returns on previous investments abroad.

Domestic investors invest preferably in Portuguese speaking countries with few investing in neighboring countries in Sub Saharan Africa. The bulk of investment is in fashion, fashion accessories and domestic goods. Due to foreign exchange constraints, there has been very little or no investment abroad by domestic investors.

Transparency of the Regulatory System

Angola’s regulatory system is complex, vague, and inconsistently enforced. In many sectors, no effective regulatory system exists due to a lack of institutional and human capacity. The banking system is slowly adhering to International Financial Reporting Standards (IFRS). Public sector companies (SOEs) are still far from practicing IFRS. The public does not participate in draft bills or regulations formulation, nor does a public online location exist where the public can access this information for comment or hold government representatives accountable for their actions. The Angolan Communications Institute (INACOM) sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have permitted some purchase power agreements (PPA) participation.

Overall, Angola’s national regulatory system does not correlate to other international regulatory systems. However, Angola is a member of the WB, ADB AfDB, OPEC (January 2007), the United Nations (UN) and most of its specialized agencies – International Conference on Reconstruction and Development (IBRD), UNCTAD, the IMF, the World Health Organization (WHO), the WTO, and has a partnership agreement with the EU. At the regional level, the GRA is part of the Common Market for Eastern and Southern Africa (COMESA), the Community of Portuguese Speaking Countries (CPLP), and the SADC, among other organizations. Angola has yet to join the SADC Free Trade Zone of Africa as a full member. On March 21, 2018 together with 44 African countries, Angola joined the African Continental Free Trade Area (AfCFTA), an agreement aimed at paving the way for a liberalized market for goods and services across Africa. Angola is also a member of the Port Management Association of Eastern and Southern Africa (PMAESA), which seeks to maintain relations with other port authorities or associations, regional and international organizations and governments of the region to hold discussions on matters of common interest.

Angola became a member of the WTO on November 23,1996. However, it is not party to the Plurilateral Agreements on Government Procurement, the Trade in Civil Aircraft Agreement and has not yet notified the WTO of its state-trading enterprises within the meaning of Article XVII of the GATT. A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. TBT regimes are not coordinated. There have been no investment policy reviews for Angola from either the OECD or UNCTAD in the last four years. Angola conducts several bilateral negotiations with Portuguese Speaking countries (PALOPS), Cuba and Russia and extends trade preferences to China due to credit facilitation terms, while attempting to encourage and protect local content.

Regulation reviews are based on scientific or data driven assessments or baseline surveys. Evaluation is based on data. However, evaluation is not made available for public comment.

The National Assembly is Angola’s main legislative body with the power to approve laws on all matters (except those reserved by the constitution to the government) by simple majority (except if otherwise provided in the constitution). Each legislature comprises four legislative sessions of twelve months starting on October 15 annually. National Assembly members, parliamentary groups, and the government hold the power to put forward all draft-legislation. However, no single entity can present draft laws that involve an increase in the expenditure or decrease in the State revenue established in the annual budget.

The president promulgates laws approved by the assembly and signs government decrees for enforcement. The state reserves the right to have the final say in all regulatory matters and relies on sectorial regulatory bodies for supervision of institutional regulatory matters concerning investment. The Economic Commission of the Council of Ministers oversees investment regulations that affect the country’s economy including the ministries in charge. Other major regulatory bodies responsible for getting deals through include:

• The National Gas and Biofuels Agency (ANPG): The government regulatory and oversight body responsible for regulating oil exploration and production activities. On February 6, 2019, the parastatal oil company Sonangol launched the National Gas and Biofuels Agency (ANPG) through the Presidential decree 49/19 of February 6. The ANPG is the new national concessionaire of hydrocarbons in Angola, authorized to conduct, execute and ensure oil, gas and biofuel operations run smoothly, a role previously held by Sonangol. The ANPG must also ensure adherence to international standards and establish relationships with other international agencies and sector relevant organizations.

• The Regulatory Institute of Electricity and Water Services (IRSEA): The regulatory authority for renewable energies and enforcing powers of the electricity regulatory authority.

• The Angolan Communications Institute (INACOM): The institute sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have improved legal protection for investors to attract more private investment in electrical infrastructure, such as dams and hydro distribution stations.

• As of October 1, 2019, a 14 percent VAT regime came into force, replacing the existing 10 percent Consumption Tax. The General Tax Administration (AGT) is the office that oversees tax operations and ensures taxpayer compliance. The new VAT tax regime aims to boost domestic production and consumption, and reduce the incidence of compound tax created for businesses unable to recover consumption tax incurred. VAT may be reclaimed on purchases and imports made by taxpayers, making it neutral for business.

Angola acceded to the New York Arbitration Convention on August 24, 2016 paving the way for effective recognition and enforcement in Angola of awards rendered outside of Angola and subject to reciprocity. Angola participates in the New Partnership for Africa’s Development (NEPAD), which includes a peer review mechanism on good governance and transparency. Enforcement and protection of investors is under development in terms of regulatory, supervisory, and sanctioning powers. Investor protector mechanisms are weak or almost non-existent.

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations, and the government does not allow the public to engage in the formulation of legislation or to comment on draft bills. Procurement laws and regulations are unclear, little publicized, and not consistently enforced. Oversight mechanisms are weak, and no audits are required or performed to ensure internal controls are in place or administrative procedures are followed. Inefficient bureaucracy and possible corruption frequently lead to payment delays for goods delivered, resulting in an increase in the price the government must pay.

No regulatory reform enforcement mechanisms have been implemented since the last ICS report, in particular those relevant to foreign investors. The Diário da República (the Federal Register equivalent), is a legal document where key regulatory actions are officially published.

International Regulatory Considerations

Angola’s overall national regulatory system does not correlate to other international regulatory systems and is overseen by its constitution. Angola is not a full member of the International Standards Organization (ISO), but has been a corresponding member since 2002. The Angolan Institute for Standardization and Quality (IANORQ) within the Ministry of Industry & Commerce coordinates the country’s establishment and implementation of standards. Angola is an affiliate country of the International Electro-technical Commission that publishes consensus-based International Standards and manages conformity assessment systems for electric and electronic products, systems and services.

A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. Technical Barriers to Trade (TBT) regimes are not coordinated. Angola acceded to the Kyoto Convention on February 23, 2017.

Legal System and Judicial Independence

Angola’s formal legal system is primarily based on the Portuguese legal system and can be considered civil law based, with legislation as the primary source of law. Courts base their judgments on legislation and there is no binding precedent as understood in common law systems. The constitution proclaims the constitution as the supreme law of Angola (article 6(1) and all laws and conduct are valid only if they conform to the constitution (article 6(3).

The Angolan justice system is slow, arduous, and often partial. Legal fees are high, and most businesses avoid taking commercial disputes to court in the country. The World Bank’s Doing Business 2020 survey ranks Angola 186 out of 190 countries on contract enforcement, and estimates that commercial contract enforcement, measured by time elapsed between filing a complaint and receiving restitution, takes an average of 1,296 days, at an average cost of 44.4 percent of the claim.

Angola has commercial legislation that governs all commercial activities but no specialized court. In 2008, the Angolan attorney general ruled that Angola’s specialized tax courts were unconstitutional. The ruling effectively left businesses with no legal recourse to dispute taxes levied by the Ministry of Finance, as the general courts consistently rule that they have no authority to hear tax dispute cases, and refer all cases back to the Ministry of Finance for resolution. Angola’s Law 22/14, of December 5, 2014, which approved the Tax Procedure Code (TPC), sets forth in its Article 5 that the courts with tax and customs jurisdiction are the Tax and Customs Sections of the Provincial Courts and the Civil, Administrative, Tax and Customs Chamber of the Supreme Court. Article 5.3 of the law specifically states that tax cases pending with other courts must be sent to the Tax and Customs Section of the relevant court, except if the discovery phase (i.e., the production of proof) has already begun.

The judicial system is administered by the Ministry of Justice at trial level for provincial and municipal courts and the supreme court nominates provincial court judges. In 1991, the constitution was amended to guarantee judicial independence. However, as per the 2010 constitution, the president appoints supreme court judges for life upon recommendation of an association of magistrates and appoints the attorney general. Confirmation by the General Assembly is not required. The system lacks resources and independence to play an effective role and the legal framework is obsolete, with much of the criminal and commercial code reflecting colonial era codes with some Marxist era modifications. Courts remain wholly dependent on political power.

There is a general right of appeal to the court of first instance against decisions from the primary courts. To enforce judgments/orders, a party must commence further proceedings called executive proceedings with the civil court. The main methods of enforcing judgments are:

• Execution orders (to pay a sum of money by selling the debtor’s assets);
• Delivery up of assets; and,
• Provision of information on the whereabouts of assets.

The Civil Procedure Code also provides ordinary and extraordinary appeals. Ordinary appeals consist of first appeals, review appeals, interlocutory appeals, and full court appeals, while extraordinary appeals consist of further appeals and third-party interventions. Generally, an appeal does not operate as a stay of the decision of the lower court unless expressly provided for as much in the Civil Procedure Code.

Laws and Regulations on Foreign Direct Investment

AIPEX is the investment and export promotion center tasked with promoting Angola’s export potential, legal framework, environment, and investment opportunities in the country and abroad. Housed within the Ministry of Industry & Commerce, AIPEX is also responsible for ensuring the application of the 2018 NPIL on foreign direct investments, entered into force on June 26, 2018.

Competition and Anti-Trust Laws

On May 17, 2018 Angola’s National Assembly approved the nation’s first anti-trust law. The law set up the creation of the Competition Regulatory Authority, which prevents and cracks down on actions of economic agents that fail to comply with the rules and principles of competition. The Competition Regulatory Authority of Angola (Autoridade Reguladora da Concorrência – ARC) was created by Presidential Decree no. 313/18, of December 21, 2018, and it succeeds the now defunct Instituto da Concorrência e Preços. It has administrative, financial, patrimonial and regulatory autonomy, and is endowed with broad supervisory and sanctioning powers, including the power to summon and question persons, request documents, carry out searches and seizures, and seal business premises.

The ARC is responsible, in particular, for the enforcement of the new Competition Act of Angola, approved by Law no. 5/18, of May 10, 2018 and subsequently implemented by Presidential Decree no. 240/18, of October 12. The Act has a wide scope of application, pertaining to both private and state-owned undertakings, and covers all economic activities with a nexus to Angola. The Competition Act prohibits agreements and anti-competitive practices, both between competitors (“horizontal” practices, the most serious example of which are cartels), as well as between companies and its suppliers or customers, within the context of “vertical” relations.

Equally prohibited is abusive conduct practiced by companies in a dominant position, such as the refusal to provide access to essential infrastructures, the unjustified rupture of commercial relations and the practice of predatory prices, as well as the abusive exploitation, by one or more companies, of economically-dependent suppliers or clients. Prohibited practices are punishable by heavy fines that range from one-ten percent of the annual turnover of the companies involved. Offending companies that collaborate with the ARC, by revealing conduct until then unknown or producing evidence on a voluntary basis, may benefit from significant fine reductions, under a leniency program yet to be developed and implemented by the ARC. Considering the ample powers and potentially heavy sanctions at the disposal of the ARC, companies present in (or planning to enter) Angola are well advised to consider carefully the impact of the new law on their activities, in order to mitigate any risk that its market conduct may be found contrary to the Competition Act.

Expropriation and Compensation

Under the Land Tenure Act of November 9, 2004 and the General Regulation on the Concession of Land (Decree no 58/07 of July 13, 2007), all land belongs to the state and the state reserves the right to expropriate land from any settlers. The state is only allowed to transfer ownership of urban real estate to Angolan nationals, and may not grant ownership over rural land to any private entity (regardless of nationality), corporate entities or foreign entities. The state may allow for land usage through a 60-year lease to either Angolan or foreign persons (individuals or corporate), after which the state reserves legal right to take over ownership.

Expropriation without compensation remains a common practice. Land tenure became a more significant issue following independence from Portugal when over 50 percent of the population moved to urban centers during the civil war. The state offered some areas for development within a specific timeframe. After this timeframe, areas that remained underdeveloped reverted to the state with no compensation to any claimants. In most cases, claimants allege unfair treatment and little or no compensation.

Dispute Settlement

ICSID Convention and New York Convention

Angola is not a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention), but has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Its ratification was endorsed domestically via resolution No. 38/2016, published in the Official Gazette of Angola on August 12, 2016.

Investor-State Dispute Settlement

The Angolan Arbitration Law (Law 16/2003 of July 25) (Voluntary Arbitration Law — VAL) provides for domestic and international arbitration. Substantially inspired by Portuguese 1986 arbitration law, it cannot be said to strictly follow the UN Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. In contrast, the VAL contains no provisions on definitions, rules on interpretation, adopts the disposable rights criterion in regards to arbitration, does not address preliminary decisions, nor distinguish between different types of awards, and permits appeal on the merits in domestic arbitrations, unless the parties have otherwise agreed.

Angola is also a member of the Multilateral Investment Guarantee Agency (MIGA), which can provide dispute settlement assistance as part of its political risk insurance products and eligibility for preferential trade benefits under the African Growth Opportunity Act. The United States and Angola have signed a TIFA, which seeks to promote greater trade and investment between the two nations. The U.S. Embassy is aware of one ongoing formal investment dispute involving an American company.

International Commercial Arbitration and Foreign Courts

Although not widely implemented, the Government of Angola and public sector companies recognize the use of arbitration to settle disputes with foreign arbitration awards issued in foreign courts. In 2016, Angola took a major step in international arbitration by signing the New York Convention on recognition of foreign arbitration awards. On March 6, 2017, the Government of Angola deposited its instrument of accession to the Convention with the UN Secretary General. The Convention entered into force on June 4, 2017.

Bankruptcy Regulations

Angola is ranks 168 out of 190 on the World Bank’s Doing Business 2020 report on resolving insolvency. Banks are bound to comply with prudential rules aimed at ensuring that they maintain a minimum amount of funds not less than the minimal stock capital at all times to ensure adequate levels of liquidity and solvability. Insolvency is regulated by the Law on Financial Institutions No. 12/2015 of June 17, 2015. Based on this law, the BNA increased the social capital requirement for banks operating in the country by 200 percent (BNA notice 2/2015) to guard against possible damages to clients and the financial system. All monetary deposits up to 12.5 million Kwanzas (USD 27,000 equivalent) are also to be deposited into the BNA’s Deposit Guarantee Funds account (Presidential Decree 195/18 of 2018) so that clients (both local and foreign) are guaranteed a refund in case of bankruptcy by their respective bank. Article 69 of the law expressly states that it is the responsibility of the president of the Republic to create the fund, but it is silent on the rules governing its operation or the amounts guaranteed by the fund.

In 2018, based on Notice 2/2018 on the “Adequacy of Minimum Capital Stock and Regulatory Own Funds of Financial Banking Institutions,” commercial banks were required to increase their operating capital from 2.5 billion to 7.5 billion kwanzas (USD 35 million) by the end of the year. In late 2019, following results from an Asset Quality Review, the government announced plan to recapitalize the largest state-owned bank, Banco de Poupanco e Credito (BPC). The injection of capital will constitute the third capital injection into BPC by the state since 2015, which has previously received close to USD2 billion of state funds to help restructure the bank.  In early 2019, the BNA revoked the operating licenses of two private banks, Banco Mais and Banco Postal, due to their inability to recapitalize to meet new mandatory operating capital requirements. A third bank, Banco Angolano e Comércio de Negócios (BANC), was also put under administration due to its poor governance and a failure to also raise the mandatory operating capital to meet new minimum requirements.

In 2015, following the 2014 collapse of Banco Espirito Santo Angola (BESA), the subsidiary of Portugal’s Banco Espírito Santo, the State intervened and restructured BESA which now operates as Banco Economico. In August 2019, the BNA ordered Banco Economico’s shareholders to increase the bank’s capital to comply with the new BNA-imposed capital requirements no later than June 2020. While Angola’s arbitration law (Arbitration Law No. 16/03) for insolvency adopted in 2013 introduced the concept of domestic and international arbitration, the practice of arbitration law is still not widely implemented.

The law criminalizes bankruptcy under the following classification: condemnation in Angola or abroad for crimes of fraudulent bankruptcy, i.e. involvement of shareholders or managers in fraudulent activities that result in the bankruptcy, negligence bankruptcy, forgery, robbery, or involvement in other crimes of an economic nature. The Ministry of Finance, the BNA and the Capital Markets Commission (CMC) oversee credit monitoring and regulation.

Investment Incentives

The NPIL seeks to award incentives to attract and retain investment. Investment incentives in the NPIL include:

• Eliminates the minimum investment value and the value required to qualify for incentives in foreign and local investments, previously set at USD 1,000,000 and USD 500,000 respectively. There is no more limit to invest and qualify for incentives;
• Eliminates the obligation for foreign investors to establish a partnership with an Angolan entity with at least a 35 percent stake in the capital structure of investments in the electricity and water, tourism, transport and logistics, construction, media, telecommunications and IT sectors. Under the new law, investors will decide on their capital structure and origin.
• Grants foreign investors “the right and guarantee to transfer abroad” dividends or distributed profits, the proceeds of the liquidation of its investments, capital gains, the proceeds of indemnities and royalties, or other income from remuneration of indirect investments related to technology transfer after proof of implementation of the project and payment of all tax dues.

Investment incentives are granted by the AIPEX, the State’s investment agency, as opposed to by the president, as mandated in the 2015 investment law. Companies need to apply for such incentives when submitting an investment application to the newly created AIPEX and the relevant ministry. The NPIL restructures the country into three economic development zones (zones A through C) determined by political and socio-economic factors, up from two as per the 2015 investment law. For Zone A, investors have a 3-year moratorium on taxes reduced between 25- 50 percent of the tax levied on the distribution of profits and dividends. For Zone B, it is between three to six years with a 50 to 60 percent tax reduction, and for Zone C between six to eight years with a tax reduction between 60-70 percent of the tax levied on distribution of profits and dividends.

1. The State guarantees “non-public interference in the management of private companies” and “non-cancellation of licenses without administrative or judicial processes.”
2. The State provides a new and simplified procedure for the approval of investment projects, along with the adoption of measures aimed at accelerating the contractual process. It also provides special rights projects (undefined), including easier access to visas for investors and priority in the repatriation of dividends, and capital.

Note: Angola is a signatory to the Agreement on Trade-Related Investment Measures (TRIMs) applicable to foreign investment.

Foreign Trade Zones/Free Ports/Trade Facilitation

Angola is a signatory to SADC but not a member of the SADC Free Trade Zone. Angola is analyzing and revising its tariff schedule to accommodate beneficial adjustments in regional trade under the SADC Free Trade Area (SFTA).

Under the NPIL, Angola is divided into three economic zones, zone A through C. Zone A offers a three-year tax exemption for capital tax and a reduction in the tax burden by 25-50 percent; Zone B a three to six-year tax exemption for capital tax with a reduction in the tax burden by 50-60 percent; and, for Zone C, an eight year tax exemption for capital tax with a with a 60-70 percent reduction in the tax burden.

Porto Caio is under construction in the province of Cabinda. The port is designated as a Free Trade Zone (FTZ) and is slated to provide numerous opportunities for warehousing, distribution, storage, lay down area and development of oil and gas related activity. The Port will also serve as a new major gateway to international markets from the west coast of Angola, and the development will facilitate exports and render them more cost-effective for companies.

Although the government has not yet established regional or international free trade zones, on March 21, 2018 the government signed an agreement to join the AfCFTA. The AfCFTA is the result of the African Free Trade Agreement among all 55 members of the African Union, and will be the largest FTZ in the world since the emergence of the WTO. The agreement’s implementation could create a market of 1.2 billion consumers. The UN Economic Commission for Africa (UNECA) has estimated a 52 percent increase in intra-African trade by 2022. Currently, intra-African trade is only 16 percent, with intra-Latin American at 19 percent, intra-Asian at 51 percent, and intra-European at 70 percent.

Performance and Data Localization Requirements

Angola widely observes a policy to restrict the number of foreign workers and the duration of their employment. The policy aims to promote local workforce recruitment and progression. Decree 6/01, of 2001 establishes that expatriate workers can only be recruited if the Labor Inspectorate gets confirmation from the employer that no Angolan personnel duly qualified to perform the job required is available in the local market. The same decree limits foreign employment to 36 months and temporary employment less than 90 days on the explicit authorization of the Labor Inspectorate. Employers must register an employment contract entered into with a foreign national within 30 days at the employment center. The registration includes submission of a copy of the job description approved by the Labor Inspectorate during registration of the employment contract and the payment of a registration fee of 5 percent of the gross salary plus all the benefits.

Companies must deregister upon termination of the contract. Deregistration equally applies to administration personnel and to the board of directors. Foreign employees require work permits, and no employment is authorized on tourist visas. The visa application procedure, though improved, remains complex, slow and inconsistent. Processes and requirements vary according to the labor market situation at the time of application, the type of work permit being applied for, the nationality of the applicant, the country of application, and personal circumstances of the assignee and any family dependents.

Through the NPIL Angola created the investor visa, granted by the immigration authority to foreign investors, representatives, or attorneys of an investing company, to carry out an approved investment proposal. It allows for multiple entries, and a stay of two years renewable for the same period. The NPIL liberalizes foreign investment, few instances translate to “forced localization,” and enforcement procedures for performance requirements are strictly observed in the labor, immigration, and petroleum sectors only. International oil companies are working with the government on a new local-content initiative that will establish more explicit sourcing requirements for the petroleum sector in staffing and material. Specific to the oil sector, because of the significance it represents to the Angolan economy, the Petroleum Activities Law requires Sonangol and its associates to acquire materials, equipment, machinery, and consumer goods produced in Angola.

Currently, local content regulations offer only guidelines that are loosely enforced, and companies lack clarity as to how much is enough to satisfy the Angolan government. While this situation may make it easier for foreign companies to comply with local content regulations, this lack of specificity challenges companies in their business planning. For example, it is difficult for companies to compare their competitive position against each other when competing for lucrative concessions and licenses from the government, as local content is sometimes considered during competition for government tenders. Legal guidance to get the guarantees for investors under the NPIL is strongly encouraged.

Data storage is not applicable; however, the Institute for Communications of Angola (INACOM) oversees and regulates data in liaison with the Ministry of Telecommunications. Regulations around data management including encryption are still at nascent stages.

Real Property

Transparency and land property rights are critical for Angolan economic development, given that two thirds of Angolans work in agriculture and are directly dependent on land property rights. However, the Land Act (Lei de Terras de Angola) has not been revised since its approval in December 2004. While the land act is a crucial step toward addressing issues of land tenure, normalization of land ownership in Angola persists with problems such as difficulties in completing land claims, land grabbing, lack of reliable government records, and unresolved status of traditional land tenure. Among other provisions, the law included a formal mechanism for transforming traditional land property rights into legal land property rights (clean titles). During the civil war, a transparent system of land property rights did not exist, so it was crucial to re-establish one shortly after the end of hostilities in 2002.

According to the “Land Act,” the State may transfer or constitute, for the benefit of Angolan natural or legal persons, a multiplicity of land rights on land forming part of its private domain. Although, it is possible to transfer ownership over some categories of land, the transfer of State land almost never implies the transfer of its ownership, but only the formation of minor land rights with leasehold being the most common form in Angola. The recipient of private property rights from the State can only transfer those rights with consent of the local authority and after a period of five years of effective use of the land (GRA 2004 law). Weak land tenure legislation and lack of secure legal guarantees (clean titles), are the reasons given by most commercial banks for their greater than 80 percent refusal rate for loans since land is used as collateral. Foreign real-estate developers therefore seek out public-private partnership (PPP) arrangements with State actors who can provide protection against land disputes and financial risks involved in projects that require significant cash outlays to get started.

Registering parcels of land over 10,000 hectares must be approved by the Council of Ministers. Registering property takes 190 days on average, ranking 167 out of 173 according to the World Bank’s Doing Business 2020 survey, with fees averaging three percent of property value. Owners must also wait five years after purchasing before reselling land. There are no written regulations setting out guidelines defining different forms of land occupation, including commercial use, traditional communal use, leasing, and private use. Over the years, the government has given out large parcels of land to individuals in order to support the development of commercial agriculture. However, this process has largely been unsystematic and does not follow any formal rule change on land tenure by the State.

Before obtaining proof of title nationwide, an Angolan citizen or an Angolan legal entity must also obtain the Real or Leasing Rights (“Usufruct”) of the Land from the Instituto de Planeamento e Gestão Urbana de Luanda, an often a time-consuming procedure that can take up to a year or more. However, in the case that a company already owns the land, it must secure a land property title deed from the Real Estate Registry in Luanda. An updated property certificate (“certidão predial”) is obtained from the relevant Real Estate Registry, with the complete description of the property including owner(s) information and any charges, liens, and/or encumbrances pending on the property. The complex administration of property laws and regulations that govern land ownership and transfer of real property as well as its tedious registration process may reduce investor appetite for real estate investments in Angola. Despacho no. 174/11 of March 11, 2011 mandates the total fees for the “certidão predial” include stamp duty (calculated according to the Law on Stamp Duty); justice fees (calculated according to the Law on Justice Fees); fees to justice officers (according to the set contributions for the Justice budget); and, notary and other fees. The total fee is also dependent on the current value of the fiscal unit (UCF).

Intellectual Property Rights

Angolan law recognizes the protection of intellectual property rights (IPR). Angola’s National Assembly adopted the Paris Convention for the Protection of Industrial Intellectual Property in August 2005, incorporating the 1979 text, and the Patent Cooperation Treaty concluded in 1970 and later amended in 1979 and 1984. The Ministry of Industry administers IPR for trademarks, patents, and designs under Industrial Property Law 3/92. The Ministry of Culture regulates authorship, literary, and artistic rights under Copyright Law 4/90. Angola is a member of the World Intellectual Property Organization (WIPO) and follows international patent classifications of patents, products, and services to identify and codify requests for patents and trademark registration.

IAPI (Instituto Angolano de Propriedade Intelectual) is the governmental body within the Ministry of Industry & Commerce charged with implementing patent and trademark law. The Ministry of Culture, Tourism & Environment oversees copyright law. IP infringement is widespread, most notably in the production and distribution of pirated CDs, DVDs, and other media, largely for personal consumption. Counterfeit pharmaceuticals are another major area of concern.

There are currently no statistics available regarding counterfeit goods seized by the Angolan government. INADEC (Instituto Nacional de Defesa dos Consumidores), under the umbrella of the Ministry of Industry & Commerce, tracks and monitors the Angolan government’s seizures of counterfeit goods. They do not currently have a website, nor do they regularly publish statistics. They publish information on seizures of counterfeit products on an ad-hoc basis, primarily in the government-owned daily, Jornal de Angola.

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

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ . The U.S. Embassy point of contact for IPR related issues is Mballe Nkembe (NkembeMM@state.gov). For legal counsel, refer to Angola’s Country Commercial Guide Local Professional Services List (http://export.gov/ccg/angola090710.asp )

Capital Markets and Portfolio Investment

Angola’s capital markets remain nascent. To respond to the need for increased sources of financing for the economy, in 2013, the Angolan government created the Capital Markets Commission (CMC). Angola’s banks are likely the most established businesses that could potentially list on an exchange. However, many Angolan banks have a high rate of non-performing loans, reported to be as high as 37 percent. Angola’s banks have struggled in recent years due to the country’s deteriorating economic environment and increasingly high rate of delinquent loans. The Governor of the BNA has stated that Angola’s banks must go through a consolidation phase and ordered an asset quality review of the banks in early 2019. So far, the BNA has revoked the licenses of three banks based on their failure to meet the mandatory new share-capital minimum requirement, will recapitalize the largest state-owned bank, and has ordered another bank’s shareholders to increase the bank’s operating capital or face potential revocation. The process may limit banks’ ability in the near-term to list on the country’s fledgling stock exchange.

The Angolan government raised USD 3 billion in its third Eurobond issue in international markets with investor demand reportedly reaching USD 8.44 billion, exceeding the government’s expectations. For its second Eurobond issue in May 2018, Angola sold a USD 1.75bn, ten year bond at a coupon interest rate of 8.25 percent and a 30 year bond worth USD 1.25bn with a yield of 9.375 percent. According to Angola’s finance ministry, the second Eurobond issuance received more than 500 investor submissions totaling USD 9 billion, three times the final sale value. In November 2015, Angola raised a USD 1.5 billion, 10-year Eurobond with a 9.5 percent yield. Plans to return to the internal bond market in 2020 have been put on hold due to the ongoing coronavirus pandemic and the ensuing downturn in global oil prices.

The BNA has developed a market for short-term bonds, called Titulos do Banco Central, and long-term bonds, called Obrigaçoes do Tesouro. Most of these bonds are bought and held by local Angolan banks. The Obrigaçoes have maturities ranging from one to 7.5 years, whereas the Titulos have maturities of 91 to 182 days. For information on current rates, see: http://www.bna.ao/ .

Foreign investors do not normally access credit locally. For Angolan investors, credit access is very limited, and if available, comes with a collateral requirement of 125 percent, so they either self-finance, or seek financing from non-Angolan banks and investment funds. The termination of the “Angola Invest” government-subsidized funding program for micro, small and medium private enterprises (SMEs) on September 25, 2018, has further reduced funding opportunities for many SMEs. Since its inception in 2012, Angola Invest financed approximately 515 projects worth USD 377 million.

The Angolan National Development Plan provides for the liquidation of unviable state-owned enterprises, the privatization of non-strategic state enterprises and the sale of shareholding by 2022. In January 2018, the president created a commission – the State Asset Management Institute (IGAPE), to prepare and implement the privatization program (PROPRIV), with assistance from the Stock Exchange BODIVA. By April 2020, the Government had reportedly sold an estimated seven entities under its privatization initiative.

Money and Banking System

The BNA, Angola’s central bank and currency regulator has remained under considerable pressure to stabilize Angola’s economy as a high rate, currently 37 percent, of non-performing loans has crippled the banks’ ability and willingness to foster private sector lending. The BNA implemented a contractionary monetary policy, reducing local currency in circulation over fears of escalating inflation and foreign currency arbitrage. To further address these concerns, in early 2018, the government also scrapped the Angolan currency’s fixed peg to the U.S. dollar in favor of greater rate flexibility, and began regular foreign exchange auctions to banks, preventing the allocation of dollars to preferred clients. From January 2018 to December 2019, the Angolan currency lost 178 percent of its purchasing capacity against the Dollar. The Net International Reserves, despite a loss of purchasing power of more than 100 percent taking into account the price of the currency, suffered a reduction of 40 percent from 2017 to June 2019. The 178 percent devaluation from 2018 has translated into an increase in Angola’s debt, now close to 111 percent of GDP.

Angola’s agreement with the IMF for USD 3.7 billion in financial support for which it has requested an additional USD 800 million, suggests the government’s intent to reassure investors, and to diversify Angola’s source of borrowing. As a key condition of the IMF loan, Angola cannot have any new oil collateralized debt. The government also resorted to international capital markets and raised USD 3 billion in its third Eurobond issue with investor demand reportedly reaching nearly USD 8.44 billion.

There are currently 27 banks in Angola. Five banks, Banco Angolano de Investimentos (BAI), Banco Economico, Banco de Fomento Angola (BFA), Banco BIC Angola (BIC), and Banco de Poupança e Credito S.A.R.L. (BPC), control over 80 percent of total banking assets, deposits, and loans. Angolan banks focus on profit generating activities including transactional banking, short-term trade financing, foreign exchange, and investments in high-interest government bonds. Banks had until the end of 2018 to comply with the newly BNA-set USD 50 million mandatory capital start-up requirement, up from the previous USD 25 million requirement. In early 2019, the BNA revoked the operating licenses of two banks, Banco Mais and Banco Postal, for failing to increase their capital to meet the new minimum requirements. Another bank, Banco Angolano de Negocios e Comercio, is currently under BNA administration.

Angola is scheduled for its next Financial Action Task Force (FATF) mutual evaluation review in 2020/2021 which may also be postponed due to the COVID-19 pandemic. In 2016, the FATF adjudged that Angola had made significant progress in improving its AML/CFT regime and established the requisite legal and regulatory framework to meet its commitments in its action plan regarding strategic deficiencies the identified by the FATF during reviews in 2010 and 2013. Angola has continued to work with the regional FATF body, the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), to address its remaining strategic deficiencies in anticipation of the 2020/2021 review.

Angola has been affected by the broader global de-risking trends wherein banks decide to stop lending to businesses in markets deemed too risky from an anti-money laundering and terrorist financing compliance standpoint. In December 2016, Deutsche Bank, the last international bank providing dollar-clearing services, closed its dollar clearing services in Angola. A limited number of international banks still operate in Angola and provide limited trade finance such as Germany’s Commerzbank and South Africa’s Standard Bank. In 2018, there were no further correspondent bank losses. International banks previously refrained from entering the Angolan market because of the risk of fines and other penalties, but in 2018 there was more interest, with several banks conducting independent assessments of the business climate.

Foreign Exchange and Remittances

Foreign Exchange

Angola continues trading mostly in two currencies, the U.S. dollar and the Euro, with the Renminbi gaining greater prominence given the degree of trade with China. In a bid to deal with the foreign currency shortage and substantial foreign currency arbitrage in the parallel market, the government has opted for a managed float for its currency exchange rate. The Angolan Kwanza was pegged at a rate of 166.00 per U.S. dollar from April 2016 to January 2018 following a steep devaluation due to the slump in oil prices. On January 10, 2018, the BNA began conducting foreign currency auctions allowing the kwanza to fluctuate within an undisclosed but controlled band. Since dropping the peg to the U.S. dollar in January 2018, the Kwanza has depreciated by approximately 178 percent as at the end of December 2019 where a USD was equivalent to 462 Kwanzas.

As of November 29, 2019, the BNA’s Monetary Policy Committee (MPC) authorized direct sales of foreign currency between oil companies and commercial banks, and reduced banks’ foreign exchange position limit from 5.0 percent of its own funds to 2.5 percent. The controlling exchange rate is determined by the transaction rate applied on the sale. Occasionally, the BNA may also sell forex through auctions to commercial banks. Banks may charge a margin of up to 2 percent on the reference exchange rate published on the institutional website of the BNA, considered high for investors. Currently, the BNA also publishes daily for public consumption the rates at which each individual commercial bank is selling and purchasing forex.

The informal activity in the supply of foreign currency, products, and services is still winning the daily battle against the formal market, even when taking into account availability, quantity, speed, and stability. In 2019, the BNA took steps to eliminate remaining imbalances in the foreign exchange market. Commercial banks may assign foreign currency to their clients based on a schedule submitted and approved by the BNA. On the sale by banks to exchange offices and remittance companies, banks may only make foreign currency available in physical notes on a collateral basis, as they must, and at the time of sale debit the national currency account of those institutions against delivery of physical notes. Payment of remittances in any form and non-strategic imports face a lengthy wait between 90-180 days for foreign exchange. Priority is given to strategic importers of food, raw materials for construction, agriculture, medicine and the oil sector. According to the IMF, the government accumulated USD 51 million in new arrears between end-December 2018 and end-June 2019, due to constraints associated with correspondent banks transacting in U.S. dollars. The government further accumulated about USD 30 million in new arrears between end-June and end-September 2019 and was expected to accumulate an additional USD 30 million by year-end, due to the same correspondent banking constraints.

Investors cannot freely convert their earnings in kwanza to any foreign exchange rate due to limited available foreign exchange. Credit cards and other options for payment are extremely limited and money-servicing businesses (Western Union & MoneyGram) have ceased foreign outward transactions in foreign currency. From June 9, 2019, Letters of credit have been designated as the preferential payment instrument for imports.

The National Bank of Angola (BNA) Notice no. 15/19, published 30 December 2019, defines new procedures for foreign exchange operations carried out by non-residents.

According to the notice, the new procedures apply to foreign exchange transactions related to foreign direct investment – that is, foreign exchange non-resident operations carried out, alone or cumulatively, including divestment operations – in the following ways:

• Transfer of personal funds from abroad;

• Application of cash and cash equivalents in national and foreign currency, in bank accounts opened in financial institutions domiciled in Angola, held by foreign exchange residents, susceptible to repatriation;

• Imports of machinery, equipment, accessories and other tangible fixed assets;

• Incorporation of technologies and knowledge, provided that they represent an added value to the investment and are susceptible to financial evaluation;

• Provision of supplementary capital payments or supplies to partners or shareholders;

• Application, in the national territory, of funds in the scope of reinvestment;

• Conversion of credits resulting from the execution of contracts for the supply of machinery, equipment and goods, as long as they are proven to be liable to payments abroad; and,

• Foreign investment in securities or divestment of such assets, covering: i) shares; ii) obligations; iii) units of participation in collective investment undertakings and other documents representing homogeneous legal situations.

These procedures also apply to foreign exchange transactions related to foreign investment projects that have been registered with the BNA prior to 30 December 2019. However, they do not apply to investments made by non-foreign exchange residents in the oil sector, which will continue to be governed by proper legislation.

The following obligations are applicable to non-resident foreign exchange entities that intend to invest in Angola, within the scope of the new procedures:

• They must be holders of foreign exchange non-resident accounts, opened with a banking financial institution domiciled in Angola,

• For the purpose of receiving payments, including for the purchase of shares listed on the stock exchange, foreign currency must be sold to the investment banking intermediary financial institution, except in the case of purchase of securities denominated in foreign currency traded on a regulated market in Angola;

• Transfer income related to a foreign direct investment is only allowed after the project has been completed and after payment of the taxes due.

The non-resident foreign exchange investor is allowed to maintain in national currency values relating to income, reimbursement of supplies or proceeds from the sale of investments to make new investments or convert to foreign currency at a future date.

Finally, the following obligations are now imposed on financial institutions that carry out transactions with non-resident foreign exchange entities:

• Report to BNA the transfer of securities to and from abroad related to the import and export of capital and associated income, at the time of registration in the accounts of its clients who are not foreign exchange residents;

• Require full identification and knowledge of its customers, as well as confirmation of their status as non-resident foreign exchange;

• Transfer the financial resources designated for making investments to a specific sub-account created, that should be used only for that purpose;

• Ensure that movements in bank accounts held by foreign exchange non-residents, in national and foreign currency, are supported by documents that allow a clear identification of the origin or destination of the funds;

• For the purpose of assessing the legitimacy of transfers abroad of income from foreign direct investments not quoted on a stock exchange, make sure that the investment was made, through the copy of the Private Investment Registration Certificate (CRIP), among other requirements.

• For the purpose of validating the export proceeds from the sale of securities and related income, validate the source of the credit in the bank accounts of non-resident customers.

Breach of the obligations summarized above is punishable by fines of up to AOA 150 million (USD 305,000) for individuals or up to AOA 500 million (USD 1.02 million) for legal persons.

Remittance Policies

In 2019, the Angolan government amended its anti-money laundering previously established in January 2014. The new law, Law no. 5/20, applies particularly to financial and non-financial entities, accountants, lawyers, law firm partners and auditors acting (including intermediation) in representation of clients in transactions that involve real estate’s acquisition/sale, incorporation of companies and bank accounts’ opening, management or movement, in attempts to better combat illicit remittance flows. Importantly, the new law expressly prohibits the incorporation of shell banks — banks with no physical presence in Angola nor connection to any financial group, requires reporting on capital movement in any commercial bank exceeding USD 1000, and requires enhanced scrutiny of local politically exposed persons. The subsequent drop in foreign exchange availability in Angola, beginning in 2015 due to declining petroleum revenues, has severely impeded personal and legitimate business remittances.

International and domestic companies operating in Angola face delays securing foreign exchange approval for remittances to cover key operational expenses, including imported goods and expatriate salaries. The government has improved profit and dividend remittances for most companies, including foreign airlines with withheld remittances for the sector currently valued by the International Air Transport Association (IATA) at USD 4 million, down from 137 million in early 2019.

The BNA has facilitated remittances of international supplies by introducing payment by letters of credit. Also, the 2018 NPIL grants foreign investors “the right and guarantee to transfer abroad” dividends or distributed profits, the proceeds of the liquidation of their investments, capital gains, the proceeds of indemnities and royalties, or other income from remuneration of indirect investments related to technology transfer after proof of implementation of the project and payment of all taxes due. The government continues to prioritize foreign exchange for essential goods and services including the food, health, defense, and petroleum industries.

Sovereign Wealth Funds

In October 2012, former President Eduardo dos Santos established a petroleum-funded USD 5 billion sovereign wealth fund called the Fundo Soberano de Angola (FSDEA). The FSDEA was established in accordance with international governance standards and best practices as outlined in the Santiago Principles. In February 2015, the FSDEA was recognized as transparent by the Sovereign Wealth Fund Institute (SWFI), receiving a score of 8 out of 10. The FSDEA has the express purpose of profit maximization with a special emphasis on investing in domestic projects that have a social component (http://www.fundosoberano.ao/investments/ ). Jose Filomeno dos Santos (Zenu), son of former President Jose Eduardo dos Santos, was appointed chairman of FSDEA in June 2013, but was removed by President Lourenco, based reportedly on poor results at the FSDEA and conspiracy with the Fund’s wealth manager, Quantum Global (QG), to embezzle FSDEA funds. Former Minister Carlos Alberto Lopes was named new head of the FSDEA. Zenu remains under investigation for money laundering, embezzlement, and fraud related to his management of the FSDEA, and is currently on trial for fraud in connection with the transfer of USD 500 million from the Angolan Central Bank to a bank in the UK. On March 22, 2019, the government freed Jean-Claude Bastos de Morais, QG’s CEO, in preventive detention since September 2018, based on the insufficiency of evidence to support the collection of malfeasance charges, while it continues to build its case against him.

Half of the initial endowment of FSDEA was invested in agriculture, mining, infrastructure, and real estate in Angola and other African markets, and the other half was supposedly allocated to cash and fixed-income instruments, global and emerging-market equities, and other alternative investments. The FSDEA is in possession of approximately USD 3.35 billion of its private equity assets previously under the control of QG, and announced that the government will use USD 1.5 billion of the fund’s assets to support social programs on condition of future repayment through increased tax on the BNA’s rolling debts.

In Angola, certain state-owned enterprises (SOEs) exercise delegated governmental powers, especially in the mining sector where the government is the sole concessionaire. Foreign investors may sometimes find demands made by SOEs excessive, and under such conditions, SOEs have easier access to credit and government contracts. There is no law mandating preferential treatment to SOEs, but in practice they have access to inside information and credit. Currently, SOEs are not subject to budgetary constraints and quite often exceed their capital limits.

SOEs, often benefitting from a government mandate, operate mostly in the extractive, transportation, commerce, banking, and construction sectors. All SOEs in Angola are required to have boards of directors, and most board members are affiliated with the government. SOEs are not explicitly required to consult with government officials before making decisions. By law, SOEs must publish annual financial reports for the previous year in the national daily newspaper Jornal de Angola by April 1. Such reports are not always subject to publicly released external audits (though the audit of state oil firm Sonangol is publicly released). The standards used are often questioned. Not all SOEs fulfill their legal obligations, and few are sanctioned.

Angola’s supreme audit institution, Tribunal de Contas, is responsible for auditing SOEs. However, the Tribunal de Contas does not make its reports publicly available. Angola’s fiscal transparency would be improved by ensuring its supreme audit institution audits SOEs, as well as the government’s annual financial accounts, and makes public its findings within a reasonable period. Publicly available audit reports would also improve the transparency of contracts between private companies and SOEs.

In November 2016, the Angolan Government revised Law 1/14 “Regime Juridico de Emissão e Gestão da Divida Publica Directa e Indirecta,” which now differentiates between ‘direct’ and ‘indirect’ public debt. The GRA considers SOE debt as indirect public debt, and only accounts in its state budget for direct government debt, thus effectively not reflecting some substantial obligations in fact owed by the government. President Lourenço has launched various reforms to improve financial sector transparency, enhance efficiency in the country’s SOEs as part of the National Development plan 2018-2022 and Macroeconomic Stability Plan. The strategy included the prospective privatization of 74 SOEs that are deemed not profitable to the state. The privatization will possibly include the restructuring of the national air carrier TAAG, as well as Sonangol and its subsidiaries. The latter intends to sell off its non-core businesses as part of its restructuring strategy to make the parastatal more efficient.

Angola is not a party to the WTO’s Government Procurement Agreement (GPA). Angola does not adhere to the OECD guidelines on corporate governance for SOEs.

Privatization Program

The government has a plan to privatize 74 of 90 public companies by 2022 through the Angola Debt and Securities Exchange market (BODIVA) and under the supervision of the Institute of Management of Assets and State Participations (IGAPE). The privatization plan is in line with the provisions of the Government’s Interim Macroeconomic Stabilization Program (PEM), which aims to rid the government of unprofitable public institutions. The terms of reference for the privatization program are not yet public, except for seven factories located in the Special Economic Zone (ZEE). The seven industrial units with full terms of reference are:

UNIVITRO – glassworks industry; JUNTEX – plaster industry; CARTON – carton and packaging industry; ABSOR – absorbent products industry; INDUGIDET – sanitation and detergents industry; COBERLEN – blankets and linens industry; and, SACIANGO – cement bags industry. By April 2020, the Government had reportedly sold an estimated seven entities under its privatization initiative, mostly farms, and did not include the seven industrial units with full terms of reference.

The government plans to privatize part of state-owned Angola Telecommunications Company, companies in the oil and energy sector, as well as several textile industries. The government has stated that the privatization process will be open to interested foreign investors and has guaranteed a transparent bidding process. Proposals from investors for seven industrial units at the ZEE will be given special attention to those who decide to retain local workers in these units. The government created a privatization commission on February 27, 2018 and a website https://igape.minfin.gov.ao/PortalIGAPE/#!/sala-de-imprensa/noticias/5413/anuncio-de-concurso-tender-announcement  for submission of tenders. Full tender documents can be obtained by visiting the below link: http://www.ucm.minfin.gov.ao/cs/groups/public/documents/document/zmlu/mdu4/~edisp/minfin058842.zip 

Alternatively, contact igape@minfin.gov.ao. The tenders are open to local and foreign investors.

The government has few initiatives to promote responsible business conduct. On March 26, 2019, the UNDP launched the National Network of Corporate Social Responsibility, called “RARSE,” to promote the creation of a platform to reconcile responsible business conduct with the needs of the population. The government, through the Ministry of Education, also held a campaign under the theme, “Countries that have a good education, that enforce laws, condemn corruption, privilege and practice citizenship, have as a consequence successful social and economic development.” The government has enacted laws to prevent labor by children under 14 and forced labor, although resource limitations hinder adequate enforcement. In June 2018, the government passed a National Action Plan (2018-2022) to eradicate the worst forms of child labor (the PANETI). With limitations, the laws protect the rights to form unions, collectively bargain, and strike. Government interference in some strikes has been reported. The Ministry of Public Administration, Employment, and Social Security, has a hotline for workers who believe their rights have been infringed. Angola’s Chamber of Commerce and Industry established the Principles of Ethical Business in Angola.

The GRA does not fully meet the minimum standards for the elimination of trafficking in persons but is making significant efforts to do so. A National Action Plan to Combat and Prevent Trafficking in Persons in 2019 includes measures to improve the capacities of coordination agencies, investigating more potential trafficking cases, convicting more traffickers, training front-line responders, conducting some awareness-raising activities, and improving data collection on trafficking crimes through use of the Southern African Development Community (SADC) regional data collection tool.

The government continues to strengthen its bilateral efforts on anti-corruption and improved governance. On July 1, 2019, the government signed a signed a Memorandum of Understanding (MOU) on Security and Public Order with the United States. The MOU will enable the two governments to cooperate in the fields of information exchange related to the prevention, investigation, and combatting of criminal activity, including the collection and processing of evidence. The MOU encourages the exchange of information on criminal investigation techniques, the implementation of professional training programs, and exchange of delegations.

In 2015, Angola organized an interagency technical working group to explore Angola’s possible membership in the Voluntary Principles on Security and Human Rights (VPs) and the Extractive Industries Transparency Initiative (EITI). Angola has been a member of the Kimberley Process (KP) since 2003, and chaired the KP in 2015, until handing over the rotating chair to the United Arab Emirates.

Angola is not a party to the WTO’s GPA, and does not adhere to the OECD guidelines on corporate for SOEs.

Corruption remains a strong impediment to doing business in Angola and has had a corrosive impact on international market investment opportunities and on the broader business climate. Transparency International’s 2019 Corruption Perceptions Index ranks Angola 165 out of 175 countries in its corruption level survey, improving two places from the previous year’s ranking due to ongoing efforts to reduce corruption.

Since coming into office on an anti-corruption platform, President Lourenco has led a concerted effort to restore investor confidence by prioritizing anti-corruption and the fight against nepotism. In December, the government froze the assets and accounts of Isabel dos Santos, the former first daughter, and subsequently indicted her on fraud-related charges for mismanaging and embezzling funds during her 18-month stint as chair of the state’s oil firm, Sonangol. Several other government officials were also sacked from office, detained and tried on corruption charges. On September 19, the Supreme Court ordered that Norberto Garcia, the former spokesman of the ruling MPLA party and former director of the defunct Technical Unit for Private Investment, a state institution, charged with fraud, money laundering and document falsification, be placed under house arrest in Luanda. The case dates back to November 2017 when Garcia and six foreigners allegedly tried to set up a state project in a USD 50 billion scam.

In another high-profile anti-corruption case, the trial of the former head of Angola’s sovereign wealth fund, José “Zénu” Filomeno dos Santos and his co-conspirator, former Central Bank Governor Valter Felipe, began on December 9. The former stands accused of embezzling USD 1.5billion of public money during his tenure at the Sovereign wealth fund (2013-2017), and both stand accused of fraud and embezzlement related to the illegal transfer of USD 500 million from the BNA coffers to a Credit Suisse account in London. Meanwhile, in August, a court sentenced former Transport Minister Augusto da Silva Tomás to 14 years in prison on fraud charges, but later reduced his sentence to eight years.

Angola has a comprehensive anti-corruption legal framework but implementation remains a severe challenge. In January, the government issued a general conduct guide mostly for the National Public Procurement Service, the regulatory and supervisory body of public procurement in Angola, outlining whistleblowing responsibilities for corruption and related offences in public procurement. Following approval in October, a new law on anti-money laundering, combating the Financing of Terrorism, and the proliferation of weapons of mass destruction came into force in January 2020, superseding Law No. 34/11, of 12 December 2011. The new law incorporates several IMF and the Financial Action Task Force (FATF) recommendations. Importantly, it finally recognizes and includes politically exposed persons to be any national or foreign person that holds or has held a public office in Angola, or in any other country or jurisdiction, or in any international organization, and subjects them to greater scrutiny by the financial sector. Other significant improvements in the new law include:

• The definition of “ultimate beneficial owner” was expanded to encompass, notably, all persons that hold, directly or indirectly, a controlling interest in a company, including the control of the share capital, voting rights or a significant influence in the company. There is no longer a minimum threshold to determine the existence of control;

• Identification and diligence duties are now applicable to occasional transactions executed via wire transfers in an amount of more than USD 1,000, in national or foreign currency;

• The scope of the duty to communicate suspicious transactions in cash or wire transfers has been amended and is now applicable to transactions between USD 5,000 and USD 15,000, depending on the underlying operation;

• Payment-service providers that control the ordering and reception of a wire transfer must consider the information received from the sender and the beneficiary to determine whether there is a communication duty;

• The Tax Authorities now have a duty to report suspicious cross-border payments.

The president approved a set of amendments to the Public Contracts Law on November 16, 2018, which imposed further requirements for the declaration of assets and income, interests, impartiality, confidentiality, and independence in the formation and execution of public contracts.  In December 2018, the Government of Angola rolled out of a national anti-corruption strategy (NACS) billed under the motto, “Corruption – A fight for All and By All.” The five-year strategy, developed in concert with the UNDP, is designed to improve government transparency, accountability, and responsiveness to citizen needs.  The NACS focuses on three pillars in the fight against corruption – prevention, prosecution, and institutional capacity building.

Crimes linked to corruption are enforced through the Public Probity Law of 2010. President Lourenco’s mandate for senior government officials requires all public officials to disclose their assets and income once every two years, and it prohibits public servants from receiving money or gifts from private business deals. The Penal Code makes it a criminal offense for private enterprises to engage in business transactions with public officials.

Angola has incorporated regional anti-corruption guidelines and into their domestic legislation, including: the SADC “Protocol Against Corruption,” the African Union’s “Convention on Preventing and Combating Corruption,” and the United Nation’s “Convention against Corruption.” Angola does not have an independent body to investigate and prosecute corruption cases, and generally, enforcement of existing laws is weak or non-existent. However, the Attorney General’s office has a department for Investigation of Corruption crimes and Recovery of Assets. Three institutions – the Audit Court, the Inspector General of Finance, and the Office of the Attorney General – perform many of the anti-corruption duties in Angola. http://www.business-anti-corruption.com/country-profiles/sub-saharan-africa/angola/initiatives/public-anti-corruption-initiatives.aspx 

The government also passed the Law on the Repatriation of Financial Resources in June 2018, which established the terms and conditions for the repatriation of financial resources held abroad by resident individuals and legal entities with registered offices in Angola. The law exempted individuals and legal entities, who voluntarily repatriated their financial resources within a period of 180 days following the date of entry into force of the Law, by transferring the funds to an Angolan bank account, from any obligation or liability of tax, foreign exchange and criminal nature. Upon expiry of the grace period for repatriation, the Law allowed for the possibility of coercive repatriation by the government. The government estimates that USD 30 billion of Angolan assets are sheltered overseas. In early 2019, the government established the National Asset Recovery Service (SNRA), an institution linked to the Attorney General’s Office (PGR), in charge of ensuring compliance with the repatriation law.

Private sector companies have individual internal controls for ethics, compliance and tracking fraudulent activities. However, they do not have a mechanism to detect and report irregularities related to dealings with public officials. It is important for U.S. companies, regardless of their size, to assess the business climate in the sector in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in Angola, should take the time to become familiar with the relevant anticorruption laws of both Angola and the United States in order to properly comply with them, and where appropriate, they should seek legal counsel.

Angola is not a member state to the UN Anticorruption Convention or the OECD Convention on Combatting Bribery. On March 26, 2018 it ratified and published in the national gazette the African Union Convention on the Prevention and Fight against Corruption and now takes legislative measures against illicit enrichment (Article 8), confiscation and seizure of proceeds and means of corruption (Article 16), and international cooperation in matters of corruption and money laundering (Article 20).

Resources to Report Corruption

Hélder Pitta Grós
Procurador Geral da Republica (Attorney General of the Republic)
Procurador Geral da Republica (Attorney General’s Office)
Travessa Antonio Marques Monteiro 22, Maianga
Telephone: 244-222-333172

Angola maintains a politically stable environment under the motto “Together, we are stronger” politically motivated violence is not a high risk, and incidents are rare. President Joao Lourenco’s government seeks reform of the state and national cohesion. Local elections – “Autarquias” are scheduled to take place in 2020 with objectives to reduce asymmetries, dissemination of governance powers and equitable distribution of financial resources essential for economic and social development. However, the elections may be postponed due to the COVID-10 pandemic.

The last significant incident of political violence happened in 2010 during an attack against the Togolese national soccer team by FLEC-PM (Front for the Liberation of the Enclave of Cabinda—Military Position) in the northern province of Cabinda. FLEC threatened Chinese workers in Cabinda in 2015 and claimed in 2016 that they would return to active armed struggle against the Angolan government forces. No attacks have since ensued and the FLEC has remained relatively inactive. President Lourenco has pledged to govern for all Angolans, and combat two of the country’s major problems: corruption and mismanagement of public funds.

Russia remains Angola’s premier security cooperation partner. However, a May 2017 U.S.–Angola Defense Cooperation MOU has enabled more open mil-to-mil coordination. Our security cooperation aims to build the U.S.-Angolan military relationship, address Angolan defense priorities, and develop sustainable proficiency in areas of common interest, such as maritime safety and security, civil-military operations, humanitarian assistance, medical readiness, and English language programs.

In September 2019 UN Secretary-General António Guterres held a meeting with Lourenço during the Forum on China-Africa Cooperation (FOCAC) in Beijing. During the meeting, Guterres highlighted the role of Angola in the effort to maintain peace and stability in Southern Africa and the Great Lakes region.

In October 2019, UN High Commissioner for Human Rights Michelle Bachelet condemned the mass deportation of Congolese nationals, who were illegally working and residing in Angola. Angola deported thousands of Congolese nationals for allegedly exploiting diamonds and other forms of illegal trade in the northern and southern Lundas provinces.

Activist groups continuously face repression by police for online and offline activities and for using online spaces to criticize and organize protests. Social media has been a mobilizing tool for demonstrations and there are no instances of damage to property or vandalism by protestors who decry continued economic hardships, high unemployment and poverty, highlighting President Joao Lourenco’s election pledge to create jobs.

Angola engages multilaterally, through the AU, SADC, and the International Conference on the Great Lakes Region, to address its security and economic equities with the DRC. Angola continues to struggle with its legacy of land mines and is far from reaching its goal of becoming mine impact free by 2025. Since 1995, the United States (Angola’s largest demining donor) has invested more than USD 134 million in Angola to clear and dispose of landmines and unexploded ordnance. The United States donated USD 3.1 million in demining assistance in 2019. The Angolan government also pledged in 2019 an unprecedented USD 60 million of its own money for humanitarian demining over the next five years, largely focused on a potential corridor for tourism and sustainable development in the southeast, linked to the Okavango Delta.

The Angolan labor force has limited technical skills, English language capabilities, and managerial ability. Many employers find it necessary to invest heavily in educating and training their Angolan staff. Angola’s labor force was estimated to be 13.1 million in 2019. The literacy rate is estimated to be 70 percent (82 percent male, 60.7 percent female). According to the National Statistics Institute, in 2019, the unemployment rate in the population aged 15 and above was around 31 percent, although more than 60 percent of all jobs are in the informal sector. Eighty six percent of primary school age children attend school. The law mandates that children must attend school for six years beginning at age six. 29 percent of boys and 17 percent of girls attend high school.

There are gaps in compliance with international labor standards which may pose a reputational risk to investors. Children are sometimes employed in agriculture, construction, fishing, and coal industries. Forced labor is sometimes used in agricultural, fishing, construction, domestic services, and artisanal diamond mining sectors. Additional information is available in the 2019 Trafficking in Persons Report, (https://www.state.gov/wp-content/uploads/2019/06/2019-Trafficking-in-Persons-Report.pdf [16 MB] ), 2019 Country Report on Human Rights Practices (https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/), and 2018 Findings on the Worst Forms of Child Labor, (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/angola ).

Angola’s General Labor Law (Law No. 2/00), updated in 2015, recognizes the right of workers, except members of the armed forces and police, to form and join independent unions, to collectively bargain, and to strike, but these rights are either limited or restricted. To establish a union, a minimum of 30 percent of workers from a sector at the provincial level must participate and prior authorization by authorities with accompanying bureaucratic approvals is required. Unlike workers in the private sector, civil service employees do not have the right to collective bargaining. While the law allows unions to conduct their activities without government interference, it also places some restrictions on engaging in a strike. Strict bureaucratic procedures must be followed for a strike to be considered legal. The government can deny the right to strike or obligate workers to return to work for members of the armed forces, police, prison staff, fire fighters, “essential services” public sector employees, and oil workers. The government may intervene in labor disputes that affect national security, particularly strikes in the oil sector. The definition of civil service workers providing “essential services” is broadly defined, encompassing the transport sector, communications, waste management and treatment, and fuel distribution.

Collective labor disputes are to be settled through compulsory arbitration by the Ministry of Labor, Public Administration and Social Security. The law does not prohibit employer retribution against strikers, but it does authorize the government to force workers back to work for “breaches of worker discipline” or participation in unauthorized strikes. The law prohibits anti-union discrimination and stipulates that worker complaints be adjudicated in the labor court. Under the law, employers are required to reinstate workers who have been dismissed for union activities.

The General Labor Law also spells out procedures for hiring workers. For work contracts of indefinite duration, the law provides for a basic probationary period of up to six months, during which the worker or employer can terminate the contract without notice or justification. After the probationary period ends, dismissed workers have the right to appeal to a labor court. Many employers prefer to reach a monetary settlement with workers when a dispute arises, rather than bring cases before the labor court. The World Bank’s Doing Business 2020 report found that fired workers with one to ten years of service received on average 13.6 weeks of salary compensation. The notice period before dismissing a worker is 4.3 weeks.

The government conducts annual surveys of the oil industry to implement a requirement that oil companies hire Angolan nationals when qualified applicants are available. If no qualified nationals apply for the position, then the companies may request the government’s permission to hire expatriates. Outside of the petroleum sector, policies to encourage “Angolanization” of the labor force, i.e. the hiring of locals, discourages bringing in expatriates. However, the associated visa processes for the oil industry are currently easier and faster due to a special process the Angolan Ministry of Petroleum offers companies in that sector. Additionally, working visas for other sectors have also become easier to obtain and the GRA has launched the investor’s visa in 2018.

On April 10, 2019, the Export-Import Bank of the United States (EXIM) entered into a memorandum of understanding (MOU) with the Ministry of Finance of the government of Angola to increase trade of goods and services between the United States and Angola. Under the MOU, EXIM and the Ministry of Finance agreed to exchange information on business opportunities to further the procurement of U.S. goods and services by both state-owned and private-sector small and medium-sized businesses in Angola. Sectors for business development include energy, oil and gas development, infrastructure, railway and road transportation, supply chain infrastructure, environmental projects, agriculture, health care, water and sanitation, and telecommunications. EXIM agreed to explore options for providing the bank’s medium- and long-term guarantees on loans of up to USD 4 billion to support U.S. exports to Angola. For projects that may be eligible for EXIM support, the cooperation between the Ministry of Finance and EXIM would be directed towards qualifying such projects for approval by both institutions.

Since 1994, the Overseas Private Investment Corporation (OPIC), now the U.S. International Development Finance Corporation (DFC), has provided investment insurance to projects in Angola. U.S. investors can apply for DFC insurance, including coverage under the “Quick Cover” program for projects valued at less than USD 50 million. DFCC’s portfolio in Angola currently totals USD 20.4 million. Since the agreement, DFC’s support has helped facilitate critical investments in the energy, services, health care, manufacturing, and financial services sectors.

Angola is a member of the Multilateral Investment Guarantee Agency (MIGA), which provides insurance to foreign investors against such risks as expropriation, non-convertibility, and war or civil disturbance. MIGA also provides investment dispute resolution on a case-by-case basis.

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

Table 4: Sources of Portfolio Investment
Data not available.

Dorcas Makaya, Economic Specialist
United States Embassy, Luanda
Rua Houari Boumedienne 32 Miramar, Angola
Telephone: +244 222 641 154
Email: MakayaDC@state.gov

Policies Towards Foreign Direct Investment

The GoB publicly emphasizes the importance of attracting (FDI) and drafted an investment facilitation law recommended by the 2014 Organisation for Economic Co-operation and Development (OECD) Investment Review. The draft was completed in 2016 with technical assistance from UNCTAD but was never enacted. The GoB plans to revise the draft in 2020 before presenting it to Parliament. The GoB has launched initiatives to promote economic activity and foreign investment in specific areas, such as the establishment of a diamond hub which has brought more value-added businesses (i.e., cutting and polishing), into the country. Additional investment opportunities in Botswana include large water, electricity, transportation, and telecommunication infrastructure projects.  Economists have also noted Botswana’s considerable potential in the mining, mineral processing, cattle, tourism, and financial services sectors.  BITC assists foreign investors with projects intended to diversify export revenue, create employment, and transfer skills to Botswana citizens. The High Level Consultative Council (HLCC), chaired by the president, and an Exporter Roundtable organized by BITC and Botswana’s Exporters and Manufacturers Association (BEMA), are mechanisms employed by the GoB to maintain a focus on a healthy businesses environment for FDI.    

Limits on Foreign Control and Right to Private Ownership and Establishment

Botswana’s 2003 Trade Act reserves licenses in 35 sectors for citizens, including butcheries, general trading establishments, gas stations, liquor stores, supermarkets (excluding chain stores), bars (other than those associated with hotels), certain types of restaurants, boutiques, auctioneers, car washes, domestic cleaning services, curio shops, fresh produce vendors, funeral homes, hairdressers, various types of rental/hire services, laundromats, specific types of government construction projects under a certain dollar amount, certain activities related to road and railway construction and maintenance, and certain types of manufacturing activities including the production of furniture for schools, welding, and bricklaying.  The law allows foreigners to participate in these sectors as minority joint venture partners in medium-sized businesses.  Foreigners can hold the majority share if they obtain written approval from the trade minister.

The Ministry of Investment, Trade, and Industry (MITI), which administers the citizen participation initiative, has taken an expansive interpretation of the term chain stores, so that it encompasses any store with more than one outlet.  This broad interpretation has resulted in the need to apply exemptions to certain supermarkets, simple specialty operations, and general trading stores.  These exceptions were generally granted prior to 2015 and many large general merchandise markets, restaurants, and grocery networks are owned by foreigners as a result. Since 2015, the GoB has denied some exception requests, but reports they have approved some based on localization agreements directly negotiated between the ministry and the applying company.  These agreements reportedly include commitments to purchase supplies locally and capacity building for local workers and industry.  BITC conducts due diligence on companies that are looking to invest in the country and the Directorate of Intelligence Services (DIS) handles background checks for national security.

Other Investment Policy Reviews

In December of 2014, the OECD released an Investment Policy Review on Botswana. (http://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-botswana-2014_9789264203365-en ).

Botswana has been a World Trade Organization (WTO) member since 1995. As a member of the Southern African Customs Union, the WTO last conducted a trade policy review in 2016. (https://www.wto.org/english/tratop_e/tpr_e/tp322_e.htm )

Business Facilitation

To operate a business in Botswana, one needs to register a company with the GoB’s CIPA through the OBRS at: https://www.cipa.co.bw/home.html 

According to CIPA, the company registration process can be completed in a day and is integrated with BURS which allows for a fast-tracked tax registration in 30 days. Additional work is required to open bank accounts and obtain necessary licenses and permits.  The World Bank ranked Botswana 159 out of 190 in the ease of starting a business category.

BITC (www.bitc.co.bw ), the GoB’s investment promotion agency, was designed to serve as a one-stop shop to assist investors in setting up a business and finding a location for operation.  BITC’s ability to streamline procedures varies based on GoB entity and bureaucratic requirements.  The organization’s criteria for support for investment projects is whether the project will diversify the economy away from dependence on diamond mining, and whether it will create jobs for, and transfer skills to, Batswana citizens.  BITC also hosts the Botswana Trade Portal (https://www.botswanatradeportal.org.bw ) that is designed to ease trade across borders.  It is a single point of contact for all information relating to import and export to and from Botswana, and represents a number of ministries and parastatals.

Botswana has several incentives and preferences for both citizen-owned and locally based companies.  Foreign-owned companies can benefit from local procurement preferences which are usually required for government tenders.  MITI instituted a program in 2015 to give locally based small companies a 15 percent preferential price margin in GoB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a five percent margin.  Under this policy, MITI defines small companies as having less than five million pula in annual revenue reflected in their financial statements, medium companies with 5,000,001 to 19,999,999 pula in revenue, and large companies with 20 million pula or more. The directive applies to 27 categories of goods and services ranging from textiles, chemicals, and food, in addition to a broad range of consultancy services.

For Companies Act registration purposes, enterprises are classified as follows: Micro Enterprises – less than six employees including owner and annual turnover of up to 60,000 pula; Small Enterprises – less than 25 employees and annual revenue between 60,000 and 1,500,000 pula; Medium Enterprises – less than 100 employees and annual revenue between 1,500,000 and 5,000,000 pula; Large Enterprises – more than 100 employees and annual revenue of 5,000,000 pula or more.  This classification system permits foreigner participation as minority shareholders in medium-sized enterprises in the 35 business sectors reserved for citizens.

Outward Investment

The GoB neither promotes nor restricts outward investment.

Transparency of the Regulatory System

Bureaucratic procedures necessary to start and maintain a business tend to be open, though slow, and regulatory procedures can be cumbersome to navigate.  In 2018, Botswana launched a Regulatory Impact Assessment Strategy that will work to improve the regulatory environment and ensure legislation is necessary and cost effective, reduce administrative burdens imposed by the regulatory environment to businesses, improve transparency, consultation, and government accountability.  Foreign investor complaints generally focus on the inefficiency and/or unresponsiveness of mid- and low-level government bureaucrats.  The GoB has introduced a Performance Management System to improve the service and accountability of its employees.  Unfair business practices or conduct can be reported to the Competition Authority, which seeks to level the playing field for all business operators and foster a conducive environment for business.  Bills in Botswana, including investment laws, go through a public consultation process and are available for public comment.  Bills are also debated in Parliament, whose sessions are open to the public.

The Companies Act of 2004 requires all companies registered in Botswana to prepare annual financial statements on the basis of generally accepted accounting principles.  It further requires every public company, including non-exempt private companies, to prepare their Financial Statement in accordance with the International Financial Reporting Standards.

The Public Procurement and Asset Disposal Board (PPADB) oversees all government tenders. Prospective government contractors are required to register with the PPADB.  The PPADB maintains a process by which tender decisions can be challenged; bidders can also challenge a tender procedure in the courts.  The PPADB publishes its decisions concerning awarded tenders, prequalification lists, and newly registered contractors. Since 2014, PPADB has partnered with the United States Trade and Development Agency (USTDA) in the Global procurement Initiative, a shared commitment to utilizing best-value determination procurement practices and promoting professionalization in procurement.

PPADB successfully implemented the Integrated Procurement Management System (IPMS) to level the procurement playing field by automating contractor registration, e-bidding and other operations.  This has enabled them to introduce a Procurement Plan Platform where government entities list all their procurement plans for the year, allowing companies to plan ahead.  An e-bidding system, still being developed, will allow companies to compete for and submit tenders online.

Online services are available at: www.ppadb.co.bw/Pages/Publications.aspx#WebPartWPQ3 

The PPADB Act calls for preferential procurement of citizen-owned contractors for works, service, and supplies, as well as specific, disadvantaged women’s communities, though it states that such preferences must be time-bound, phased in and out as necessary, and consistent with the country’s external obligations and its “market-oriented, macroeconomic framework.”  When a procuring entity wishes to reserve a tender for citizen-only participation, it is required to publish a notice to that effect either in the bid document or the pre-qualification notice.

Health and safety laws, embodied in the Factories Act of 1973, provide basic protection for workers from unsafe working conditions.  Minimum working conditions required on work premises include cleanliness of the premises, adequate ventilation and sanitation, sufficient lighting, and the provision of safety precautions.  Health inspectors and the Botswana Bureau of Standards carry out periodic checks at both new and operating factories.

International Regulatory Considerations

Botswana is a member of SACU and SADC.  Neither has authority over member state national regulatory systems.  Botswana is a member of the World Trade Organization (WTO) and notifies all draft technical regulations to the WTO’s Technical Barriers to Trade (TBT) Committee.

Legal System and Judicial Independence

The Constitution provides for an independent judiciary system.  Botswana’s legal system is based on Roman-Dutch law as influenced by English common law. This type of system exists with legislation, judicial decisions, and local customary law.  The courts enforce commercial contracts, and the judicial system is widely regarded as being fair.  Both foreign and domestic investors have equal access to the judicial system.  Botswana does not have a dedicated commercial court.  The Industrial Court, set up by the Trade Dispute Act of 2004, primarily addresses labor matters.

The GoB is planning to create a corps of commercially specialized judges within the civil court system.  Under the new system, commercial cases will be overseen by these commercial judges in order to expedite handling and ensure relevant expertise.  The country already has a specialized anti-corruption court that handles all corruption cases.

Some U.S. litigants have reported that the time to obtain and enforce a judgment in a commercial dispute is unreasonably long.  The turnaround time for civil cases is approximately two years.  In an effort to create more efficient adjudications, the GoB has established a land tribunal, and industrial, small claims, and corruption courts.  During the past several years, some dockets have improved, but progress has been uneven.

Local laws are accessible through the Botswana Attorney General’s Office website (www.laws.gov.bw ). It can take up to 24 months for a law, once passed, to appear on the website.

Laws and Regulations on Foreign Direct Investment

Under Botswana’s Company Act, foreigners who wish to operate a business are required to register, as well as obtain, the relevant licenses and permits as prescribed by the Trade Act of 2008.

Licenses are required for a wide spectrum of businesses, including banking, non-bank financial services, transportation, medical services, mining, energy provision, and alcohol sales.  Although amendments to the Trade Act have eliminated the catchall miscellaneous business license category, investors have reported on local authorities insisting a business apply for a license even when it does not fall within the established categories.  In addition, some businesses have observed the enforcement of licenses, as well as the time taken for inspections to comply with licensing requirements, varies widely across local government authorities.

Competition and Anti-Trust Laws

Botswana has developed anti-trust legislation and policies to ensure appropriate competition in the business environment.  Under the Competition Act, the Competition Authority (CA) is now monitoring mergers and acquisitions.  During the year 2018/2019 the CA dealt with a few cases to address the non-competitive business conduct and for the first time it dealt with cases relating to the conduct of resale price maintenance (vertical agreements). The CA is empowered to reject mergers deemed not to be in the public best interest.  It has interpreted this ability to mean that it can prohibit mergers that result in the concentration of most shares in the hands of foreign investors.

Expropriation and Compensation

Section 8 of the country’s Constitution prohibits the nationalization of private property.  The GoB has never pursued a policy of forced nationalization and is highly unlikely to adopt one.  The Acquisition of Property Act provides a process for any expropriation, including parameters to determine market value and receive compensation.  The 2007 Amendment to the Electricity Supply Act allows the GoB to revoke an Independent Power Producer’s license and confiscate the operations, with compensation, for public interest purposes.

Dispute Settlement

ICSID Convention and New York Convention

GoB has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  GoB is also a member state to the International Centre for Settlement of Investment Disputes (ICSID convention), and the Multilateral Investment Guarantee Agency (MIGA).

Investor-State Dispute Settlement

There are no known investment disputes involving U.S. persons.  Botswana accepts international arbitration to settle investment disputes.  Judgments by foreign courts recognized by the GoB are enforceable under the local courts where the appropriate bilateral agreements between the countries exist.

International Commercial Arbitration and Foreign Courts

There are no known complaints about transparency or discrimination by local courts in Botswana.

Bankruptcy Regulations

Botswana’s commercial and bankruptcy laws are comprehensive.  Secured and unsecured creditors enjoy similar rights under bankruptcy proceedings as those they would enjoy in the United States.

Investment Incentives

Botswana has several mechanisms in place to attract FDI.  BITC assists local and foreign investors.  BITC is responsible for promoting FDI, investor aftercare, and the promotion of locally manufactured goods in export markets.  It assists investors with company registration, land acquisition, factory shells, utility connections, and work and residence permits for essential staff.  Investors’ requests for support from BITC and other agencies are evaluated based on the extent to which the proposed project assists in the GoB’s diversification efforts, contributes to the growth of priority sectors, and provides employment and training to Botswana citizens.  The GoB also makes grants available to investors who partner with citizens and will extend credit to investors presenting proposals that have undergone appropriate due diligence and that have completed a feasibility study.  Foreign investors are encouraged to transfer technology to Botswana and skills to Botswana citizens with a view to preparing them for promotion into management positions.

Botswana offers a relatively low tax rate of 22 percent on corporate taxable income and 7.5 percent withholding tax on all dividends distributed.  MITI can grant manufacturing companies the reduced level of 15 percent taxable income.  Companies can pay the reduced rate of 15 percent of profit with accreditation from the Innovation Hub or the International Financial Services Centre on approved operations.

The Minister of Finance and Economic Development has the authority to issue development approval orders that are used for specific projects, which include providing tax holidays, education, and training grants.  The Minister must be satisfied the proposed project will be beneficial to Botswana’s economy.  Any firm, local or foreign, may apply for a Development Approval Order through the Permanent Secretary at the finance ministry.  Applications are evaluated against the following criteria: job creation for Botswana citizens; the company’s training plans for Botswana citizens; the company’s plans to localize non-citizen positions; Botswana citizen participation in company management; amount of equity held by Botswana citizens in the company; the location of the proposed investment; the project’s effect on the stimulation of other economic activities; and the project’s effect on reducing local consumer prices.  MITI also offers rebates on imported materials for manufacturers that produce products for export.

In 2017, Parliament approved and implemented a special incentive package for Selebi-Phikwe geared to promote economic growth and diversification.  Some of the incentives include reduced corporate tax of five percent for the first five years and 10 percent thereafter (versus the 22 percent national tax rate), zero customs duty on imported raw materials, rebates for customs duty and value-added tax for any exports outside the SACU, and a minimum of 50 years on land leases (instead of the standard lease of 25 years).

Foreign Trade Zones/Free Ports/Trade Facilitation

Parliament established a new parastatal organization, the Special Economic Zones Authority (SEZA), with the mandate to develop and operate special economic zones around the country.  It has earmarked five geographic areas with a total of eight zones, though they are not yet fully operational.  In 2015, Parliament approved a Special Economic Zones (SEZ) law to streamline investment in sector-targeted geographic areas in the country including two Gaborone area SEZs (multi-use, diamond processing, and financial services); two Selebi-Phikwe SEZs (mineral processing and horticulture); and additional SEZs in Lobatse (beef, leather, biogas); Palapye (energy); Pandamatenga (agriculture); and Francistown (mining and logistics).  The Special Economic Zones Act is available for sale in hard copy at the GoB bookshop.  SEZA has prioritized four SEZs—Lobatse (leather park), Gaborone Fairgrounds (Financial Services), Gaborone Sir Seretse Khama Airport (Diamond and Logistics) and Pandamatenga (Agriculture)—and is actively recruiting investors, private developers, and manufacturers.  BURS has also introduced an electronic Customs Management System to replace the Automated System for Customs Data and launched the National Single Window, an electronic trade platform that makes trading more secure and efficient.

Performance and Data Localization Requirements

Performance requirements are not imposed as a condition for establishing, maintaining, or expanding an investment in Botswana.  Foreign investors are encouraged, but not compelled, to establish joint ventures with citizens or citizen-owned companies.

Foreign investors wishing to invest in Botswana are required to register the company in accordance with the Companies Act and comply with other applicable legislation.  Investors are encouraged, but not required, to purchase from local sources.  The GoB does not require investors to locate in specific geographical areas, use a specific percentage of local content, permit local equity in projects, manufacture substitutes for imports, meet export requirements or targets, or use national sources of financing for private-sector investments.  However, GoB entities, including BITC, use the criteria of diversifying the economy, creating employment, and transferring skills to Botswana citizens in determining whether to assist foreign investors.

As a matter of policy, the GoB encourages foreign firms to hire qualified Botswana nationals rather than expatriates.  The granting of work permits for foreign workers may be made contingent upon establishment of demonstrable localization efforts.  The government may additionally require evidence that a local is being trained to assume duties currently being fulfilled by a foreign worker, specially focused at the middle-management level.  The GoB offers incentives to companies that train local employees, including the deduction of 200 percent of training expenses when an accredited institution conducts the training.

Business leaders cite difficulty securing work permits combined with local skills deficits and constrained labor productivity as one of the foremost business constraints in Botswana. However, since President Masisi assumed power in April 2018, GoB reports suggest permits for foreign workers have increased with approval rates in excess of 90 percent.  Select grants are available to foreign investors who partner with Botswana citizens.  The Citizen Entrepreneurial Development Agency has established a venture capital fund to provide equity to citizens and ventures between citizens and foreign investors.  The majority of GoB loans and grants are designed specifically for citizen-owned contracting firms or for small enterprises and are therefore not available to foreign investors.

The GoB, the largest procuring entity in the country, has directed central government, local authorities, and state-owned enterprises to purchase all products and services from locally based manufacturers and service providers if the goods and services are locally available, competitively priced, and meet tender specifications in terms of quality standards as certified or recognized by the Botswana Bureau of Standards.  Local preferences arise from numerous sources.  In 2015, MITI instituted a program to give locally based small companies a 15 percent preferential price margin in GoB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a five percent margin.  The directive applies to 27 categories of goods and services ranging from textiles to chemicals, and food, in addition to a broad range of consultancy services.  In 2014, the GoB and the Chamber of Mines created a committee to oversee the purchasing of mining supplies with a 10 percent preference towards those produced locally.  The 2012 Citizen Economic Empowerment Policy also emphasized the preference for local companies and the GoB’s PPADB registers citizen-owned companies for preference purposes. In 2020, the GoB announced new policy that all government contracts less than ~USD 900,000 were reserved for Motswana-owned businesses.

For a foreign firm to qualify with the Department of Industrial Affairs as a locally-based manufacturer or service provider to sell goods or services to the GoB, the firm must first be registered with the Registrar of Companies and possess a relevant license or waiver letter.  These procedures can be completed online, however, companies may choose to engage the services of a Company Secretary to perform these and other required documentation services.  Tenders are generally designed based on the products available in the local market and with locally-based companies in mind.  In addition, many tenders require local registration as a prerequisite for bids and the GoB frequently breaks up large-scale projects into a series of tenders.  All of these factors make it difficult to compete for tenders from outside Botswana.   

Real Property

Property rights are enforced in Botswana.  The World Bank ranks Botswana 82 out of 190 in the Registering Property category.  There are three main categories of land in Botswana: freehold, state land, and tribal land.  Tribal and state land cannot be sold to foreigners.  There are no restrictions on the sale of freehold land, but only an approximate five percent of land in Botswana is freehold. All minerals in Botswana, even those on private lands, are viewed as property of the State. In the capital city of Gaborone, the number of freehold plots is limited.  In 2019, the GoB increased the rate of Transfer Duty on the sale and transfer of property to non-citizens (both individuals and companies) from five percent to 30 percent.

State land represents about 25 percent of land in Botswana.  On application to the Department of Lands, both foreign-owned and local enterprises registered in Botswana may lease state land for industrial or residential use.  Commercial use leases are for 50 years and residential leases are for 99 years.  Waiting periods tend to be long for leasehold applications, but subleases from current leaseholders are available.  In 2014, the GoB changed its implementing regulation to allow companies with less than five employees to operate in residential areas if their operations do not pose a health or safety risk to residents.

Tribal land represents 70 percent of land in Botswana.  To obtain a lease for tribal land, the investor must approach the relevant local Land Board.  Processes are unlikely to be streamlined or consistent across Land Boards.

Since independence, the trend in Botswana has been to increase the area of tribal land at the expense of both state and freehold land.  Landlord-tenant law in Botswana tends to be moderately pro-landlord.

In addition to helping investors who meet its criteria obtain appropriate land leaseholds, BITC has also built factory units for lease to industrialists with the option to purchase at market value.

Intellectual Property Rights

Botswana’s legal intellectual property rights (IPR) structure is adequate, although some improvements are needed.  The key challenge facing the GoB is effective implementation. CIPA was established in 2014 and is comprised of three offices: the Companies and Business Office, the Industrial Property Office, and the Copyright Office.  Intellectual property is registered through CIPA.  This organizations’s priorities n are to strengthen and implement Botswana’s IPR regime and improve interagency cooperation.  IPR infringement occurs in Botswana primarily through the sale of counterfeit items in low-end sales outlets.  According to CIPA, targeted raids by local law enforcement have reduced the availability of counterfeit goods across the country.   In 2019, CIPA and the Botswana Police Service seized 3,888 counterfeit CDs and DVDs valued at USD 30,000 compared to nearly 13,000 counterfeits valued at over USD 107,000 seized in 2017.  The U.S. government continues to work with the GoB to modernize and improve enforcement of IPR.

IPR is protected under the Industrial Property Act of 2010, which provides protections on patents, trademarks, utility designs, handicrafts, traditional knowledge, and geographic indicators.  The 2000 Copyright and Neighboring Rights Act also protects art and literary works, and the 1975 Registration of Business Names Act oversees corporate name and registration procedures.  Other IPR-related laws include the Competition Act, the Value Added Tax Act, the Botswana Penal Code, the Customs and Excise Duty Act, the Monuments and Relics Act, the Broadcasting Act, and the Societies Act.

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

Botswana is a signatory to the Beijing Treaty on Audiovisual Performances, the Hague Agreement Concerning the International Deposit of Industrial Designs, the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, the Convention establishing the World Intellectual Property Organization (WIPO), the WIPO Copyright Treaty, the WIPO Performances and Phonograms Treaty, the Patent Cooperation Treaty, the Berne Convention for the Protection of Literary and Artistic Works, and the Paris Convention for the Protection of Industrial Property.

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/ .

Resources for Rights Holders

Goitseone Montsho
Economic/Commercial Specialist
MontshoG@state.gov
+267 373-2431

Local lawyers’ list: https://bw.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

Capital Markets and Portfolio Investment

The government encourages foreign portfolio investment, although there are limits on foreign ownership in certain sectors.  It also embraces the establishment of new and diverse financial institutions to support increased foreign and domestic investment and to fill existing gaps where finance is not commercially available.  There are nine commercial banks, one merchant bank, one offshore bank, two statutory deposit-taking institutions, and one credit union operating in Botswana.  All have corresponding relationships with U.S. banks. Additional financial institutions include various pension funds, insurance companies, microfinance institutions, stock brokerage companies, asset management companies, statutory finance institutions, collective investment undertakings, and statutory funds. Historically, commercial banks have accounted for 92 percent of total deposits and 98 percent of total loans in Botswana.  A large portion of the population does not participate in the formal banking sector.

Money and Banking System

The central bank, the Bank of Botswana, acts as banker and financial advisor to the GoB and is responsible for the management of the country’s foreign exchange reserves, the administration of monetary and exchange rate policies, and the regulation and supervision of financial institutions in the country.  Monetary policy in Botswana is widely regarded as prudent, and the GoB has successfully managed to maintain a sensible exchange rate and a stable inflation rate, generally within the target of three to six percent.

Banks may lend to non-resident-controlled companies without seeking approval from the Bank of Botswana.  Foreign investors usually enjoy better access to credit than local firms do.  In July 2014, USAID’s Development Credit Authority (now DFC – U.S. International Development Finance Corporation), in collaboration with ABSA (formerly Barclays Bank of Botswana), implemented a program to allow small and medium-sized enterprises (SME) to access up to USD 15 million in loans in an effort to diversify the economy.

At the end of 2019, there were 25 companies on the Domestic Board and eight companies on the Foreign Equities Board of the Botswana Stock Exchange (BSE).  In addition, there were 46 listed bonds and three exchange traded funds listed on the Exchange.  The total market capitalization for listed companies at year-end 2019 was USD 37 billion, though one company constitutes the majority of that figure, Anglo-American plc, which has a market capitalization of approximately USD 30 billion. The BSE is still highly illiquid compared to larger African markets and is dominated by mining companies which adds to index volatility.  Laws prohibiting insider trading and securities fraud are clearly stipulated under Section 35 – 37 of the Securities Act, 2014 and charges for contravening these laws are listed under Section 54 of the same Act.

The government has legitimized offshore capital investments and allows foreign investors, individuals and corporate bodies, and companies incorporated in Botswana, to open foreign currency accounts in specified currencies.  The designated currencies are U.S. Dollar, British Pound sterling, Euro, and the South African Rand.  There are no known practices by private firms to restrict foreign investment participation or control in domestic enterprises.  Private firms are not permitted to adopt articles of incorporation or association which limit or prohibit foreign investment, participation, or control.

In general, Botswana exercises careful control over credit expansion, the pula exchange rate, interest rates, and foreign and domestic borrowing.  Banking legislation is largely in line with industry norms for regulation, supervision, and payments.  However, the country failed to meet compliance requirements of the Financial Action Task Force (FATF) resulting in a grey listing in October 2018.  Botswana is currently implementing an action plan to remedy the situation. The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) was established in 2008 and provides regulatory oversight for the non-banking sector.  It extends know-your-customer practices to non-banking financial institutions to help deter money laundering and terrorist financing.  NBFIRA is also responsible for regulating the International Financial Services Centre, a hub charged with promoting the financial services industry in Botswana.

Foreign Exchange and Remittances

Foreign Exchange

There are no foreign exchange controls in Botswana or restrictions on capital outflows through financial institutions.  Commercial banks are required to ensure customers complete basic forms indicating name, address, purpose and other details prior to processing funds transfer requests or loan applications.  The finance ministry monitors data collected on the forms for statistical information on capital flows, but the form does not require government approval prior to the processing of a transaction and does not delay capital transfers.

To encourage portfolio investment, develop domestic capital markets, and diversify investment instruments, non-residents are able to trade in and issue Botswana pula-denominated bonds with maturity periods of more than one year, provided such instruments are listed on the Botswana Stock Exchange (BSE).  Only Botswana citizens can purchase Botswana’s Letlole National Savings Certificate (equivalent to a U.S. Treasury bond).  Foreigners can hold shares in BSE-listed Botswana companies.

Travelers are not restricted to the amount of currency they may carry, but they are required to declare to customs at the port of departure any cash amount in excess of 10,000 pula (~USD 950).  There are no quantitative limits on foreign currency access for current account transactions.

Bank accounts denominated in foreign currency are allowed in Botswana.  Commercial banks offer accounts denominated in U.S. Dollars, British Pounds, Euros and South African Rand.  Businesses and other bodies incorporated or registered domestically may open accounts without prior approval from the Bank of Botswana.  The GoB also permits the issuance of foreign currency denominated loans.

Upon disinvestment by a non-resident, the non-resident is allowed immediate repatriation of all proceeds including profits, rents, and fees.

The Botswana Pula has a crawling peg exchange rate and is tied to a basket of currencies of major trading partner countries.  In 2018 the weights of the Pula basket currencies were maintained at 45 percent for the South African Rand and 55 percent for the Special Drawing Rights (consisting of the U.S. Dollar, the Euro, British Pound, Japanese Yen, and Chinese Renminbi) respectively.  Movements of the South African Rand against the U.S. Dollar heavily influence the Pula.  There is no difficulty in obtaining foreign exchange.  Shortages of foreign exchange that would lead banks to block transactions are highly unlikely.

Remittance Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Sovereign Wealth Funds

The Bank of Botswana maintains a long-term sovereign wealth fund, known as the Pula Fund, in addition to a regular foreign reserve account providing basic import cover. The Pula Fund, with an estimated value of some USD 4.74 billion as of 2018, was established under the Bank of Botswana Act and forms part of the country’s foreign exchange reserves, which are primarily funded by diamond revenues.  The Pula Fund is wholly invested in foreign currency-denominated assets and is managed by the Bank of Botswana Board with input from recognized international financial management and investment firms.  All realized market and currency gains or losses are reported in the Bank of Botswana’s income statement.  Botswana is among the founding members of the International Forum of Sovereign Wealth Fund and was one of the architects of the Santiago Principles in 2008.  More information is available at: http://www.bankofbotswana.bw/assets/uploaded/BOTSWANA percent20PULA percent20FUND percent20- percent20SANTIAGO percent20PRINCIPLES percent20(2).pdf 

State-owned enterprises (SOEs), known as “parastatals,” are majority or 100 percent owned by the GoB.  There is a published list of SOEs at the GoB portal (www.gov.bw) with profiles of financial and development SOEs. Some SOEs are state-sanctioned monopolies, including the Botswana Meat Commission, the Water Utilities Corporation, Botswana Railways, and the Botswana Power Corporation.

The same business registration and licensing laws govern private and government-owned enterprises.  No law or regulation prohibits or restricts private enterprises from competing with SOEs.  Botswana law requires SOEs to publish annual reports, and private sector accountants or the Auditor General audits SOEs depending on how they are constituted.  GoB ministries together with their respective SOEs are compelled on an annual basis to appear before the Parliamentary Public Accounts Committee to provide reports and answer questions regarding their performance.  Some SOEs are not performing well and have been embroiled in scandals involving alleged fraud and mismanagement.

Botswana is not party to the Government Procurement Agreement within the framework of the WTO.

Privatization Program

The GOB has committed to privatization on paper.  It established a task force in 1997 to privatize all of its state-owned companies and formed a Public Enterprises Evaluation and Privatization Agency (PEEPA) to oversee this process.  Implementation of its privatization commitments has been limited to the January 2016 sale offer of 49 percent of the stock of the state-owned Botswana Telecommunications Corporation to Botswana citizens only.  In February 2017, the GoB issued an Expressions of Interest for the privatization of its national airline, but progress stopped due to the decision to re-fleet the airline before privatization.  In early 2019, President Masisi announced the Botswana Meat Commission was being placed in the hands of a private management company prior to privatization. Conversely, the GoB has created new SOEs such as the Okavango Diamond Company, the Mineral Development Company, and Botswana Oil Limited in recent years.

The GoB, some foreign and local firms, and customers, recognized and embraced Responsible Business Conduct (RBC), although Botswana is not an adherent of the OECD’s RBC Guidelines for Multinational Enterprises and has not specified its definition of RBC.  Large companies in the mining, communications technology, food supply, and financial services sectors have established RBC programs, sponsor projects, and support local nonprofit concerns.  However, the ethos has not taken hold in many smaller firms.  The U.S. Embassy worked with the local chamber of commerce, Business Botswana, on the issue of corporate social responsibility and ethical compliance, to help enlist companies to sign onto a Corporate Code of Conduct that covers, among other things, conflicts of interest, bribery, political interference, political party funding, procurement and bidding, and issues surrounding residence and work permits.  To date more than 300 firms have signed the Code of Conduct.

The Companies Act also sets out the expectations of business conduct and governance for directors and shareholders for both private and public companies.  Botswana is not a member of the Extractive Industries Transparency Initiative.  Botswana’s Mines and Minerals Act and associated regulations govern mineral contracts and licenses.  Botswana’s laws and procedures for awarding mining contracts are fairly well developed.  Mining licenses are required to undergo a public comment period before they are awarded, and that rule is followed.

Botswana has a reputation for a relative lack of corruption and a willingness to prosecute corrupt officials.  Transparency International ranks Botswana as the least corrupt country in Africa (34th worldwide).  Investors with experience in other developing nations describe the relative lack of obstruction or interference by law enforcement or other government agents as among the country’s most important assets.  Nevertheless, private sector representatives note rising corruption levels in government tender procurements.

The major corruption investigation body is the Directorate on Corruption and Economic Crime (DCEC).  Anecdotal reports on the DCEC’s effectiveness vary.  The DCEC has embarked on an education campaign to raise public awareness about the cost of corruption and is also working with GoB departments to reform their accountability procedures. Corruption is punishable by a prison term of up to 10 years, a fine of USD 50,000, or both.  The GoB has prosecuted high-level officials.  Corruption allegations have surfaced recently around pension fund management and government procurement procedures and are still under investigation.

The 2000 Proceeds of Serious Crime Act expanded the DCEC’s mandate to include combatting money laundering.  The 2009 Financial Intelligence Act provides a comprehensive legal framework to address money laundering and establishes a financial intelligence agency (FIA).  The FIA, which operates under the Ministry of Finance and Development Planning, cooperates with various institutions, such as Directorate of Public Prosecutions, Botswana Police Service, Bank of Botswana, the Non-Banking Financial Institutions Regulatory Authority, the DCEC, and foreign FIAs to uncover and investigate suspicious financial transactions.  Botswana is a member of the Eastern and Southern Africa Anti-Money Laundering Group, a regional standards-setting body for ensuring appropriate laws, policies, and practices to fight money laundering and the financing of terrorism.  In October 2018, Botswana was “gray-listed” by the Financial Action Task Force and is currently implementing an action plan to address shortcomings that led to the listing.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Botswana is not a party to the OECD Anti-Bribery Convention, but is a party to the 2005 United Nations Convention against Corruption.

Resources to Report Corruption

Contacts for agencies responsible for combating corruption:

Name: Brigadier Joseph Mathambo
Tittle: Director General
Organization: Directorate on Corruption and Economic Crime
Address: Madirelo Extension 6, Gaborone, Botswana
Telephone Number: +267 3914002/+267 3604200
Email:  dcec@gov.bw

Name: Mr. Elijah Motshidi
Tittle: Executive Director
Organization: Public Procurement and Asset Disposal Board
Address: Private Bag 0058, Gaborone, Botswana
Telephone Number: +267 3602000
Email:  webmaster@ppadb.co.bw

Name: Mr. Abraham Sethibe
Tittle: Director
Organization: Financial Intelligence Agency
Address: Private Bag 0190, Gaborone, Botswana
Telephone Number: +267 3998400
Email:  asethibe@gov.bw

One can also reach out to the Minister of the relevant Ministry for a particular tender and provide a copy of the complaint to the Public Procurement and Asset Disposal Board (PPADB) Executive Director.

The threat of political violence is low in Botswana.  Public demonstrations are rare and seldom turn violent.  The last large-scale strikes, which involved public sector employees, occurred April-June 2011 and were not violent. In September 2015, roughly 200 people participated in a peaceful march organized by an opposition political party to protest water shortages in the capital.  In August 2016, police forcefully dispersed a small demonstration protesting unemployment outside the National Assembly.  In February and March 2017, some student-led protests occurred at tertiary institutions necessitating police deployment but were not overtly political.  There were multiple reports of police brutality, including the use of rubber whips and rubber bullets.  Another peaceful march against corruption was held in March 2018.  This followed allegations of embezzlement of the National Petroleum Fund by a company charged with the management of the funds together with some GoB officials.  In late 2019, following general election, the Umbrella for Democratic Change (UDC) held a peaceful march of no more than 200 people protesting the election results.

Botswana has a high unemployment rate and a constricted worker skills base.  The latest statistics released in late 2019 showed an increase of unemployment from 17.7 percent to just over 20 percent, although the real rate is suspected to be higher due to the way the GoB counts who is included in the statistic.  Employers can expect to engage in significant training efforts, depending on the industry.  Retention of workers and absenteeism can pose problems.  In addition, managers often cite workforce productivity as a point of frustration.  The lack of trained local citizen professionals is generally addressed by contracting expatriates if they can secure work permits.  There is minimal labor strife in Botswana.  In 2015, there were a handful of small and peaceful strikes, the most notable of these was by a portion of BURS officials, but as with most unions across sectors, only a portion of BURS officials were unionized, allowing the GoB to maintain customs operations.

The Employment Act provides basic guidelines for employment in Botswana.  The legislation sets requirements for a minimum wage, length of the workweek, annual and maternity leave, hiring and termination.  Standards set by the Act are consistent with international best practice as described by International Labour Organization (ILO) model legislation and guidelines.

Employment-related litigation occurs and is both an example of trust in the court system and a cost to doing business in Botswana.  Employers avoid considerable expense and frustration if they observe the provisions of the Employment Act, relevant labor regulations, and prudence in advance of potential litigation.  Before a potential litigant goes to one of 11 labor courts, the parties must attempt mediation through the Department of Labor.  Court cases offering severance terms for employees laid off due to fluctuating market conditions are also common.  Section 25 of the Employment Act allows employers to terminate contracts for reducing the size of their work force, known as redundancy, using the first-in-last-out principle.  This method of terminating contracts is separate from firing for serious misconduct as specified by Section 26 of the Act. The GoB has social safety net programs in place to assist the unemployed and destitute.

Collective bargaining is common in government and the private sector and the Labor Commissioner can grant collective bargaining authority upon request.  The largest unions are comprised of public sector workers.

In August 2016 Parliament passed a Trade Disputes Act with a list of services deemed “essential” and barred from striking that exceeds international labor standards. The Ministry of Employment, Labour Productivity, and Skills Development is coordinating with the ILO and other partners to review labor laws to ensure they align with ILO standards.  The review process is ongoing and Ministry sources claim they plan to conclude a draft bill and present it to Parliament by July 2020.

The DFC has a presence in Botswana through its previous Overseas Private Investment Corporation (OPIC) and the Development Credit Authority (DCA) programs. OPIC has a USD 250 million loan guarantee facility for the local diamond industry, and two separate SME loan facilities with local financial institutions. DCA also has a loan facility in place which targets SMEs.

Botswana is a member of MIGA, which offers investors protection against inconvertibility, or transfer of currency, expropriation, breach of contract, and war and civil disturbance.

The Export Credit Insurance & Guarantee Company (Botswana) Pty. Ltd. allows investors to purchase coverage against certain events and losses such as the insolvency and inability of buyers to pay for purchases, unanticipated import restrictions, or the blockage by the buyer’s country of foreign exchange transfer.

According to the Bank of Botswana, investment in Botswana totaled 80.5 billion Pula in 2017, of which 28.9 billion Pula were non-FDI investments.  Africa (36 percent) and Europe (56 percent) accounted for most of the 51.64 billion Pula influx of FDI.  Within these regions, South Africa and the United Kingdom were the predominant players, accounting for 10.6 and 26.3 billion Pula respectively.  Little data on FDI sources is available for countries and regions with limited investments in Botswana.  Mining accounted for 35.1 percent of Foreign Investment inflows in 2017.

Goitseone Montsho
Economic/Commercial Specialist
+267 395-3982 / 373-2431
MontshoG@state.gov

Policies Towards Foreign Direct Investment

Egypt’s completion of the most recent three-year, $13 billion IMF Extended Fund Facility and its associated reform package helped stabilize Egypt’s macroeconomy, introduced important subsidy and social spending reforms, and helped restore investor confidence in the Egyptian economy.  The flotation of the Egyptian Pound (EGP) in November 2016 and the restart of Egypt’s interbank foreign exchange (FX) market as part of this program was the first major step in restoring investor confidence that immediately led to increased portfolio investment and should lead to increased FDI over the long term.  Other important reforms have included a new investment law and an industrial licensing law in 2017, a new bankruptcy law in 2018, and other reforms aimed at reducing regulatory overhang and improving the ease of doing business. Egypt’s government has announced plans to further improve its business climate through investment promotion, facilitation, more efficient business services, and the implementation of investor-friendly policies.

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

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

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

The General Authority for Investment and Free Zones (GAFI, http://gafi.gov.eg) is the principal government body that regulates and facilitates foreign investment in Egypt, and reports directly to the Prime Minister.  Prior to December 2019, GAFI had been a component of the Ministry of Investment and International Cooperation.

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

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

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

Identification of suitable locations and site selection options within Egypt;

Assistance in identifying suitable Egyptian partners;

Aftercare and dispute settlement services.​

ISC Branches are expected to be established in all Egypt’s Governorates.  Egypt maintains ongoing communication with investors through formal business roundtables, investment promotion events (conferences and seminars), and one-on-one investment meetings.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in the Sinai Peninsula. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians. In 2016, the Ministry of Trade prepared an amendment to the law allowing the registration of importing companies owned by foreign shareholders, but the law has not yet been submitted to Parliament. Nevertheless, the new Investment Law does allow wholly foreign companies which are invested in Egypt to import goods and materials.

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

Under Law No. 230 non-Egyptians are allowed to own real estate (vacant or built) only under the following conditions:

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

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

Other Investment Policy Reviews

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

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

In January 2018 the World Trade Organization (WTO) published a comprehensive review of the Egyptian Government’s trade policies, including details of the 2017 Investment Law’s main provisions.

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

The United Nations Conference on Trade Development (UNCTAD) published an Information and Communications Technology (ICT) Policy Review for Egypt in 2017, in which it highlighted the potential for investments in the ICT sector to help drive economic growth and recommended specific reforms aimed at strengthening Egypt’s performance in key ICT policy areas.  https://unctad.org/en/PublicationsLibrary/dtlstict2017d3_en.pdf   UNCTAD published its last comprehensive Investment Policy Review for Egypt in 1999, and an implementation report in 2006.

Business Facilitation

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

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

Outward Investment

Egypt promotes and incentivizes outward investment. According to the Egyptian government’s FDI Markets database for the period from January 2003 to May 2020, outward investment featured the following:

• Egyptian companies implemented 270 Egyptian FDI projects. Estimated total value of the projects, which employed about 50,000 workers, was $25.6 billion.
• The following countries respectively received the largest amount of Egyptian outward investment in terms of total project value: UAE, Saudi Arabia, Algeria, Kenya, Jordan, Ethiopia, Germany, Libya, Morocco and Sudan. The UAE, Saudi Arabia and Algeria accounted for about 28 percent of the total amount.

Elsewedy Electric was the largest Egyptian company investing abroad, implementing 20 projects with a total investment estimated to be $2.1 billion.

Egypt does not restrict domestic investors from investing abroad.

Egypt has signed 115 Bilateral Investment Treaties (BITs), out of which 74 BITs have entered into force. The full list can be found at http://investmentpolicyhub.unctad.org/IIA .

The U.S.-Egypt Bilateral Investment Treaty provides for fair, equitable, and nondiscriminatory treatment for investors of both nations. The treaty includes provisions for international legal standards on expropriation and compensation; free financial transfers; and procedures for the settlement of investment disputes, including international arbitration.

In addition to BITs, Egypt is also a signatory to a wide variety of other agreements covering trade issues. Egypt joined the Common Market for Eastern and Southern Africa (COMESA) in June 1998, and in 2019 deposited its instrument of ratification for the 2018 African Continental Free Trade Agreement (AfCFTA).  In July 1999, Egypt and the United States signed a Trade and Investment Framework Agreement (TIFA). In June 2001, Egypt signed an Association Agreement with the European Union (EU), which entered into force on June 1, 2004. The agreement provided immediate duty free access of Egyptian products into EU markets, while duty free access for EU products into the Egyptian market was phased in over a 12-year period ending in 2016.  In 2010, Egypt and the EU completed an agricultural annex to their agreement, liberalizing trade in over 90 percent of agricultural goods.

Egypt is also a member of the Greater Arab Free Trade Agreement (GAFTA), and a member of the Agadir Agreement with Jordan, Morocco, and Tunisia, which relaxes rules of origin requirements on products jointly manufactured by the countries for export to Europe. Egypt also has an FTA with Turkey, in force since March 2007, and an FTA with the Mercosur bloc of Latin American nations.

In 2004, Egypt and Israel signed an agreement to take advantage of the U.S. Government’s Qualifying Industrial Zone (QIZ) program. The purpose of the QIZ program is to promote stronger ties between the region’s peace partners, as well as to generate employment and higher incomes, by granting duty-free access to goods produced in QIZs in Egypt using a specified percentage of Israeli and local input. Under Egypt’s QIZ agreement, Egypt’s exports to the United States produced in certain industrial areas are eligible for duty-free treatment if they contain a minimum 10.5 percent Israeli content.

The industrial areas currently included in the QIZ program are Alexandria, areas in Greater Cairo such as Sixth of October, Tenth of Ramadan, Fifteenth of May, South of Giza, Shobra El-Khema, Nasr City, and Obour, areas in the Delta governorates such as Dakahleya, Damietta, Monofeya and Gharbeya, and areas in the Suez Canal such as Suez, Ismailia, Port Said, and other specified areas in Upper Egypt. Egyptian exports to the United States through the QIZ program have mostly been ready-made garments and processed foods. The value of the Egyptian QIZ exports to the United States was approximately $752 million in 2017.

Egypt has a bilateral tax treaty with the United States. Egypt also has tax agreements with 59 other countries, including UAE, Kuwait, Saudi Arabia, Mauritius, Bahrain, and Morocco.

The Egyptian Parliament passed and the government implemented a value added tax (VAT) in late 2016, which took the place of the General Sales Tax, as part of the IMF loan and economic reform program.  However, the government decided to postpone the “Stock Market Capital Gains Tax” for three years as of early 2017. In 2016, there were a number of tax disputes between foreign investors and the government, but most of them were resolved through the Tax Department and the Economic Court.

Transparency of the Regulatory System

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

Enactment of laws is the purview of the Parliament, while executive regulations are the domain of line ministries.  Under the Constitution, draft legislation can be presented by the president, the cabinet, and any member of parliament.  After submission, parliamentary committees review and approve, including any amendments.  Upon parliamentary approval, a judicial body reviews the constitutionality of any legislation before referring it to the president for his approval.  Although notice and full drafts of legislation are typically printed in the Official Gazette (similar to the Federal Register in the United States), in practice consultation with the public is limited.  In recent years, the Ministry of Trade and other government bodies have circulated draft legislation among concerned parties, including business associations and labor unions. This has been a welcome change from previous practice, but is not yet institutionalized across the government.

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

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

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

The Parliament and the independent “Administrative Control Authority” both ensure the government’s commitment to follow administrative processes at all levels of government.  Egypt does not have an online equivalent of the U.S. Federal Register and there is no centralized online location for key regulatory actions or their summaries.

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

The specific government agency or entity responsible for enforcing the regulation works with other departments for implementation across the government.  Not all issued regulations are announced online. Theoretically, the enforcement process is legally reviewable.

Before a government regulation is implemented, there is an attempt to properly analyze and thoroughly debate proposed legislation and rules using appropriate available data.  But there are no laws requiring scientific studies or quantitative analysis of impacts of regulations. Not all public comments received by regulators are made public.

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

International Regulatory Considerations

In general, international standards are the main reference for Egyptian standards.  According to the Egyptian Organization for Standardization and Quality Control, approximately 7,000 national standards are aligned with international standards in various sectors.  In the absence of international standards, Egypt uses other references which are referred to in Ministerial decrees No. 180//1996 and No. 291//2003, which stipulate that in the absence of Egyptian standards, the producers and importers may use the following:

European standards (EN)
U.S. standards (ANSI)
Japanese standards (JIS)

Egypt is a member of the WTO, participates actively in various committees, and notifies technical regulations to the WTO Committee on Technical Barriers to Trade.  Egypt ratified the Trade Facilitation Agreement (TFA) on June 22, 2017 by a vote of Parliament and issuance of presidential decree No. 149/2017, and deposited its formal notification to the WTO on June 24, 2019.  Egypt notified indicative and definitive dates for implementing Category B and C commitments on June 20, 2019, but to date has not notified dates for implementing Category A commitments.  In August 2020 the Egyptian Parliament passed a new Customs Law that includes provisions for key TFA reforms, including advance rulings, separation of release, a Single Window system, expedited customs procedures for authorized economic operators, post-clearance audits, and e-payments.

Legal System and Judicial Independence

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

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

Judges in Egypt are said to enjoy a high degree of public trust and are the designated monitors for general elections.  The Judiciary is proud of its independence and can point to a number of cases where a judge has made surprising decisions that run counter to the desires of the regime.  The judge’s ability to loosely interpret the law can sometimes lead to an uneven application of justice.  The system’s slowness and dependence on paper processes hurts its overall competence and reliability.  The executive branch claims to have no influence over the judiciary, but in practice political pressures seem to influence the courts on a case by case basis.  In the experience of the Embassy, judicial decisions are highly appealable at the national level and this appeal process is regularly used by litigants.

Laws and Regulations on Foreign Direct Investment

No specialized court exists for foreign investments.

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

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

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

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

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

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

Investor-State Dispute Settlement

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

It is recommended that U.S. companies employ contractual clauses that specify binding international (not local) arbitration of disputes in their commercial agreements.

Bankruptcy Regulations

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

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

Investment Incentives

The Investment Law 72/2017 gives multiple incentives to investors as described below.  In August 2019, President Sisi ratified amendments to the Investment Law that allow its incentives programs to apply to expansions of existing investment projects in addition to new investments.

General Incentives:

• All investment projects subject to the provisions of the new law enjoy the general incentives provided by it.
• Investors are exempted from the stamp tax, fees of the notarization, registration of the Memorandum of Incorporation of the companies, credit facilities, and mortgage contracts associated with their business for five years from the date of registration in the Commercial Registry, in addition to the registration contracts of the lands required for a company’s establishment.
• If the establishment is under the provisions of the new investment law, it will benefit from a two percent unified custom tax over all imported machinery, equipment, and devices required for the set-up of such a company.

Special Incentive Programs:

• Investment projects established within three years of the date of the issuance of the Investment Law will enjoy a deduction from their net profit, subject to the income tax:
  • 50 percent of the investment costs for geographical region (A) (the regions the most in need of development as well as designated projects in Suez Canal Special Economic Zone and the “Golden Triangle” along the Red Sea between the cities of Safaga, Qena and El Quseer);
  • 30 percent of the investment costs to geographical region (B) (which represents the rest of the republic).
• Provided that such deduction shall not exceed 80 percent of the paid-up capital of the company, the incentive could be utilized over a maximum of seven years.

Additional Incentive Program:

The Cabinet of Ministers may decide to grant additional incentives for investment projects in accordance with specific rules and regulations as follows:

• The establishment of special customs ports for exports and imports of the investment projects.
• The state may incur part of the costs of the technical training for workers.
• Free allocation of land for a few strategic activities may apply.
• The government may bear in full or in part the costs incurred by the investor to invest in utility connections for the investment project.
• The government may refund half the price of the land allocated to industrial projects in the event of starting production within two years from receiving the land.

Other Incentives related to Free Zones according to Investment Law 72/2017:

• Exemption from all taxes and customs duties.
• Exemption from all import/export regulations.
• The option to sell a certain percentage of production domestically if customs duties are paid.
• Limited exemptions from labor provisions.
• All equipment, machinery, and essential means of transport (excluding sedan cars) necessary for business operations are exempted from all customs, import duties, and sales taxes.
• All licensing procedures are handled by GAFI. To remain eligible for benefits, investors operating inside the free zones must export more than 50 percent of their total production.
• Manufacturing or assembly projects pay an annual charge of one percent of the total value of their products
• Excluding all raw materials. Storage facilities are to pay one percent of the value of goods entering the free zones while service projects pay one percent of total annual revenue.
• Goods in transit to specific destinations are exempt from any charges.

Other Incentives related to the Suez Canal Economic Zone (SCZone):

• 100 percent foreign ownership of companies.
• 100 percent foreign control of import/​export activities.
• Imports are exempted from customs duties and sales tax.
• Customs duties on exports to Egypt imposed on imported components only, not the final product.
• Fast-track visa services.
• A full service one-stop shop for registration and licensing.
• Allowing enterprises access to the domestic market; duties on sales to domestic market will be assessed on the value of imported inputs only.

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

The Ministry of Industry & Foreign Trade and the Ministry of Finance’s Decree No. 719/2007 provides incentives for industrial projects in the governorates of Upper Egypt (Upper Egypt refers to governorates in southern Egypt). The decree provides an incentive of LE 15,000 (approx. $850) for each job opportunity created by the project, on the condition that the investment costs of the project exceed LE 15 million (approx. $850,000). The decree can be implemented on both new and ongoing projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Public and private free trade zones are authorized under GAFI’s Investment Incentive Law. Free zones are located within the national territory, but are considered to be outside Egypt’s customs boundaries, granting firms doing business within them more freedom on transactions and exchanges. Companies producing largely for export (normally 80 percent or more of total production) may be established in free trade zones and operate using foreign currency. Free trade zones are open to investment by foreign or domestic investors. Companies operating in free trade zones are exempted from sales taxes or taxes and fees on capital assets and intermediate goods. The Legislative Package for the Stimulation of Investment, issued in 2015, stipulated a one percent duty paid on the value of commodities upon entry for storage projects and a one percent duty upon exit for manufacturing and assembly projects.

There are currently 9 public free trade zones in operation in the following locations: Alexandria, Damietta Ismailia, Qeft, Media Production City, Nasr City, Port Said, Shebin el Kom, and Suez. Private free trade zones may also be established with a decree by GAFI but are usually limited to a single project. Export-oriented industrial projects are given priority.  There is no restriction on foreign ownership of capital in private free zones.

The Special Economic Zones (SEZ) Law 83/2002 allows establishment of special zones for industrial, agricultural, or service activities designed specifically with the export market in mind.  The law allows firms operating in these zones to import capital equipment, raw materials, and intermediate goods duty free. Companies established in the SEZs are also exempt from sales and indirect taxes and can operate under more flexible labor regulations. The first SEZ was established in the northwest Gulf of Suez.

Law 19/2007 authorized creation of investment zones, which require Prime Ministerial approval for establishment. The government regulates these zones through a board of directors, but the zones are established, built, and operated by the private sector. The government does not provide any infrastructure or utilities in these zones. Investment zones enjoy the same benefits as free zones in terms of facilitation of license-issuance, ease of dealing with other agencies, etc., but are not granted the incentives and tax/custom exemptions enjoyed in free zones. Projects in investment zones pay the same tax/customs duties applied throughout Egypt. The aim of the law is to assist the private sector in diversifying its economic activities.

The Suez Canal Economic Zone, a major industrial and logistics services hub announced in 2014, includes upgrades and renovations to ports located along the Suez Canal corridor, including West and East Port Said, Ismailia, Suez, Adabiya, and Ain Sokhna. The Egyptian government has invited foreign investors to take part in the projects, which are expected to be built in several stages, the first of which was scheduled to be completed by mid-2020. Reported areas for investment include maritime services like ship repair services, bunkering, vessel scrapping and recycling; industrial projects, including pharmaceuticals, food processing, automotive production, consumer electronics, textiles, and petrochemicals; IT services such as research and development and software development; renewable energy; and mixed use, residential, logistics, and commercial developments. Website for the Suez Canal Development Project: http://www.sczone.com.eg/English/Pages/default.aspx 

Performance and Data Localization Requirements

Egypt has rules on national percentages of employment and difficult visa and work permit procedures.  The application of these provisions that restrict access to foreign worker visas has been inconsistent.  The government plans to phase out visas for unskilled workers, but as yet has not done so. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period.  Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. The application of these regulations is inconsistent. The Labor Law allows Ministers to set the maximum percentage of foreign workers that may work in companies in a given sector.  There are no such sector-wide maximums for the oil and gas industry, but individual concession agreements may contain language establishing limits or procedures regarding the proportion of foreign and local employees.

No performance requirements are specified in the Investment Incentives Law, and the ability to fulfill local content requirements is not a prerequisite for approval to set up assembly projects.  In many cases, however, assembly industries still must meet a minimum local content requirement in order to benefit from customs tariff reductions on imported industrial inputs.

Decree 184/2013 allows for the reduction of customs tariffs on intermediate goods if the final product has a certain percentage of input from local manufacturers, beginning at 30 percent local content.  As the percentage of local content rises, so does the tariff reduction, reaching up to 90 percent if the amount of local input is 60 percent or above. In certain cases, a minister can grant tariff reductions of up to 40 percent in advance to certain companies without waiting to reach a corresponding percentage of local content.  In 2010, Egypt revised its export rebate system to provide exporters with additional subsidies if they used a greater portion of local raw materials.

Manufacturers wishing to export under trade agreements between Egypt and other countries must complete certificates of origin and local content requirements contained therein.  Oil and gas exploration concessions, which do not fall under the Investment Incentives Law, do have performance standards, which are specified in each individual agreement and which generally include the drilling of a specific number of wells in each phase of the exploration period stipulated in the agreement.

Egypt does not impose localization barriers on ICT firms.  Egypt’s Data Protection Act, signed into law in July, 2020, will require licenses for cross-border data transfers but does not impose any data localization requirements.  Similarly, Egypt does not make local production a requirement for market access, does not have local content requirements, and does not impose forced technology or intellectual property transfers as a condition of market access.  But there are exceptions where the government has attempted to impose controls by requesting access to a company’s servers located offshore, or request servers to be located in Egypt and thus under the government’s control.

Real Property

The Egyptian legal system provides protection for real and personal property.  Laws on real estate ownership are complex and titles to real property may be difficult to establish and trace.  According to the World Bank’s 2020 Doing Business Report, Egypt ranks 130 of 190 for ease of registering property.

The National Title Registration Program introduced by the Ministry of State for Administrative Development has been implemented in nine areas within Cairo.  This program is intended to simplify property registration and facilitate easier mortgage financing. Real estate registration fees, long considered a major impediment to development of the real estate sector, are capped at no more than EGP 2000 (USD 110), irrespective of the property value.  In November 2012, the government postponed implementation of an enacted overhaul to the real estate tax and as of April 2017 no action has been taken.

Foreigners are limited to ownership of two residences in Egypt and specific procedures are required for purchasing real estate in certain geographical areas.

The mortgage market is still undeveloped in Egypt, and in practice most purchases are still conducted in cash.  Real Estate Finance Law 148//2001 authorized both banks and non-bank mortgage companies to issue mortgages. The law provides procedures for foreclosure on property of defaulting debtors, and amendments passed in 2004 allow for the issuance of mortgage-backed securities.  According to the regulations, banks can offer financing in foreign currency of up to 80 percent of the value of a property.

Presidential Decree 17//2015 permitted the government to provide land free of charge, in certain regions only, to investors meeting certain technical and financial requirements.  This provision expires on April 1, 2020 and the company must provide cash collateral for five years following commencement of either production (for industrial projects) or operation (for all other projects).

The ownership of land by foreigners is governed by three laws: Law 15//1963, Law 143//1981, and Law 230//1996.  Law 15//1963 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land.  Law 143//1981 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, cooperatives, partnerships and corporations.  Partnerships are permitted to own up to 10,000 feddans. Joint stock companies are permitted to own up to 50,000 feddans.

Partnerships and joint stock companies may own desert land within these limits, even if foreign partners or shareholders are involved, provided that at least 51 percent of the capital is owned by Egyptians.  Upon liquidation of the company, however, the land must revert to Egyptian ownership. Law 143 defines desert land as the land lying two kilometers outside city borders. Furthermore, non-Egyptians owning non-improved real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public.  Non-Egyptians may only sell their real estate five years after registration of ownership, unless the consent of the Prime Minister for an exemption is obtained.

Intellectual Property Rights

Egypt remains on the Special 301 Watch List in 2020.  Egypt’s IPR legislation generally meets international standards, and the government has made progress enforcing those laws, reducing patent application backlogs, and in 2019 shut down a number of online illegal streaming websites.  It has also made progress establishing protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products.  Stakeholders note continued challenges with widespread counterfeiting and piracy, biotechnology patentability criteria, patent and trademark examination criteria, and pharmaceutical-related IP issues.

Multinational pharmaceutical companies complain that local generic drug-producing companies infringe on their patents.  Delays and inefficiencies in processing patent applications by the Egyptian Patent Office compound the difficulties pharmaceutical companies face in introducing new drugs to the local market.  The government views patent linkage as “a legal violation” against the concept of separation of authorities between institutions such as the Egyptian Drug Authority, the Ministry of Health, and the Egyptian Patent Office. As a result, permits for the sale of pharmaceuticals are generally issued without first cross-checking patent filings.

Decree 251/2020, issued in January, 2020, established a ministerial committee to address compulsory patent licensing.  According to Egypt’s 2002 IPR Law, which allows for compulsory patent licenses in some cases, the committee will have the power to issue compulsory patent licenses according to a number of criteria set forth in the law; to determine financial renumeration for the original patent owners; and to approve the expropriation of the patents.

Book, music, and entertainment software piracy is prevalent in Egypt, and a significant portion of the piracy takes place online.  American film studios represented by the Motion Pictures Association of America are concerned about the illegal distribution of American movies on regional satellite channels.

Eight GoE ministries have the responsibility to oversee IPR concerns: Supply and Internal Trade for trademarks, Higher Education and Research for patents, Culture for copyrights, Agriculture for plants, Communications and Information Technology for copyright of computer programs, Interior for combatting IPR violations, Customs for border enforcement, and Trade and Industry for standards and technical regulations.  Article 69 of Egypt’s 2014 Constitution mandates the establishment of a “specialized agency to uphold [IPR] rights and their legal protection.” A National Committee on IPR was established to address IPR matters until a permanent body is established. All IPR stakeholders are represented in the committee, and members meet every two months to discuss issues. The National Committee on IPR is chaired by the Ministry of Foreign Affairs and reports directly to the Prime Minister.

The Egyptian Customs Authority (ECA) handles IPR enforcement at the national border and the Ministry of Interior’s Department of Investigation handles domestic cases of illegal production. The ECA cannot act unless the trademark owner files a complaint.  Moreover, Egypt’s Economic Courts often take years to reach a decision on IPR infringement cases.

ECA’s customs enforcement also tends to focus on protecting Egyptian goods and trademarks. The ECA is taking steps to adopt the World Customs Organization’s (WCO) Interface Public-Members platform, which allows customs officers to detect counterfeit goods by scanning a product’s barcode and checking the WCO trademark database system.

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

IPR Contact at Embassy Cairo:
Christopher Leslie
Trade & Investment Officer
20-2-2797-2735
LeslieCG@state.gov

Capital Markets and Portfolio Investment

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

The Egyptian Stock Exchange (EGX) is Egypt’s registered securities exchange.  About 246 companies were listed on the EGX, including Nilex, as of April 2020.  There were more than 500,000 investors registered to trade on the exchange in 2019 as the Egyptian market attracted 32,000 new investors.  Stock ownership is open to foreign and domestic individuals and entities.  The Government of Egypt issues dollar-denominated and Egyptian pound-denominated debt instruments.  Ownership is open to foreign and domestic individuals and entities.  The government has developed a positive outlook toward foreign portfolio investment, recognizing the need to attract foreign capital to help develop the Egyptian economy.  During 2019 foreign investors’ percentage of total transactions on the EGX reached 33 percent versus Egyptian investors’ percentage of 67 percent.

The Capital Market Law 95/1992, along with the Banking Law 88/2003, constitutes the primary regulatory frameworks for the financial sector. The law grants foreigners full access to capital markets, and authorizes establishment of Egyptian and foreign companies to provide underwriting of subscriptions, brokerage services, securities and mutual funds management, clearance and settlement of security transactions, and venture capital activities. The law specifies mechanisms for arbitration and legal dispute resolution and prohibits unfair market practices.  Law 10//2009 created the Egyptian Financial Supervisory Authority (EFSA) and brought the regulation of all non-banking financial services under its authority.  In 2017, EFSA became the Financial Regulatory Authority (FRA).

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

The Higher Investment Council extended the suspension of capital gains tax for three years, until 2020 as part of efforts to draw investors back. In March 2017, the government announced plans to impose a stamp duty on all stock transactions with a duty of 0.125 percent on all buyers and sellers starting in May 2017, followed by an increase to 0.150 percent in the second year and 0.175 percent thereafter. Egypt’s provisional stamp duty on stock exchange transactions includes for the first time a 0.3 percent levy for investors acquiring more than a third of a company’s stocks. I n May 2019 the government decided to keep the stamp duty at 0.15% without further increase, then in March 2020 the government decided to reduce the stamp tax to 0.125% for non-residents and to 0.05% for non-residents and to push back the introduction of the capital gain tax till January 2022.  Foreign investors will be exempted from the tax.

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

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

Money and Banking System

Benefitting from the nation’s increasing economic stability over the past two years, Egypt’s banks have enjoyed both ratings upgrades and continued profitability.  Thanks to economic reforms, a new floating exchange system, and a new Investment Law passed in 2017, the project finance pipeline is increasing after a period of lower activity.  Banking competition is improving to serve a largely untapped retail segment and the nation’s challenging, but potentially rewarding, small and medium-sized enterprise (SME) segment.  The Central Bank of Egypt (CBE) has mandated that 20 percent of bank loans go to SMEs within the next three years (four years from 2016).  In December 2019, the Central Bank launched a 100 billion initiative to spur domestic manufacturing through subsidized loans.  Also, with only about a quarter of Egypt’s adult population owning or sharing an account at a formal financial institution (according press and comments from contacts), the banking sector has potential for growth and higher inclusion, which the government and banks discuss frequently.  A low median income plays a part in modest banking penetration.   But the CBE has taken steps to work with banks and technology companies to expand financial inclusion.  The employees of the government, one of the largest employers, must now have bank accounts because salary payment is through direct deposit.

Egypt’s banking sector is generally regarded as healthy and well-capitalized, due in part to its deposit-based funding structure and ample liquidity, especially since the floatation and restoration of the interbank market.  The CBE declared that 4.1 percent of the banking sector’s loans were non-performing in June 2020.  However, since 2011, a high level of exposure to government debt, accounting for over 40 percent of banking system assets, at the expense of private sector lending, has reduced the diversity of bank balance sheets and crowded out domestic investment.  Given the floatation of the Egyptian Pound and restart of the interbank trading system, Moody’s and S&P have upgraded the outlook of Egypt’s banking system to stable from negative to reflect improving macroeconomic conditions and ongoing commitment to reform.  In April 2019 Moody’s upgraded Egypt’s government issuer rating to B2 with stable outlook from B3 positive and affirmed this rating in April 2020 while also changing Egypt’s Macro Profile to “weak-” from “very weak”.

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

According to the CBE, banks operating in Egypt held nearly EGP 6 trillion ($379 billion) in total assets as of February 2020, with the five largest banks holding EGP 3.9 trillion ($247 billion) at the end of 2019.  Egypt’s three state-owned banks (Banque Misr, Banque du Caire, and National Bank of Egypt) control nearly 40 percent of banking sector assets.

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

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

Foreign Exchange and Remittances

Foreign Exchange

There had been significant progress in accessing hard currency since the floatation of the Pound and re-establishment of the interbank currency trading system in November 2016.  While the immediate aftermath saw some lingering difficulty of accessing currency, as of 2017 most businesses operating in Egypt reported having little difficulty obtaining hard currency for business purposes, such as importing inputs and repatriating profits.   In 2016 the Central Bank lifted dollar deposit limits on households and firms importing priority goods which had been in place since early 2015.  Into 2016, businesses, including foreign-owned firms, which were not operating in priority sectors, encountered difficulty accessing currency, including importers.  But 2017 has seen an elimination of the backlog for demand for foreign currency.  With net foreign reserves of $37 billion as of April 2020, Egypt’s foreign reserves appeared to be well capitalized.

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

The stabilized exchange rate operates on the principle of market supply and demand: the exchange rate is dictated by availability of currency and demand by firms and individuals.  While there is some reported informal Central Bank window guidance, the rate generally fluctuates depending on market conditions, without direct market intervention by authorities.  In general, the EGP has stabilized within an acceptable exchange rate range, which has increased the foreign exchange market’s liquidity.  Since the early days following the floatation, there has been very low exchange rate volatility.

Remittance Policies

The 1992 U.S.-Egypt Bilateral Investment Treaty provides for free transfer of dividends, royalties, compensation for expropriation, payments arising out of an investment dispute, contract payments, and proceeds from sales.  Prior to reform implementation throughout 2016 and 2017, large corporations had been unable to repatriate local earnings for months at a time, but given the current record net foreign reserves, repatriation is no longer an issue that companies complain about.

The Investment Incentives Law stipulates that non-Egyptian employees hired by projects established under the law are entitled to transfer their earnings abroad.  Conversion and transfer of royalty payments are permitted when a patent, trademark, or other licensing agreement has been approved under the Investment Incentives Law.

Banking Law 88//2003 regulates the repatriation of profits and capital.  The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock exchange transactions.  The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit repatriation transactions using the bank’s posted daily exchange rates.  The system is designed to allow for settlement of transactions in fewer than two days, though in practice some firms have reported short delays in repatriating profits, no longer due to availability but more due to processing steps.

Sovereign Wealth Funds

Egypt’s sovereign wealth fund (SWF), approved by the Cabinet and launched in late 2018, holds 200 billion EGP ($12.7 billion) in authorized capital.  The SWF aims to invest state funds locally and abroad across asset classes and manage underutilized government assets.  The SWF focuses on sectors considered vital to the Egyptian economy, particularly industry, energy, and tourism. The SWF participates in the International Forum of Sovereign Wealth Funds.  The government is currently in talks with regional and European institutions to take part in forming the fund’s sector-specific units.

State and military-owned companies compete directly with private companies in many sectors of the Egyptian economy. According to Public Sector Law 203/1991, state-owned enterprises should not receive preferential treatment from the government, nor should they be accorded any exemption from legal requirements applicable to private companies.  In addition to the state-owned enterprises groups above, 40 percent of the banking sector’s assets are controlled by three state-owned banks (Banque Misr, Banque du Caire, and National Bank of Egypt).   The 226 SOEs in Egypt subject to Law 203/1991 are affiliated with 10 ministries and employ 450,000 workers. The Ministry of Public Sector Enterprises controls 118 companies operating under eight holding companies that employ 209,000 workers.  The most profitable sectors include tourism, real estate, and transportation.  The ministry publishes a list of its SOEs on its website, http://www.mpbs.gov.eg/Arabic/Affiliates/HoldingCompanies/Pages/default.aspx  and http://www.mpbs.gov.eg/Arabic/Affiliates/AffiliateCompanies/Pages/default.aspx .

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

The state-owned telephone company, Telecom Egypt, lost its legal monopoly on the local, long-distance, and international telecommunication sectors in 2005.  Nevertheless, Telecom Egypt held a de facto monopoly until late 2016 because the National Telecommunications Regulatory Authority (NTRA) had not issued additional licenses to compete in these sectors.  In October 2016, NTRA, however, implemented a unified license regime that allows companies to offer both fixed line and mobile networks.  The agreement allows Telecom Egypt to enter the mobile market and the three existing mobile companies to enter the fixed line market.  The introduction of Telecom Egypt as a new mobile operator in the Egyptian market will increase competition among operators, which will benefit users by raising the bar on quality of services as well as improving prices.  Egypt is not a party to the World Trade Organization’s Government Procurement Agreement.

OECD Guidelines on Corporate Governance of SOEs 

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

Privatization Program

The Egyptian government’s most recent plans to privatize stakes in SOEs began in March 2018 with the successful public offering of a minority stake in the Eastern Tobacco Company.  Since then plans for privatizing stakes in 22 other SOEs, including up to 30 percent of the shares of Banque du Caire, have been delayed due to adverse market conditions and increased global volatility.  Egypt’s privatization program is based on Public Enterprise Law 203//1991, which permits the sale of SOEs to foreign entities.  In 1991, Egypt began a privatization program for the sale of several hundred wholly or partially SOEs and all public shares of at least 660 joint venture companies (joint venture is defined as mixed state and private ownership, whether foreign or domestic).  Bidding criteria for privatizations were generally clear and transparent.

In 2014, President Sisi signed a law limiting appeal rights on state-concluded contracts to reduce third-party challenges to prior government privatization deals.  The law was intended to reassure investors concerned by legal challenges brought against privatization deals and land sales dating back to the pre-2008 period.  Ongoing court cases had put many of these now-private firms, many of which are foreign-owned, in legal limbo over concerns that they may be returned to state ownership.  In early 2018, the Egyptian government announced that it would begin selling off stakes in some of its state-owned enterprises over the next few years through Egypt’s stock exchange.

Responsible Business Conduct (RBC) programs have grown in popularity in Egypt over the last ten years.   Most programs are limited to multinational and larger domestic companies as well as the banking sector and take the form of funding and sponsorship for initiatives supporting entrepreneurship and education and other social activities.  Environmental and technology programs are also garnering greater participation.  The Ministry of Trade has engaged constructively with corporations promoting RBC programs, supporting corporate social responsibility conferences and providing Cabinet-level representation as a sign of support to businesses promoting RBC programming.

A number of organizations and corporations work to foster the development of RBC in Egypt.  The American Chamber of Commerce has an active corporate social responsibility committee.  Several U.S. pharmaceutical companies are actively engaged in RBC programs related to Egypt’s hepatitis-C epidemic.  The Egyptian Corporate Responsibility Center, which is the UN Global Compact local network focal point in Egypt, aims to empower businesses to develop sustainable business models as well as improve the national capacity to design, apply, and monitor sustainable responsible business conduct policies.  In March 2010, Egypt launched an environmental, social, and governance (ESG) index, the second of its kind in the world after India’s, with training and technical assistance from Standard and Poor’s.  Egypt does not participate in the Extractive Industries Transparency Initiative.  Public information about Egypt’s extractive industry remains limited to the government’s annual budget.

Egypt has a set of laws to combat corruption by public officials, including an Anti-Bribery Law (which is contained within the Penal Code), an Illicit Gains Law, and a Governmental Accounting Law, among others. Countering corruption remains a long-term focus.  There have been cases involving public figures and entities, including the arrests of Alexandria’s deputy governor and the secretary general of Suez on several corruption charges and the investigation into five members of parliament alleged to have sold Hajj visas.  However, corruption laws have not been consistently enforced.  Transparency International’s Corruption Perceptions Index ranked Egypt 117 out of 180 in its 2017 survey, a drop of 9 places from its rank of 108 in 2016.  Transparency International also found that approximately 50 percent of Egyptians reported paying a bribe in order to obtain a public service.

Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.  There is no government requirement for private companies to establish internal codes of conduct to prohibit bribery.

Egypt ratified the United Nations Convention against Corruption in February 2005.  It has not acceded to the OECD Convention on Combating Bribery or any other regional anti-corruption conventions.

While NGOs are active in encouraging anti-corruption activities, dialogue between the government and civil society on this issue is almost non-existent, the OECD found in 2009 and a trend that continues today.  While government officials publicly asserted they shared civil society organizations’ goals, they rarely cooperated with NGOs, and applied relevant laws in a highly restrictive manner against NGOs critical of government practices.  Media was also limited in its ability to report on corruption, with Article 188 of the Penal Code mandating heavy fines and penalties for unsubstantiated corruption allegations.

U.S. firms have identified corruption as an obstacle to FDI in Egypt.  Companies might encounter corruption in the public sector in the form of requests for bribes, using bribes to facilitate required government approvals or licenses, embezzlement, and tampering with official documents.  Corruption and bribery are reported in dealing with public services, customs (import license and import duties), public utilities (water and electrical connection), construction permits, and procurement, as well as in the private sector.  Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.

Resources to Report Corruption

Several agencies within the Egyptian government share responsibility for addressing corruption.   Egypt’s primary anticorruption body is the Administrative Control Authority (ACA), which has jurisdiction over state administrative bodies, state-owned enterprises, public associations and institutions, private companies undertaking public work, and organizations to which the state contributes in any form.  In October 2017, Parliament approved and passed amendments to the ACA law, which grants the organization full technical, financial, and administrative authority to investigate corruption within the public sector (with the exception of military personnel/entities).  The law is viewed as strengthening an institution which was established in 1964.  The ACA appears well funded and well trained when compared with other Egyptian law enforcement organizations.  Strong funding and the current ACA leadership’s close relationship with President Sisi reflect the importance of this organization and its mission.  It is too small for its mission (roughly 300 agents) and is routinely over-tasked with work that would not normally be conducted by a law enforcement agency.

The ACA periodically engages with civil society.  For example, it has met with the American Chamber of Commerce and other organizations to encourage them to seek it out when corruption issues arise.

In addition to the ACA, the Central Auditing Authority (CAA) acts as an anti-corruption body, stationing monitors at state-owned companies to report corrupt practices.  The Ministry of Justice’s Illicit Gains Authority is charged with referring cases in which public officials have used their office for private gain.  The Public Prosecution Office’s Public Funds Prosecution Department and the Ministry of Interior’s Public Funds Investigations Office likewise share responsibility for addressing corruption in public expenditures.

Resources to Report Corruption

Minister of Interior
General Directorate of Investigation of Public Funds
Telephone: 02-2792-1395 / 02-2792 1396
Fax: 02-2792-2389

Stability and economic development remain Egypt’s priorities.  The Egyptian government has taken measures to eliminate politically motivated violence while also limiting peaceful protests and political expression.  Political protests are rare, with the last known demonstrations occurring on September 20, 2019.  Egypt’s presidential elections in March 2018 and senatorial elections in August 2020 proceeded without incident.  A number of small-scale terrorist attacks against security and civilian targets in Cairo and elsewhere in the Nile Valley occurred in 2019.  An attack against a tourist bus in May 2019 injured over a dozen people, and a car bombing outside the National Cancer Institute in Cairo in August 2019 killed 22 people.  Militant groups also committed attacks in the Western Desert and Sinai.  The government has been conducting a comprehensive counterterrorism offensive in the Sinai since early 2018 in response to terrorist attacks against military installations and personnel by ISIS-affiliated militant groups.  In February 2020, ISIS-affiliated militants claimed responsibility for an attack against a domestic gas pipeline in the northern Sinai.  Although the group claimed that the attack targeted the recently-opened natural gas pipeline connecting Egypt and Israel, the pipeline itself was undamaged and the flow of natural gas was not interrupted.

Official statistics put Egypt’s labor force at approximately 29 million, with an official unemployment rate of 9.6 percent as of July 2020.  Prior to the onset of the novel coronavirus pandemic, Egypt’s official unemployment rate had been steadily decreasing, reaching a low of 7.5 percent in July 2019.  Women accounted for 25 percent of those unemployed as of May 2020, according to statistics from Egypt’s Central Agency for Public Mobilization and Statistics (CAPMAS).  Accurate figures are difficult to determine and verify given Egypt’s large informal economy in which some 62 percent of the non-agricultural workforce is engaged, according to ILO estimates.

The government bureaucracy and public sector enterprises are substantially over-staffed compared to the private sector and other international norms.  According to the World Bank, Egypt has the highest number of government workers per capita in the world.  Businesses highlight a mismatch between labor skills and market demand, despite high numbers of university graduates in a variety of fields.  Foreign companies frequently pay internationally competitive salaries to attract workers with valuable skills.

The Unified Labor Law 12//2003 provides comprehensive guidelines on labor relations, including hiring, working hours, termination of employees, training, health, and safety.  The law grants a qualified right for employees to strike, as well as rules and guidelines governing mediation, arbitration, and collective bargaining between employees and employers.   Non-discrimination clauses are included, and the law complies with labor-related International Labor Organization (ILO) conventions regulating the employment and training of women and eligible children. Egypt ratified ILO Convention 182 on combating the Worst Forms of Child Labor in April 2002. On July 2018, Egypt launched the first National Action Plan on combating the Worst Forms of Child Labor. The law also created a national committee to formulate general labor policies and the National Council of Wages, whose mandate is to discuss wage-related issues and national minimum-wage policy, but it has rarely convened and a minimum wage has rarely been enforced in the private sector. .

Parliament adopted a new Trade Unions Law in late 2017, replacing a 1976 law, which experts said was out of compliance with Egypt’s commitments to ILO conventions.  After a March 2016 Ministry of Manpower and Migration (MOMM) directive not to recognize documentation from any trade union without a stamp from the government-affiliated Egyptian Trade Union Federation (ETUF), the new law established procedures for registering independent trade unions, but some of the unions noted that the directorates of the Ministry of Manpower didn’t implement the law and placed restrictions on freedoms of association and organizing for trade union elections.  Executive regulations for trade union elections stipulate a very tight deadline of three months for trade union organizations to legalize their status, and one month to hold elections, which, critics said, restricted the ability of unions to legalize their status or to campaign.  On April 3, 2018, the government registered its first independent trade union in more than two years.

In July 2019 the Egyptian Parliament passed a series of amendments to the Trade Unions Law that reduced the minimum membership required to form a trade union and abolished prison sentences for violations of the law.  The amendments reduced the minimum number of workers required to form a trade union committee from 150 to 50, the number of trade union committees to form a general union from 15 to 10 committees, and the number of workers in a general union from 20,000 to 15,000.  The amendments also decreased the number of unions necessary to establish a trade union federation from 10 to 7 and the number of workers in a trade union from 200,000 to 150,000.  Under the new law, a trade union or workers’ committee may be formed if 150 employees in an entity express a desire to organize.

Based on the new amendments to the Trade Unions Law and a request from the Egyptian government for assistance implementing them and meeting international labor standards, the International Labor Organization’s and International Finance Corporation’s joint Better Work Program launched in Egypt in March 2020.

The Trade Unions law explicitly bans compulsory membership or the collection of union dues without written consent of the worker and allows members to quit unions.  Each union, general union, or federation is registered as an independent legal entity, thereby enabling any such entity to exit any higher-level entity.

The 2014 Constitution stipulated in Article 76 that “establishing unions and federations is a right that is guaranteed by the law.”  Only courts are allowed to dissolve unions.  The 2014 Constitution maintained past practice in stipulating that “one syndicate is allowed per profession.”   The Egyptian constitutional legislation differentiates between white-collar syndicates (e.g. doctors, lawyers, journalists) and blue-collar workers (e.g. transportation, food, mining workers).  Workers in Egypt have the right to strike peacefully, but strikers are legally obliged to notify the employer and concerned administrative officials of the reasons and time frame of the strike 10 days in advance.  In addition, strike actions are not permitted to take place outside the property of businesses.  The law prohibits strikes in strategic or vital establishments in which the interruption of work could result in disturbing national security or basic services provided to citizens.  In practice, however, workers strike in all sectors, without following these procedures, but at risk of prosecution by the government.

Collective negotiation is allowed between trade union organizations and private sector employers or their organizations.  Agreements reached through negotiations are recorded in collective agreements regulated by the Unified Labor law and usually registered at MOMM.  Collective bargaining is technically not permitted in the public sector, though it exists in practice.  The government often intervenes to limit or manage collective bargaining negotiations in all sectors.

MOMM sets worker health and safety standards, which also apply in public and private free zones and the Special Economic Zones (see below).  Enforcement and inspection, however, are uneven.  The Unified Labor Law prohibits employers from maintaining hazardous working conditions, and workers have the right to remove themselves from hazardous conditions without risking loss of employment.

Egyptian labor laws allow employers to close or downsize operations for economic reasons.  The government, however, has taken steps to halt downsizing in specific cases.  The Unemployment Insurance Law, also known as the Emergency Subsidy Fund Law 156//2002, sets a fund to compensate employees whose wages are suspended due to partial or complete closure of their firm or due to its downsizing.  The Fund allocates financial resources that will come from a 1 percent deduction from the base salaries of public and private sector employees.  According to foreign investors, certain aspects of Egypt’s labor laws and policies are significant business impediments, particularly the difficulty of dismissing employees.  To overcome these difficulties, companies often hire workers on temporary contracts; some employees remain on a series of one-year contracts for more than 10 years.  Employers sometimes also require applicants to sign a “Form 6,” an undated voluntary resignation form which the employer can use at any time, as a condition of their employment. Negotiations on drafting a new Labor Law, which has been under consideration in the Parliament for two years, have included discussion of requiring employers to offer permanent employee status after a certain number of years with the company and declaring Form 6 or any letter of resignation null and void if signed prior to the date of termination.

Egypt has a dispute resolution mechanism for workers.  If a dispute concerning work conditions, terms, or employment provisions arises, both the employer and the worker have the right to ask the competent administrative authorities to initiate informal negotiations to settle the dispute. This right can be exercised only within seven days of the beginning of the dispute. If a solution is not found within 10 days from the time administrative authorities were requested, both the employer and the worker can resort to a judicial committee within 45 days of the dispute.  This committee is comprised of two judges, a representative of MOMM and representatives from the trade union, and one of the employers’ associations.  The decision of this committee is provided within 60 days. If the decision of the judicial committee concerns discharging a permanent employee, the sentence is delivered within 15 days.  When the committee decides against an employer’s decision to fire, the employer must reintegrate the latter in his/her job and pay all due salaries.  If the employer does not respect the sentence, the employee is entitled to receive compensation for unlawful dismissal.

Labor Law 12//2003 sought to make it easier to terminate an employment contract in the event of “difficult economic conditions.”  The Law allows an employer to close his establishment totally or partially or to reduce its size of activity for economic reasons, following approval from a committee designated by the Prime Minister.  In addition, the employer must pay former employees a sum equal to one month of the employee’s total salary for each of his first five years of service and one and a half months of salary for each year of service over and above the first five years.  Workers who have been dismissed have the right to appeal.  Workers in the public sector enjoy lifelong job security as contracts cannot be terminated in this fashion; however, government salaries have eroded as inflation has outpaced increases.

Egypt has regulations restricting access for foreigners to Egyptian worker visas, though application of these provisions has been inconsistent.  The government plans to phase out visas for unskilled workers, but as yet has not done so. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period.  Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. Application of these regulations is inconsistent.

The U.S. International Development Finance Corporation (DFC) is operating in Egypt to provide the capital and risk mitigation tools that investors need to overcome the barriers faced in this region. In 2012, DFC’s predecessor, the Overseas Private Investment Corporation (OPIC), launched the USD 250 million Egypt Loan Guaranty Facility (ELGF), in partnership with USAID, to support bank lending and stimulate job creation.  The ELGF’s main objective is to help SMEs access finance for growth and development, by providing creditors the needed guarantees to help them mitigate loan risks.  This objective goes hand-in-hand with the Central Bank of Egypt’s initiative to support SMEs.  The ELGF expands lending to SMEs by supporting local partner banks as they lend to the target segment and increase access to credit for SMEs.  The result is the promotion of jobs and private sector development in Egypt.  The ELGF and partner banks sign a Guarantee Facility Agreement (GFA) to outline main terms and conditions of credit guarantee.  The two bank partners are Commercial International Bank (CIB) and the National Bank of Kuwait (NBK).  USAID has collaborated with OPIC/ELGF and the CIB to provide training to SME owners and managers on the basics of accounting and finance, banking and loan processes, business registration, and other topics that will help SMEs access financing for business growth.

As of March, 2020, the DFC’s financing tools provide $1.25 billion in financial and insurance support to 12 renewable energy, oil and gas, water supply, and health sector projects in Egypt in addition to the ELGF.  Apache Corporation, the largest U.S. investor in Egypt, has supported its natural gas investment with OPIC and DFC risk insurance since 2004.  In December 2018, the OPIC Board approved a project to provide $430 million in political risk insurance to Noble Energy, Inc. to support the restoration, operation, and maintenance of a natural gas pipeline in Egypt and the supply of natural gas through a pipeline from Israel.  In June 2019, OPIC’s Board approved an $87 million loan guarantee for the development, construction, and operation of the 252 megawatt Lekela Egypt Wind Power project.

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

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

Chris Leslie, Economic Officer, U.S. Embassy Cairo
02-2797-2735
LeslieCG@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. The government’s export promotion programs do not distinguish between goods produced by local or foreign-owned firms. The major regulations governing 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. In November 2019, KenInvest launched the Kenya Investment Policy (KIP) and the County Investment Handbook (CIH) (http://www.invest.go.ke/publications/) which aim to increase foreign direct investment in the country. The investment policy intends to guide laws being drafted to promote and facilitate investments in Kenya.

The Central Bank has successfully maintained macroeconomic stability with relatively low inflation and stable exchange rates. The National Treasury is increasingly focused on efforts to ensure prudent debt management. Kenya puts significant effort into assuring the health and growth of its tourism industry. To strengthen Kenya’s manufacturing capacity, the government offers incentives to produce goods for export.

Investment Promotion Agency

Kenya Investment Authority (KenInvest), the country’s official investment promotion agency, is viewed favorably by international investors (http://www.invest.go.ke/). 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 to facilitate smoother operations. To help investors navigate local regulations, KenInvest has developed an online database known as eRegulations, designed to provide investors and entrepreneurs with full transparency on Kenya’s investment-related regulations and procedures (https://eregulations.invest.go.ke/?l=en ).

KenInvest is part of the National Business and Economic Response of the GOK and has been instrumental in assessing and relaying information about the private sector effects of Covid-19 to inform policy measures during the pandemic. The agency is also tracking post-Covid-19 investment sectors.

The GOK prioritizes investment retention and maintains an ongoing dialogue with investors. All proposed legislation 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, the Kenya Private Sector Alliance (KEPSA), the apex private sector business association, has had bi-annual round table meetings with President Kenyatta and his cabinet. Investors’ concerns are considered by a Cabinet committee on the ease of doing business, chaired by President Kenyatta. The American Chamber of Commerce has also taken an increasingly active role in engaging the GOK on Kenya’s business environment, often providing a forum for dialogue.

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 in 2015 repealed regulations that imposed a 75 percent foreign ownership limitation for firms listed on the Nairobi Securities Exchange, allowing such firms to be 100 percent foreign-owned. Also in 2015, the government established regulations requiring Kenyans own at least 15 percent of the share capital of derivatives exchanges, through which derivatives such as options and futures can be traded.

Kenya considered imposing “local content” requirements on foreign investments under the Companies Act (2015), which initially contained language requiring all foreign companies to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth. United States business associations, however, raised concerns over the bill, pointing to its lack of clarity and the possibility such measures could run afoul of Kenya’s commitments under the WTO. After the U.S. government also raised the issue with the Kenyan government, the clause was repealed.

Kenya’s National Information and Communications Technology (ICT) policy guidelines, published in August 2020, increase the requirement for Kenyan ownership in foreign companies providing ICT services from 20% to 30%, and broadens its applicability within the telecommunications, postal, courier, and broadcasting industries. The foreign entities will have 3 years to comply with the increased local equity participation rule. The Mining Act (2016) restricts foreign participation in the mining sector and reserves the acquisition of mineral rights to Kenyan companies, requiring 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 remain 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

In 2019, the World Trade Organization conducted a trade policy review for the East Africa Community (EAC), of which Kenya is a member (https://www.wto.org/english/tratop_e/tpr_e/tp484_e.htm).

Business Facilitation

In 2011, the GOK established a state agency called KenTrade to address trading partners’ concerns regarding the complexity of trading regulations and procedures. KenTrade is mandated to facilitate cross-border trade and to implement the National Electronic Single Window System. In 2017, KenTrade launched InfoTrade Kenya, located at infotrade.gov.ke, which provides a host of investment products and services to prospective investors in Kenya. The site documents the process of exporting and importing by product, by steps, by paperwork, and by individuals, including contact information for officials’ responsible relevant permits or approvals.

In February 2019, Kenya implemented a new Integrated Customs Management System (iCMS) which includes automated valuation benchmarking, automated release of green-channel cargo, importer validation and declaration, and linkage with iTax. The iCMS features enable Customs to efficiently manage revenue and security related risks for imports, exports and goods on transit and transshipment.

The Movable Property Security Rights Bill (2017) enhanced the ability of individuals to secure financing through movable assets, including using intellectual property rights as collateral. The Nairobi International Financial Centre Act (2017) seeks to provide a legal framework to facilitate and support the development of an efficient and competitive financial services sector in Kenya. The act created the Nairobi Financial Centre Authority to establish and maintain an efficient operating framework to attract and retain firms. The Kenya Trade Remedies Act (2017) provides the legal and institutional framework for Kenya’s application of trade remedies consistent with World Trade Organization (WTO) law, which requires a domestic institution to both receive complaints and undertake investigations in line with the WTO Agreements. To date, however, Kenya has implemented only 7.5 percent of its commitments under the WTO Trade Facilitation Agreement, which it ratified in 2015. In 2020, Kenya launched the Kenya Trade Remedies Agency for the investigation and imposition of anti-dumping, countervailing duty, and trade safeguards, to protect domestic industries from unfair trade practices.

The Companies Amendment Act (2017) amended the prior Companies Act clarifying ambiguities in the act and conforms to global trends and best practices. The act amends provisions on the extent of directors’ liabilities, on the extent of directors’ disclosures, and on shareholder remedies to better protect investors, including minority investors. The amended act eliminates the requirement for small enterprises to have lawyers register their firms, the requirement for company secretaries for small businesses, and the need for small businesses to hold annual general meetings, saving regulatory compliance and operational costs.

The Business Registration Services (BRS) Act (2015) established 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) covers the registration and management of both public and private corporations.

In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country. The unit focuses on reducing the bureaucratic steps related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a website (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. In 2013, the GOK initiated the Access to Government Procurement Opportunities program, requiring all public procurement entities to set aside a minimum of 30 percent of their annual procurement spending facilitate the participation of youth, women, and persons with disabilities (https://agpo.go.ke/ ).

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. Outward investment has been focused in the East Africa Community and select central African countries, taking advantage of the EAC preferential access between the EAC member countries. The EAC advocates for free movement of capital across the six member states – Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.

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.

The 2010 Kenyan Constitution requires government to incorporate public participation before officials and agencies make certain decisions. The draft Public Participation Bill (2016) would provide the general framework for such public participation. The Ministry of Devolution has produced a guide for counties on how to carry out public participation; many counties have enacted their own laws on public participation. The Environmental Management and Coordination Act (1999) incorporates the principles of sustainable development, including public participation in environmental management. The Public Finance Management Act mandates public participation in the budget cycle. The Land Act, Water Act, and Fair Administrative Action Act (2015) also include provisions providing for public participation in agency actions.

Kenya has regulations to promote inclusion and fair competition when applying for tenders. Executive Order No. 2 of 2018 emphasizes publication of all procurement information including tender notices, contracts awarded, name of suppliers and their directors. The information is published on the Public Procurement Information Portal enhances transparency and accountability (https://www.tenders.go.ke/website). However, the directive is yet to be fully implemented.

Many GOK laws grant significant discretionary and approval powers to government agency administrators, which can create uncertainty among investors. While some government agencies have amended laws or published clear guidelines for decision-making criteria, others have lagged in making their transactions transparent. Work permit processing remains a problem, with overlapping and sometimes contradictory regulations. American companies have complained about delays and non-issuance of permits that appear compliant with known regulations.

International Regulatory Considerations

Kenya is a member state of the East African Community (EAC), and generally applies EAC policies to trade and investment. Kenya operates under the EAC Custom Union Act (2004) and decisions on the tariffs to levy on imports from countries outside the EAC zone are made at the EAC Secretariat level. The U.S. government engages with Kenya on trade and investment issues bilaterally and through the U.S.-EAC Trade and Investment Partnership. Kenya also is a member of COMESA and the Inter-Governmental Authority on Development (IGAD).

According to the Africa Regional Integration Index Report 2019, Kenya is the second best integrated country in Africa and a leader in regional integration policies within the EAC and COMESA 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 East Africa and Regional Development. 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 WTO participation 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, Court of Appeal, Constitutional Court, and High Court. Subordinate courts include: Magistrates, Khadis (Muslim succession and inheritance), Courts Martial, the Employment and Labor Relations Court (formerly the Industrial Court), and the Milimani Commercial Courts – the latter two of which both have jurisdiction over economic and commercial matters. In 2016, Kenya’s judiciary instituted specialized courts focused on corruption and economic crimes. There is no systematic executive or other interference in the court system that affects foreign investors, however, the courts face allegations of corruption, as well as political manipulation in the form of unjustified budget cuts which significantly impact the ability of the judiciary to deliver on its mandate and delayed confirmation of nominated Judges by the President resulting in an understaffed judiciary and long delays in rendering judgments.

Laws and Regulations on Foreign Direct Investment

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 may practice as an advocate in Kenya for the purposes of a specified suit or matter if appointed to do so by the Attorney General. However, foreign advocates are not entitled to practice in Kenya unless they have paid to the Registrar of the High Court of Kenya the prescribed admission fee. Additionally, they are not entitled to practice unless a Kenyan advocate instructs and accompanies them to court. The regulations or enforcement actions are appealable and are adjudicated in the national court system.

Competition and Anti-Trust Laws

Kenya does not have a competition or Anti-Trust policy, however the Competition Act (2010) created the Competition Authority of Kenya (CAK) which covers restrictive trade practices, mergers and takeovers, unwarranted concentrations, and price control. 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 Kenyan shillings (KSH) (approximately USD 10,000) for mergers involving turnover of between one and KSH 50 billion (up to approximately USD 500 million). KSH two million (approximately USD 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 protection from expropriation, except in cases of eminent domain or security concerns, and all cases are subject to the payment of prompt and fair compensation. The Land Acquisition Act (2010) governs due process and compensation in land acquisition, although land rights remain contentious and can cause significant project delays. However, there are cases where government measures could be deemed indirect expropriation that may impact foreign investment. Companies report an emerging trend in land lease renewal where foreign investors face uncertainty in lease renewals by county governments in instances where the county wants to confiscate some or all of the foreign investor’s project property.

Dispute Settlement

ICSID Convention and New York Convention

Kenya is a member of the International Centre for Settlement of Investment Disputes, also known as the ICSID Convention or the Washington Convention, and the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards. International companies may opt to seek international well-established dispute resolution at the ICSID. Regarding the arbitration of property issues, the Foreign Investments Protection Act (2014) 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.” Kenya in 2020 prevailed in an ICSID international arbitration case against WalAm Energy Inc, a U.S./Canadian geothermal company in a geothermal exploration license revocation dispute.

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. There are different bodies established to settle investment disputes. The National Land Commission (NLC) settles land related disputes; the Public Procurement Administrative Review Board settles procurement and tender related disputes, and the Tax Appeals Tribunal settles tax disputes. However, 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 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.

Transcription of Court Proceedings in the Commercial and Tax Division

The Kenyan Judiciary reported in its 2018-2019 State of the Judiciary and Administration Report that it had commenced its court recording and transcription project with the installation of recording equipment in six courtrooms in the Commercial and Tax Division in Nairobi. The project will significantly speed up the hearing of cases as judges will no longer be required to record proceedings by hand.

Court Annexed Mediation and Small Claims Courts

The National Council on the Administration of Justice spearheaded legislative reforms to accommodate mediation in the formal court process as well as introduce small claims courts to expedite resolution of commercial cases. The Judiciary reported in its State of the Judiciary Address (2018-2019), that the Mediation Accreditation Committee accredited 645 mediators that were handling a total of 411 commercial matters during the reporting period. Additionally, the Judiciary reported that disputes with a total value of over three billion Kenyan shillings (KSH) (approximately USD 30,000,000) had been resolved through Court Annexed Mediation during the reporting period. Court Annexed Mediation serves as an effective case resolution mechanism that will significantly reduce pressure on the justice system and eventually result in expeditious determination of commercial cases.

Bankruptcy Regulations

The Insolvency Act (2015) modernized the legal framework for bankruptcies. Its provisions generally correspond to those of the United Nations’ Model Law on Cross Border Insolvency. 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. The Insolvency Act (2015) increased the rights of borrowers and prioritizes the revival of distressed firms. The law states that a debtor will automatically be discharged from debt after three years. Bankruptcy is not criminalized in Kenya. Kenya moved up 6 ranks in the World Bank Group’s Doing Business 2020 report, moving to 50 of 190 countries in the “resolving insolvency” category.

Investment Incentives

Kenya provides both fiscal and non-fiscal incentives to foreign investors (http://www.invest.go.ke/starting-a-business-in-kenya/investment-incentives/ ). The minimum foreign investment to qualify for GOK investment incentives is USD 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. In a measure to boost the tourism industry, one-week employee vacations paid by employers are a tax-deductible expense. The 2015 amendments to Kenya’s VAT rules clarified some items that are VAT exempt. In 2018, the Kenya Revenue Authority (KRA) exempted from VAT certain facilities and machinery used in the manufacturing of goods under Section 84 of the East African Community Common External Tariff Handbook. VAT refund claims must be submitted within 12 months of purchase.

The government’s Manufacturing Under Bond (MUB) program encourages 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. 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 Finance Act (2014) amended the Income Tax Act (1974) to reintroduce capital gains tax on transfer of property located in Kenya. Under this provision, gains derived on the sale or transfer of property by an individual or company are subject to tax at rates of at least five percent. 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 2019, Kenya had 74 designated EPZs, with 137 companies and 60,383 workers contributing KSH 77.1 billion (about USD 713 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.

While EPZs are focused on encouraging production for export, SEZs are designed to boost local economies by offering benefits for goods that are consumed both internally and externally. 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 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. In 2019 Kenya developed the revised draft SEZ regulations with simplified and improved incentives structure. The 2019 draft regulations include customs duty exemptions to goods and services in the SEZ and no trade related restrictions including quantitative ones in import of goods and services into the SEZ. The rules also empower county governments to set aside public land for establishment of industrial zones.

Companies operating in the SEZs will receive the following benefits: all SEZ supplies of goods and services to companies and developers will be exempted from 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 county-level advertisement and license fees. There are currently SEZs in Mombasa (2,000 sq. km), Lamu (700 sq. km), and Kisumu (700 sq. km), Naivasha, Machakos (100 acres) and private developments designated as SEZ include Tatu City in Kiambu. The Third Medium Term Plan of Kenya’s Vision 2030 economic development agenda calls for a study for an SEZ at Dongo Kundu, and an SEZ was also under consideration at a location near the Olkaria geothermal power plant.

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 and Regional Development, 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 400,000 (approximately USD 4,000).

The Public Procurement and Asset Disposal Act (2015) offers preferences to firms owned by Kenyan citizens and to products manufactured or mined in Kenya in a GOK strategy called “Buy Kenya Build Kenya” which mandates 40 percent of GOK procurement be locally produced goods and services. Tenders funded entirely by the government with a value of less than KSH 50 million (approximately USD 500,000), are reserved for Kenyan firms and goods. If 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 county procurement tenders to residents of that county.

The Finance Act (2017) amends the Public Procurement and Asset Disposal Act (2015) to introduce Specially Permitted Procurement as an alternative method of acquiring public goods and services. The new method permits state agencies to bypass existing public procurement laws under certain circumstances. Procuring entities will be allowed to use this method where market conditions or behavior do not allow effective application of the 10 methods outlined in the Public Procurement and Disposal Act. The act gives the National Treasury Cabinet Secretary the authority to prescribe the procedure for carrying out specially permitted procurement.

Kenya passed the Data Protection Act (2019) which imposes restrictions on the transfer of data in and out of Kenya without consent of the Data Protection Commissioner and the subject, functionally requiring data localization. The Act is similar to the European General Data Protection Regulation requirements on data processing.

Real Property

The 2010 Constitution prohibits foreigners or foreign owned firms from owning freehold interest in land in Kenya. However, unless classified as agricultural, there are no restrictions on foreign-owned companies leasing land or real estate. The cumbersome and opaque process to acquire land raises concerns about security of title, particularly given past abuses relating to the distribution and redistribution of public land. The Land (Extension and Renewal of Leases) Rules (2017) stopped the automatic renewal of leases and tied renewals to the economic output of the land that must be beneficial to the economy. If property legally purchased remains unoccupied, the property ownership can revert to other occupiers, including squatters. Privately-owned land comprised six percent of the total land area in 1990; government land was about 20 percent of the total and included national parks, forest land and alienated and un-alienated land. Trust land is the most extensive type of tenure, comprising 64 percent of the total land area in 1990.

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 government land policy and management. This had the unintended side effect of introducing coordination and jurisdictional confusion between the commission and the Ministry of Lands mainly fueled by land interests by the political class. In 2015, President Kenyatta commissioned the new National Titling Center with a promise to increase the 5.6 million title deeds issued since independence to 9 million. From 2013 to 2018, an additional 4.5 million title deeds have been issued, however 70 percent of land in Kenya remained untitled. Land grabbing resulting from double registration of titles remains prevalent. Property legally purchased but unoccupied can revert ownership to other parties.

Mortgages and liens exist in Kenya, but the recording system is not reliable – Kenya has only some 24,000 recorded mortgages in a country of 47.6 million people – 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 have delayed several major infrastructure projects. 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 nominal “peppercorn rate” sufficient to satisfy the requirements for the creation of a legal contract. The GOK has not yet effectively implemented this provision. In July 2020, the Ministry of Lands and Physical planning released draft electronic land registration regulations (2020) to guide the e-transaction of land. The Ministry together with the National Land Commission agreed to commence the e-transaction on land matters pending resolution of outstanding issues.

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, and 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. Copyright piracy and the use of unlicensed software are also emerging challenges.

The Presidential Task Force on Parastatal Reforms (2013) proposed that the three intellectual property agencies, namely: the Kenya Industrial Property Institute (KIPI), the Kenya Copyright Board (KECOBO) and the Anti-Counterfeit Authority (ACA) be merged into one Government Owned Entity (GOE). A task force on the merger comprising staff from KIPI, ACA, KECOBO, the Ministry of Industrialization, Trade and Enterprise Development is drafting the instruments of the merger which has led to a draft GOE named Intellectual Property Office of Kenya (IPOK) and has also drafted Intellectual Property Office Bill, 2020 for establishing IPOK. 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 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. From time to time KEBS and the Anti-Counterfeit Agency conduct random seizures of counterfeit imports but there is no clear database of seizures kept.

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

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

Capital Markets and Portfolio Investment

Kenya developed the draft Financial Markets Conduct bill (2018) to consolidate and harmonize the financial sector in the country. Among the proposals in the draft bill is the establishment of the financial markets conduct authority to be the sole body to regulate providers of financial products and services to retail financial customers and to curb irresponsible financial market practices, a move that will create a conflict with the current financial markets regulators. Though relatively small by Western standards, Kenya’s capital markets are the deepest and most sophisticated in East Africa. The Nairobi Securities Exchange (NSE) is the best ranked exchange in sub-Saharan Africa in terms of performance in the last decade. NSE operates under the jurisdiction of the Capital Markets Authority of Kenya. It is a full member of the World Federation of Exchange, a founder member of the African Securities Exchanges Association (ASEA) and the East African Securities Exchanges Association (EASEA). The NSE is a member of the Association of Futures Market and is a partner exchange in the United Nations-led SSE initiative. Foreign investor participation has always been high and a key determinant of the market performance in the NSE. The NSE in July 2019 launched the derivatives market that will facilitate trading in future contracts on the Kenyan market and will be regulated by the Capital Market Authority of Kenya. The bond market is underdeveloped and dominated by trading in government debt securities. The government domestic debt market, however, is deep and liquid. Long-term corporate bond issuances are uncommon, leading to a lack of long-term investment capital.

In November 2019, Kenya repealed the interest rate capping law passed in 2016 which had had the unintended consequence of slowing private sector credit growth. There are no restrictions for foreign investors to seek credit in the domestic financial market although it still struggles to fund big ticket projects. Legal, regulatory, and accounting systems are generally aligned with international norms. The Kenyan National Treasury has launched its mobile money platform government bond to retail investors locally dubbed M-Akiba purchased at USD 30 on their mobile phones. M-Akiba has generated over 500,000 accounts for the Central Depository and Settlement Corporation and The National Treasury has made initial pay-outs to bond holders. The GOK expects to issue USD 10 million over this platform in 2019 in an effort to deepen financial inclusion and financial literacy.

According to the African Private Equity and Venture Capital Association (AVCA) 2014-2019 report on venture capital performance in Africa, Kenya is assessed as having a well-developed venture capitalist ecosystem ranking second in sub-Saharan Africa and accounted for 18 percent of the deals between 2014-2019 in Africa. The report further states that over 20 percent of the deals in the period were for companies that were headquartered outside Africa which sought expansion into the region’s markets.

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 and Settlement Corporation (CDSC) 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.

Money and Banking System

The Kenyan banking sector in 2020 included 40 operating commercial banks, one mortgage finance company, 13 microfinance banks, nine representative offices of foreign banks, 70 foreign exchange bureaus, 15 money remittance providers, and three credit reference bureaus which are licensed and regulated by the Central Bank of Kenya. Kenya also has 12 deposit-taking microfinance institutions. There has been increased foreign interest in Kenya’s banking sector with foreign owned banks making up 15 of the 40 operating banks. Major international banks operating in Kenya include Citibank, Absa bank (formerly Barclays bank Africa), Bank of India, Standard Bank (South Africa), and Standard Chartered. Kenya’s banking sector has been affected by the COVID-19 pandemic. According to the CBK, 32 out of 39 commercial banks restructured their loans to accommodate those affected. Non-performing loans (NPLs) rose to 13.1 percent in April 2020 fueled by the pandemic, however previous NPLs have averaged above 10 percent. The Banking sector has 12 listed banks in the Nairobi Securities Exchange which owned 89 percent of the banking assets in 2019.

In March 2017, CBK lifted its moratorium on licensing new banks, issued in November 2015 following the collapse of Imperial Bank and Dubai Bank. The CBK’s decision to restart licensing signaled a return of stability in the Kenyan banking sector. In 2018, Societé Generale (France) also set up a representative office in Nairobi. Foreign banks can apply for license to set up operations in Kenya and are guided by the CBK’s prudential guidelines 2013.

In November 2019, the Government of Kenya (GOK) enacted the Banking Amendment Act 2019, which effectively repealed the section within the Banking (Amendment) Act (2016) that capped the maximum interest rate banks can charge on commercial loans at four percent above Central Bank of Kenya’s (CBK) benchmark lending rate. This repeal effectively provides financial institutions flexibility with regards to pricing the risk of lending.

In the ongoing land registry digitization process, the Kenyan Government is working on a database, known as the single source of truth (SSOT), to eliminate fake title deeds in the Ministry of Lands. The SSOT database development plan is premised on blockchain technology – distributed ledger technology – as the primary reference for all land transactions. The SSOT database would help the land transaction process to be efficient, open, and transparent. The blockchain taskforce presented its 2019 report to the Ministry of Information, Communication Technology, Innovations and Youth Affairs on the viability and opportunities of the blockchain technology which is yet to be implemented.

The percentage of Kenya’s total population with access to financial services through conventional or mobile banking platforms is 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. Data from the Communication Authority of Kenya shows that in the 3 months to December 2019, 30 million Kenyans had active mobile money subscriptions. The 2017 National ICT Masterplan envisages the sector contributing at least 10 percent of GDP, up from 4.7 percent in 2015. Several mobile money platforms have achieved international interoperability, allowing the Kenyan diaspora to conduct financial transactions in Kenya from abroad.

Foreign Exchange and Remittances

Foreign Exchange Policies

Kenya has no restrictions on converting or transferring funds associated with investment. Kenyan law requires the declaration to customs of amounts greater than KSH 1,000,000 (approximately USD 10,000) or the equivalent in foreign currencies for non-residents as a formal check against money laundering. 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 Kenyan shilling declined 3.5 percent after a sharp decline of 15 percent during the same period in 2014/2015. In 2018, foreign exchange reserves remained relatively steady. The average inflation rate was 5.2 percent in 2019 and the average rate on 91-day treasury bills had fallen to 7.2 percent in 2019. According to CBK figures, the average exchange rate was KSH 101.99to USD 1.00 in 2019.

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).

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 USD 10,000). Kenya has 15 money remittance providers as at 2020 following the operationalization of 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 was removed from the inter-governmental Financial Action Task Force (FATF) Watchlist in 2014 following progress in creating the legal and institutional framework to combat money laundering and terrorism financing.

Sovereign Wealth Funds

In 2019, the National Treasury published the Kenya Sovereign Wealth Fund policy (2019) and the Kenya Sovereign Wealth Fund Bill (2019) for stakeholders’ comments as a constitutional procedure. The fund would 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 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. During the COVID-19 pandemic, the USF committee has partnered with the Kenya Institute of Curriculum Development to digitize the education curriculum for online learning.

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 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 at (https://drive.google.com/file/d/0BytnSZLruS3GQmxHc1VtZkhVVW8/edit ) SOEs’ boards are independently appointed and published in the Kenya Gazette notices by respective Cabinet Secretary. The State Corporations Advisory Committee is mandated by the State Corporations Act 2015 to advise on matters of SOEs. Financial operations of most SOEs are not readily available due to their opaque operating procedures despite being public entities, only those that are listed in the Nairobi Securities Exchange publish their financial positions as guided by the Capital Markets Authority guidelines. Corporate governance in SOEs is guided by the 2010 Constitution chapter 6 on integrity, Leadership and Integrity Act 2012 and the Public Officer Ethics Act 2003 which provide integrity and ethical requirements governing the conduct of State and public officers.

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.

In August 2020, the executive reorganized the management of SOEs in the cargo transportation sector and mandated the Industrial and Commercial Development Corporation (ICDC) to oversee rail, pipeline and port operations through a holding company called Kenya Transport and Logistics Network (KTLN). ICDC assumes a coordinating role over the Kenya Ports Authority (KPA), Kenya Railways Corporation (KRC) and Kenya Pipeline Company (KPC). KTLN is aimed at lowering the cost of doing business in the country, which will be achieved through the provision of port, rail, and pipeline infrastructure in a cost effective and efficient manner.

SOE procurement from the private sector is guided by the Public Procurement and Asset Disposal Act 2015 and the published Public Procurement and Asset Disposal Regulations 2020 which introduced exemptions from the Act for procurement on bilateral/multilateral basis commonly referred to government to government procurement; introduced E-procurement procedures; and preferences and reservations which gives preferences to the “Buy Kenya Build Kenya” strategy (http://kenyalaw.org/kl/fileadmin/pdfdownloads/LegalNotices/2020/LN69_2020.pdf ). The amendment reserves 30 percent government supply contracts for youth, women, and small and medium enterprises. 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

The Privatization Act 2003 establishes the Privatization Commission (PC) which is mandated to formulate, manage, and implement Kenya’s Privatization Program. GOK has been committed to implementing a comprehensive public enterprises reform program to increase private sector participation in the economy. The privatization commission ( https://www.pc.go.ke/  ) is fully constituted with a board which is responsible for the privatization program. The PC has 26 approved privatization programs (https://www.pc.go.ke/sites/default/files/2019-06/APPROVED%20PRIVATIZATION%20PROGRAMME.pdf  ). In 2020, GOK is implementing a sugar taskforce report that proposed privatization of some state-owned sugar firms to increase their efficiency and productivity. The process of privatization involves open bids by interested investors including foreign investors.

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 Mining Act 2016 provides for holders of mineral rights to develop a comprehensive community development agreement that secures socially responsible investment and provides for employment preference for those living in communities around mining operations. The legal system, however, has remained slow to prosecute corporate malfeasance in both areas.

The GOK 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.

Many businesses deem corruption to be pervasive and entrenched in Kenya. Transparency International’s (TI) 2019 Global Corruption Perception Index ranks Kenya 137 out of 198 countries, six places lower than in 2018 and Kenya’s score of 28 remains below the sub-Saharan Africa average of 32. Historical lack of political will, limited progress in prosecuting past corruption cases, and the slow pace of reform in key sectors were reasons cited for Kenya’s chronic low ranking. Corruption has been reported to be an impediment to FDI, with local media reporting allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts. There are many reports that corruption often influences the outcomes of government tenders, and U.S. firms have had limited success bidding on public procurements. In 2018, President Kenyatta began a public campaign against corruption. The Anti-Corruption agencies mandated to fight corruption have been inconsistent in coordinating activities, especially in bringing cases against senior officials. However, there were cabinet level arrests in 2019 that signaled a commitment by the GOK to fight corruption. Despite these efforts, much still remains to be done in convicting high profile suspects.

In 2020, a high-level conviction was secured for a Member of Parliament setting a precedent for top officials’ convictions. Relevant legislation and regulations include the Anti-Corruption and Economic Crimes Act (2003), the Public Officers Ethics Act (2003), the Code of Ethics Act for Public Servants (2004), the Public Procurement and Disposal Act (2010), the Leadership and Integrity Act (2012), and the Bribery Act (2016). The Access to Information Act (2016) also provides mechanisms through which private citizens can obtain information on government activities; implementation of this act is ongoing. The Ethics and Anti-Corruption Commission (EACC) monitors and enforces compliance with the above legislation.

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

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

On August 31, 2016, the president signed into law the Access to Information Act (2016) although the government has not yet issued regulations required to fully operationalize the act. The law allows citizens to request government information and requires government entities and private entities doing business with the government proactively to disclose certain information, such as government contracts. The act also provides a mechanism to request a review of the government’s failure to disclose requested information, along with penalties for failures to disclose. The act exempts certain information from disclosure on grounds of national security.

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

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

Resources to Report Corruption

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

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

Contact at “watchdog” organization:

Sheila Masinde
Executive Director
Transparency International Kenya
Phone: +254 (0)722-296-589
Report corruption online: https://www.tikenya.org/ 

Political tensions over the protracted and contentious 2017 election cycle spilled well into 2018. In March 2018, however, President Kenyatta and opposition National Super Alliance (NASA) leader Raila Odinga publicly shook hands and pledged to work together to heal the political, social, and economic divides revealed by the election. The 2017 electoral period had been marred by violence that claimed the lives of nearly 100 Kenyans, a contentious political atmosphere pitting the ruling Jubilee Party against NASA, and political interference and attacks by both sides on key institutions. In November 2017, the Kenyan Supreme Court unanimously upheld the October 2017 repeat presidential election results and President Uhuru Kenyatta’s win in an election boycotted by NASA leader Raila Odinga. The court’s ruling brought a close to Kenya’s protracted 2017 election cycle, a period that included the Supreme Court’s historic September 2017 annulment of the August 2017 presidential election and the unprecedented repeat election. In November 2019, the Building Bridges Initiative Advisory Taskforce, established by President Kenyatta in May 2018 as part of his pledge to work with Odinga, issued a report recommending reforms to address nine areas: lack of a national ethos, responsibilities and rights of citizenship; ethnic antagonism and competition; divisive elections; inclusivity; shared prosperity; corruption; devolution; and safety and security.

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

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

Kenya has one of the highest literacy rates in the region at 90 percent. Investors have access to a large pool of highly qualified professionals in diverse sectors from a working population of over 47.5 percent out of a population of 47.6 million people. Expatriates are allowed to work in Kenya provided they have a work (entry) permit issued under the Kenya Citizenship and Immigration Act 2011. In December 2018, the Cabinet Secretary for Interior and Coordination of National Government issued a directive that requires foreign nationals to apply for their work permits while in their country of origin and will have to prove that the skills they have are not available in the Kenya labor market. Work permits are usually granted to foreign enterprises approved to operate in Kenya as long as the applicants are key personnel. In 2015, the Directorate of Immigration Services made additions to the list of requirements for work permits and special pass applications. Issuance of a work permit now requires an assured income of at least USD 24,000 annually. Exemptions are available, however, for firms in agriculture, mining, manufacturing, or consulting sectors with a special permit. International companies have complained that the visa and work permit approval process is slow, and bribes are sometimes solicited to speed the process. A tightening of work permit issuances and enforcement begun in 2018 is now one of the largest complaints of multinational companies doing business in Kenya.

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 work (entry) permits for management or technical staff and three class G, I, or J work permits for owners, shareholders, or partners. More information on permit classes can be found at https://kenya.eregulations.org/menu/61?l=en .

According to the Kenya National Bureau of Statistics (KNBS), in 2019 non-agricultural employment in the formal sector was at 18.1 million, with nominal average earnings of Ksh778,248 (USD 7,200) per person per annum. Kenya has the highest rate of youth joblessness in East Africa. According to the 2019 census data, 5,341,182 or 38.9 percent of the 13,777,600 youths eligible to work are jobless. Employment in Kenya’s formal sector was 2.9 million in 2019 up from 2.8million in 2018. The government is the largest employer in the formal sector, with an estimated 865,200 government workers in 2019. In the private sector, agriculture, forestry, and fishing employed 296,700 workers while manufacturing employed 329,000 workers. However, Kenya’s large informal sector – consisting of approximately 80 percent of the labor force – makes accurate labor reporting difficult.

The GOK has instituted different programs to link and create employment opportunities for the youth, which include a website (http://www.mygov.go.ke/category/jobs/ ). Other measures include the establishment of the National Employment Authority which hosts the National Employment Authority Integrated Management System website that provides public employment service by listing vacancies ( https://neaims.go.ke/  ). The Kenya Labour Market Information System (KLMIS) portal (https://www.labourmarket.go.ke/ ), run by the Ministry of Labour and Social Protection in collaboration with the labor stakeholders, is a one-stop shop for labor information in the country. The site seeks to help address the challenge of inadequate supply of crucial employment statistics in Kenya by providing an interactive platform for prospective employers and job seekers. Both local and foreign employers are required to register with National Industrial Training Authority (NITA) within 30 days of operating. There are no known material compliance gaps in either law or practice with international labor standards that would be expected to pose a reputational risk to investors. The International Labor Organization has not identified any material gaps in Kenya’s labor law or practice with international labor standards. Kenya’s labor laws comply, for the most part, with internationally recognized standards and conventions, and the Ministry of 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, are free to form and join unions of their choice.

Collective bargaining is common in the formal sector but there is no data on the percentage of the economy covered by collective bargaining agreements (CBA). However, in 2019 263 CBAs were registered in the labor relations court with Wholesale and Retail trade sector recording the highest at 88. 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 GOK has a growing trade relationship with the United States under the AGOA framework which requires labor standards to be upheld. The Ministry of Labor and Social Protection is reviewing its labor laws to align with international standards as labor is also a chapter in the Free Trade Agreement negotiations with the U.S. In 2019, the government continued efforts with dozens of partner agencies to implement a range of programs for the elimination of child and forced labor. However, low salaries, insufficient resources, and attrition from retirement of labor inspectors are significant challenges to effective enforcement. Employers in all sectors routinely bribe labor inspectors to prevent them from reporting infractions, especially in the area of child labor.

In 2016, the U.S. International Development Finance Corporation (formerly OPIC) established a regional office in Nairobi, but the office is not currently staffed. The agency is engaged in funding programs in Kenya with an active in-country portfolio of approximately USD 700 million, including projects in power generation, internet infrastructure, light manufacturing, and education infrastructure. 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

Source: IMF Coordinated Portfolio Investment Survey (CPIS). Figures are from 2012 (latest available). IMF no longer publishes Kenya data as part of its CPIS. 14. Contact for More Information

U.S. Embassy Economic Section
U.N. Avenue, Nairobi, Kenya
+254 (0)20 363 6050

Policies Towards Foreign Direct Investment

Mauritius actively seeks foreign investment.  The Investment Office (formerly the Board of Investment) of the Economic Development Board (EDB) is the single-gateway government agency responsible for promoting investment in Mauritius, and for helping guide investors through the country’s legal and regulatory requirements.

According to a number of surveys and metrics, Mauritius is among the freest and most business-friendly countries in Africa.  The 2020 Index of Economic Freedom, published by the Heritage Foundation, ranks Mauritius first in the Sub-Saharan Africa region among 43 countries and 21st globally.  For the 12th consecutive year, the World Bank’s 2020 Doing Business report ranked Mauritius first among African economies, and 13th worldwide, in terms of overall ease of doing business.

There is no formal ongoing dialogue with investors.  However, one-to-one meetings are usually held with investors while the government prepares its annual budget.

Limits on Foreign Control and Right to Private Ownership and Establishment

A non-citizen can hold, purchase, or acquire real property under the Non-Citizens (Property Restriction) Act, or NCPRA, subject to government approval.  A foreigner can acquire residential property and apartments under the government-regulated Property Development Scheme (PDS) http://www.edbmauritius.org/schemes/property-development-scheme .  The NCPRA was amended in December 2016 to allow foreigners to purchase certain types of properties, as long as the amount paid is over six million Mauritian rupees (approximately USD 172,000).  A non-citizen is eligible for a residence permit upon the purchase of a house under the PDS if the investment made is more than USD 500,000. More information is available at http://dha.pmo.govmu.org/English/Mandate/Pages/Non-Citizens-Property-Restriction.aspx.  

Regarding business activities, the GoM generally does not discriminate between local and foreign investment.  There are, however, some business activities where foreign involvement is restricted.  These include television broadcasting, sugar production, newspaper or magazine publishing, and certain operations in the tourism sector.

In 2019, the Independent Broadcasting Authority (IBA) Act was amended to increase the allowable equity participation of a foreign company investing in broadcasting to 49.9 percent from 20 percent.  Similarly, control by foreign nationals in broadcasting was limited to 49.9 percent.   Furthermore, a foreign investor cannot hold 20 percent or more of a company that owns or controls any newspaper or magazine, or any printing press publishing such publications.  The IBA Act can be accessed via http://www.iba.mu/legal.htm.  

In the sugar sector, no foreign investor is allowed to make an investment that would result in 15 percent or more of the voting capital of a Mauritian sugar company being held by foreign investors.  More information can be accessed at https://www.stockexchangeofmauritius.com/media/2124/securities-investment-by-foreign-investors-rules-2013.pdf.  

In the tourism sector, there are conditions on investment by non-citizens in guesthouse/tourist accommodation, pleasure crafts, scuba diving, and tour operators.  Generally, the limitations refer to a minimum investment amount, number of rooms, or a maximum equity participation, depending on the business activity.  Details of the restrictions can be accessed via http://www.tourismauthority.mu/en/licence-categories-11/tourist-accommodation-certificate-30.html.  

In the construction sector, foreign consultants or contractors are required to register with the Construction Industry Development Board (CIDB).  Details on registration procedures are available at https://www.cidb.mu/registration/contractors .

The Investment Office of the EDB screens foreign investment proposals and provides a range of services to potential investors.  The EDB is a useful resource for investors exploring business opportunities in Mauritius and provides assistance with occupation permits, licenses, and clearances by coordinating with relevant local authorities.  In 2019, U.S. Embassy Port Louis did not receive negative comments from U.S. businesses regarding the fairness of the government’s investment screening mechanisms.

The Investment Office of the EDB reviews proposals for economic benefit, environmental impact, and national security concerns.  EDB then advises the potential investor on specific permits or licenses required, depending on the nature of the business.  Foreign investors can also apply through the EDB for necessary permits.  In the event an investment fails review, the prospective investor may appeal the decision within the EDB or to the relevant government ministry.

Other Investment Policy Reviews

Mauritius’ most recent third-party investment policy reviews through multilateral organizations were completed in 2014.  In June 2014, the GoM conducted an investment policy review with the Organization for Economic Cooperation and Development (OECD).  The review can be accessed via http://www.oecd.org/daf/inv/investment-policy/mauritius-investment-policy.htm .  The review concluded that, while policies and legislation in Mauritius support private sector development, incentive schemes tend to bias investment towards real estate and property development.  In October 2014, the GoM also conducted a trade policy review with the World Trade Organization (WTO), which can be accessed at https://www.wto.org/english/tratop_e/tpr_e/tp404_e.htm .  A new trade policy review was expected to start in May 2020.

Business Facilitation

The GoM recognizes the importance of a good business environment to attract investment and achieve a higher growth rate.  In 2019, the Business Facilitation (Miscellaneous Provisions) Act entered into force.  The main reforms brought about by this legislation were expediting trade fee payments, reviewing procedures for construction permits, reviewing fire safety compliance requirements, streamlining of business licenses, and implementing numerous trade facilitation measures.  The act can be accessed at https://www.edbmauritius.org/resources/legislations.  

The incorporation of companies and registration of business activities falls under the provisions of The Companies Act of 2001  and The Business Registration Act of 2002 .  All businesses must register with the Registrar of Companies.  As a general rule, a company incorporated in Mauritius can be 100 percent foreign-owned with no minimum capital.  According to the World Bank 2020 Doing Business report, while the procedures for registering a company takes less than a day, actually starting a business takes between four and five days.

After the Registrar of Companies issues a certificate of incorporation, foreign-owned companies must register their business activities with the EDB.  The company can then apply for occupation permits (work and residence permits) and incentives offered to investors.  EDB’s investment facilitation services are available to all investors, domestic and foreign.

In partnership with the Corporate and Business Registration Department (a division of the Ministry of Finance and Economic Development), the Mauritius Network Services (MNS) has implemented the Companies and Business Registration Integrated System, a web-based portal that allows electronic submission for incorporation of companies and application for the Business Registration Number, file statutory returns, pay yearly fees, register businesses, and search for business information.  Applicants can register with MNS at https://portalmns.mu/cbris.   In March 2019, the National Electronic Licensing System (NELS), which is co-financed by the European Union, was officially launched.  NELS is a single point of entry for the processing of permits and licenses needed to start and operate a business.  It can be accessed at https://business.edbmauritius.org .

Outward Investment

The GoM imposes no restrictions on capital outflows.  Due to the small size of the Mauritian economy, the government encourages Mauritian entrepreneurs to invest overseas, particularly in Africa, to expand and grow their businesses.  As part of its Africa Strategy, the government has established the Mauritius Africa Fund:  a public company with USD 13.8 million capitalization to support Mauritian investment in Africa.  Through the Fund, the government participates as an equity partner up to 10 percent of the seed capital invested by Mauritian investors in projects targeted towards Africa.  The government has signed agreements with Senegal, Madagascar, and Ghana establishing and managing Special Economic Zones (SEZ) in these countries and has invited local and international firms to set up operations in the SEZs.  As per the 2018 Finance Act, Mauritian companies collaborating with the Mauritius-Africa Fund for development of infrastructure in the SEZs benefit from a five-year tax holiday.  To further facilitate investment, Mauritius has also signed Investment Promotion and Protection Agreements and Double Taxation Avoidance Agreements with African states.

Since 2012, the Board of Investment (now restructured as the Investment Office of the EDB) has been operating an Africa Center of Excellence, a special office dedicated to facilitating investment from Mauritius into Africa.  It acts as a repository of business information for Mauritian entrepreneurs about investment opportunities in different sectors in Africa.

In 2018, the most recent year for which the Central Bank of Mauritius has published data, gross direct investment flows abroad (excluding the global business sector) amounted to USD 106 million.  The top three sectors for outward investment were manufacturing (38 percent), finance and insurance activities (30 percent), and accommodation and food service activities (10 percent).  Investment abroad was mainly geared toward developing countries, and Africa was the biggest recipient region of foreign direct investment, amounting to USD 44 million.  Kenya was the top recipient country with USD 31 million. Data on outward investment can be obtained at https://www.bom.mu/publications-and-statistics/statistics/external-sector-statistics/direct-investment-flows .

Transparency of the Regulatory System

Since 2006, the GoM has reformed trade, investment, tariffs, and income tax regulations to simplify the framework for doing business.  Trade licenses and many other bureaucratic hurdles have been reduced or abolished.  With a well-developed legal and commercial infrastructure and a tradition that combines entrepreneurship and representative democracy, Mauritius is one of Africa’s most successful economies.  Business Mauritius, the coordinating body of the Mauritian private sector, participates in discussions with and presents papers to government authorities on laws and regulations affecting the private sector.

Regulatory agencies do not request comments on proposed bills from the general public.  Both the notice of the introduction of a government bill and a copy of the bill are distributed to every member of the Legislative Assembly and published in the Government Gazette before enactment.  Bills with a “certificate of urgency” can be enacted with summary process.  All proposed regulations are published on the Legislative Assembly’s website, which is publicly accessible via http://mauritiusassembly.govmu.org/English/bills/Pages/default.aspx.  

Companies in Mauritius are regulated by the Companies Act of 2001, which incorporates international best practices and promotes accountability, openness, and fairness.  To combat corruption, money laundering and terrorist financing, the government also enacted the Prevention of Corruption Act, the Prevention of Terrorism Act, and the Financial Intelligence and Anti-Money Laundering Act.  While Mauritius does not have a freedom of information act, members of the public may request information by contacting the permanent secretary of the relevant ministry.

Budget documents, including the executive budget proposal, enacted budget, and end-of-year report, are publicly available and provide a substantially full picture of Mauritius’ planned expenditures and revenue streams.  Information on debt obligations is also at http://mof.govmu.org/English/Public%20Debt/Pages/Debt-Data.aspx .

International Regulatory Considerations

Mauritius is a member of the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA).  It is a signatory to the African Continental Free Trade Area (AfCFTA), which entered into force in May 2019, and the COMESA-EAC-SADC Tripartite Free Trade Area.  As at April 2020, the Tripartite FTA has yet to enter into force.  The GoM implements its commitments to these regional economic institutions with domestic legal and regulatory adjustments, as appropriate.

Mauritius has been a member of the World Trade Organization (WTO) since 1995.  The GoM reports that they notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade to the extent possible.  In July 2014, Mauritius notified its category A commitments to the WTO, among the first African countries to do so.  Mauritius was the fourth country to submit its instrument of acceptance for the Trade Facilitation Agreement (TFA).  In 2019, Mauritius notified its category B and C commitments and their corresponding dates of implementation.

Of TFA’s 36 measures, Mauritius has classified 27 as category A, five as B, and four as C.  Discussions with donors to obtain technical assistance to finance trade facilitation projects listed under category C are ongoing and Mauritius secured assistance from the World Bank and the World Customs Organization.

To coordinate efforts to implement the TFA, in 2015 Mauritius set up a National Committee on Trade Facilitation, co-chaired by representatives from government and the private sector.  Members include Customs, the Ministry of Agro-Industry and Food Security, the Ministry of Finance and Economic Development, and the Mauritius Chamber of Commerce and Industry.  The committee has met 10 times since.  Discussion topics include identification of sources of financing for category C commitments and resolution of non-tariff barriers in Mauritius.

Legal System and Judicial Independence

Mauritius draws legal principles from both French civil law and British common law traditions.  Its procedures are largely derived from the English system, while its substance is based on the Napoleonic Code of 1804.  Commercial and contractual law is also based on the civil code.  However, some specialized areas of law are comparable to other jurisdictions.  For example, its company law is practically identical to that of New Zealand.  Mauritian courts often resolve legal disputes by drawing on current legislation, the local legal tradition, and by means of a comparative approach utilizing various legal systems.  The highest court of appeal is the judicial committee of the Privy Council of England.  Mauritius is a member of the International Court of Justice.  Mauritius established a Commercial Court in 2009 to expedite the settlement of commercial disputes.

Contracts are legally enforceable and binding.  Ownership of property is enforced with the registration of the title deed with the Registrar-General and payment of the registration duty.  Mauritian courts have jurisdiction to hear intellectual property claims, both civil and criminal.  The judiciary is independent and the domestic legal system is generally non-discriminatory and transparent.  The Embassy is not aware of any recent cases of government or other interference in the court system affecting foreign investors.

Laws and Regulations on Foreign Direct Investment

The 2017 Economic Development Board Act governs investment in Mauritius, while the 2001 Companies Act contains the regulations governing incorporation of businesses.  The Corporate and Business Registration Department (CBRD) of the Ministry of Finance and Economic Development administers the 2001 Companies Act, the 2002 Business Registration Act, the 2009 Insolvency Act, the 2011 Limited Partnerships Act, and the 2012 Foundations Act.  Information regarding the various acts can be accessed via the CBRD’s website: http://companies.govmu.org/English/Legislation/Pages/default.aspx  

All laws and regulations related to foreign investment can be found on the EDB’s website: http://www.edbmauritius.org/resources/legislations/ .

Competition and Anti-Trust Laws

The Competition Commission of Mauritius (CCM) is an independent statutory body established in 2009 to enforce the Competition Act of 2007.  It is mandated to safeguard competition by preventing and remedying anti-competitive business practices in Mauritius.  Anti-competitive business practices, also called restrictive business practices, may be in the form of cartels, abuse of monopoly situations, and mergers that reduce competition.

The institutional design of the CCM houses both an adjudicative and an investigative organ under one body.  While the Executive Director has power to investigate restrictive business practices (the Investigative Arm), the Commissioners determine the cases (the Adjudicative Arm) on the basis of reports from the Executive Director.

Since it began operations, the CCM has undertaken 54 investigations, of which 44 have been completed and 10 are ongoing as of May 2020.  To date, the CCM has conducted 266 enquiries, which are preliminary research exercises prior to proceeding to investigations.  The results of completed investigations are available on the CCM’s website:  http://www.ccm.mu.  

Since 2018, the CCM has initiated a process to review and amend the Competition Act of 2007 to enable more effective enforcement.  The process was expected to be completed in 2020.

Expropriation and Compensation

The Constitution includes a guarantee against nationalization. However, in 2015, the government passed the Insurance (Amendment) Act to enable the Financial Services Commission (FSC) to appoint special administrators in cases where there is evidence that the liabilities of an insurer and its related companies exceed assets by 1 billion rupees (approximately USD 26 million) and that such a situation “is likely to jeopardize the stability and soundness of the financial system of Mauritius.”  The special administrators are empowered to seize and sell assets.  The government enacted this law in the immediate aftermath of the financial scandal explained below.

In April 2015, the Bank of Mauritius, the central bank, revoked the banking license of Bramer Bank, the banking arm of Mauritian conglomerate British American Investment (BAI) Group, citing an inadequate capital reserve ratio.  As a result, Bramer Bank entered receivership and by May 2015 the receiver had transferred the assets and liabilities of Bramer Bank to a newly created state-owned bank, the National Commercial Bank Ltd., thus effectively nationalizing Bramer Bank.  In January 2016, the Mauritian government merged the National Commercial Bank Ltd. with another government-owned bank resulting in Maubank, a new bank dedicated mainly to servicing small- and medium-sized enterprises.  The GoM owns over 99 percent of Maubank shares.  Efforts to privatize the bank in 2018 did not produce any results.

The government likewise took over much of Bramer’s parent, the BAI Group.  The FSC placed the BAI Group in conservatorship, alleging fraud and corporate mismanagement in BAI’s insurance business.  Following passage of the Insurance (Amendment) Act in 2015, the FSC created the National Insurance Company, which took over the BAI Group’s core insurance business, and the National Property Fund, which took over other BAI Group assets, including a hospital and several retail outlets.  CIEL Healthcare, a local private company, bought the hospital in 2017.

In 2015, BAI’s former chairman filed a dispute against the GoM with the United Nations Commission on International Trade Law (UNCITRAL), alleging that the government illegally appropriated BAI’s assets.  The former chairman, who is a Mauritian-French dual national, claimed that Mauritius had breached the Mauritius-France bilateral investment treaty and requested the restitution of his assets and payment of compensation.  The tribunal concluded that it lacked jurisdiction over the dispute and ruled in favor of the GoM.  The former chairman has appealed this decision.  In May 2019, the former chairman filed a case in the Supreme Court to challenge the appointment of the liquidator for the Bramer Banking Group.

Dispute Settlement

Mauritius is a member of the International Center for the Settlement of Investment Disputes and a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act.  Mauritius is also a member of the Multilateral Investment Guarantee Agency of the World Bank.

Investor-State Dispute Settlement

Mauritius does not have a bilateral investment treaty or free trade agreement with the United States.

The embassy is aware of a dispute between a U.S. company that operates in Mauritius and a parastatal partner.  After an apparent commercial impasse, in early 2020 the parastatal filed a criminal complaint against the CEO of the U.S. company, who is a U.S. citizen.  The accused, whom police did not take into custody but forbade to leave the country pending investigation, alleged that the parastatal filed the complaint to gain leverage in the commercial dispute.

As explained above, the former chairman of BAI, a dual French-Mauritian national, filed a dispute against the government of Mauritius with UNCITRAL alleging that the government illegally appropriated BAI’s assets.  The tribunal ruled in favor of the government and the former chairman has appealed.

In 2017, the Supreme Court rendered a judgment in a major unfair competition case lodged in 2005 by Emtel Ltd., a local telecommunications firm, against Mauritius Telecom, a parastatal entity, and the former regulator Telecommunications Authority.  Emtel was engaged in a joint venture with U.S. majority-owned Millicom Enterprises, but Emtel bought all the shares of Millicom in 2014.  The court awarded over USD 16 million in damages to Emtel.

A Malaysian power company, CT Power, is challenging the government’s decision to cancel a proposed energy project, which they had been negotiating with the previous government. The Supreme Court ruled in favor of CT Power in July 2016.  The Ministry of Energy and Public Utilities, supported by the Central Electricity Board, appealed to the Privy Council, which overturned the ruling in June 2019.

Another dispute involves local company Betamax against the State Trading Corporation (STC) for breach of contract.  In 2009, Betamax received a long-term contract with a previous government for the transportation of petroleum products from an oil refinery in India to Mauritius.  A different government elected in 2014 tried at first to negotiate Betamax out of the transportation contract on the grounds that the contract had been awarded unlawfully.  After negotiations failed, the government decided to rescind the contract.  Betamax took the case to the Singapore International Arbitration Center (SIAC).  In 2017, SIAC decided in favor of Betamax and ordered the STC to pay approximately USD 133 million in damages to Betamax for breach of contract.  STC petitioned the Supreme Court of Mauritius to set aside the verdict, which it did in May 2019, concluding that the contract violated local procurement regulations and public policy.  In June 2019, Betamax appealed to the Privy Council, which has not yet heard the appeal.

The Association des Hoteliers et Restaurateurs of Mauritius (AHRIM), which promotes the interests of hotels and restaurants in Mauritius, has challenged the GoM’s issuance of an environmental impact assessment license to Growfish International Ltd., a company involved in aquaculture.  AHRIM is concerned about the impact the fish farm can have on tourism and the marine environment.  Growfish is a company incorporated in Mauritius and financed by investors from South Africa and Norway.  In April 2019, the tribunal ruled in favor of AHRIM.

International Commercial Arbitration and Foreign Courts

In 2011, the GoM, the London Court of International Arbitration (LCIA), and the Mauritius International Arbitration Center (MIAC) established a new arbitration center in Mauritius called the LCIA-MIAC Arbitration Center.  LCIA-MIAC offered all services offered by the LCIA in the United Kingdom.  In July 2018, the LCIA and GoM terminated the partnership, after which the MIAC began operating as an independent organization.  The organization’s website is http://miac.mu.  

Additionally, the Mauritius Chamber of Commerce and Industry’s (MCCI) Arbitration and Mediation Center (MARC) was established in 1996 as an initiative of the MCCI to provide the business community with alternative forms of dispute resolution using internationally accepted arbitration and mediation standards.  More information is available at https://www.marc.mu/en.  

As mentioned above, state-owned STC asked a Mauritian court to set aside a decision by the Singapore International Arbitration Center.  The court ruled in favor of the STC.  The plaintiff has appealed to the Privy Council.

Bankruptcy Regulations

Bankruptcy is not criminalized in Mauritius.  The 2009 Insolvency Act amended and consolidated the law relating to insolvency of individuals and companies and the distribution of assets in the case of insolvency and related matters.  Most notably, the act introduced administration procedures, providing creditors the option of a more orderly reorganization or restructuring of a business than in liquidation.  A bankrupt individual is automatically discharged from bankruptcy three years after adjudication, but may apply to be discharged earlier.  The act draws on the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law in 1997.  The act can be found  at https://www.fscmauritius.org/media/1155/insolvency-act-2009-130114.pdf.   

In April 2020, the Insolvency (Administration) (Equal Treatment to Classes of Creditors) Regulations were issued to ensure equal treatment to creditors classified in the same category.  The regulations can be accessed at https://bit.ly/2WwTIev .  According to the World Bank’s 2020 Doing Business report, Mauritius ranked 28th out of 190 countries in terms of resolving insolvency.

Investment Incentives

Mauritius applies investment incentives uniformly to both domestic and foreign investors.  The incentives are outlined in the Income Tax Act, the Customs Act, and the Value Added Tax Act.  In the 2018-2019 national budget, a number of incentives were implemented to attract investors to Mauritius.  These include: (i) reduced corporate tax rate of three percent for companies engaged in global trading activities; (ii) investment tax credit of five percent over three years on the cost of new plant and machinery excluding motor vehicles; (iii) five year tax holiday for Mauritian companies collaborating with the Mauritius Africa Fund with respect to investment in the development of infrastructure in Special Economic Zones, and; (iv) five year tax holiday on income derived from smart parking solutions or other green initiatives.

Mauritius offers prospective investors a low-tax jurisdiction and a number of other fiscal incentives, including the following: (i) flat corporate and income tax rate of 15 percent; (ii) 100 percent foreign ownership permitted; (iii) no minimum foreign capital required; (iv) no tax on dividends or capital gains; (v) free repatriation of profits, dividends, and capital; (vi) accelerated depreciation on acquisition of plant, machinery, and equipment; (vii) exemption from customs duty on imported equipment; and (viii) access to an extensive network of double taxation avoidance treaties.

Additionally, the government has established a Property Development Scheme (PDS) to attract high net worth non-citizens who want to acquire residences in Mauritius.  Buyers of a residential unit valued over USD 500,000 in certain projects are eligible to apply for a residence permit in Mauritius.  The residential unit can be leased or rented out by the owner.  More details on the PDS and other investment schemes are available via http://www.edbmauritius.org/schemes.  

The Regulatory Sandbox License (RSL), announced in the 2016-2017 national budget, is intended to promote innovation by eliminating barriers to investment in cutting-edge technology.  An RSL gives an investor fast-track authorization to conduct business activity in a sector even if there is not yet a legal or regulatory framework in place for the sector.  Further details on the RSL can be accessed via http://www.edbmauritius.org/schemes/regulatory-sandbox-license/ .

Foreign Trade Zones/Free Ports/Trade Facilitation

The Mauritius Freeport, a free trade zone, was established in 1992 and is a customs-free zone for goods destined for re-export.  The Freeport has grown dramatically in its 26-year history:  Developed space has increased from 5,000 square meters in 1993 to over 300,000 square meters in 2018.  The government’s objective is to promote the country as a regional warehousing, distribution, marketing, and logistics center for eastern and southern Africa and the Indian Ocean rim.  Through its membership in COMESA, SADC, and the IOC, Mauritius offers preferential access to a market of over 600 million consumers, representing an import potential of USD 100 billion.  Companies operating in the Freeport are exempt from corporate tax.  Foreign-owned firms operating in the Freeport have the same investment incentives and opportunities as local entities.

Activities carried out in the Freeport include warehousing and storage, breaking bulk, sorting, grading, cleaning and mixing, labeling, packing, repacking and repackaging, minor processing and light assembly, manufacturing activity, ship building, repairs and maintenance of ships, aircrafts, and heavy-duty equipment, storage, maintenance and repairs of empty containers, export-oriented seaport and airport based activities, freight forwarding services, quality control and inspection services, and vault activity for storing precious stones and metals, works of art, and the like.  Approximately 3,800 people are employed at the Freeport.

In 2019, trade value at the Freeport was 29.7 billion rupees (approximately USD 825 million) and volume was 517,000 metric tons.  This is a decrease from 2018, when trade value was 44 billion rupees and volume was 542,000 metric tons.  Top trading partners for import in 2019 were the United Kingdom, India, Taiwan, Malaysia, and China.  Top trading partners for export in 2019 were Reunion (France), South Africa, Kenya, Seychelles, and United Arab Emirates.  Top goods traded through the Freeport included mineral products, live animals, foodstuffs and beverages, and plastic and metal products.

Per the 2019 Finance Act, a Freeport operator engaged in manufacturing inside the Freeport is allowed to apply as a private Freeport developer to build, develop, and manage its own infrastructural activities, provided that it carries out the same manufacturing activity.  A Freeport operator or private Freeport developer engaged in the manufacture of goods pays a 3 percent tax rate on profits derived from the sale of goods on the local market.

Existing manufacturing companies with a Freeport certificate must employ a minimum of five employees and incur an annual expenditure exceeding 3.5 million rupees (USD 880,000).  Freeport operators must pay Corporate Social Responsibility tax on the sale of goods on the local market.

Performance and Data Localization Requirements

The GoM does not impose local employment requirements on foreign investors.  A foreign national can apply for an Occupation Permit (OP), which is a combined work and residence permit, subject to certain conditions such as minimum investment, salary, and/or business turnover.  The OP allows foreign nationals to work and reside in Mauritius under three specific categories, namely: (i) investor, (ii) professional, or (iii) self-employed.  Also, foreign nationals above the age of 50 years may choose to retire in Mauritius under a Residence Permit (RP).  An OP or an RP is issued for a maximum period of three years and the permit holder may submit a new application upon expiry of the permit.  Dependents of an OP or RP holder may also apply for residence permits for a duration not exceeding that of the OP or RP holder.  Details on the minimum investment, salary, and turnover amounts required to qualify for an OP or RP are available via http://www.edbmauritius.org/work-and-live-in-mauritius/occupation-permitresidence-permit.  

The 2017 Data Protection Act (DPA) is the law that governs the protection of personal data in Mauritius.  Effective January 15, 2018, the DPA aimed to align with the European Union’s General Data Protection Regulation (GDPR).  The GoM established the Data Protection Office (http://dataprotection.govmu.org/English/Pages/default.aspx ) in 2009.  The Data Protection Commissioner is responsible for upholding the rights of individuals set forth in the DPA and for enforcing the obligations imposed on data controllers and processors.

In 2016, Mauritius ratified the Council of Europe’s Convention for Protection of Individuals with regard to Automatic Processing of Personal Data (Convention 108).  Mauritius is the second non-European country and the first African country to sign the convention.  The agreement gives individuals the right to protection of their personal data.  The Ministry of Information Technology, Communication and Innovation has started the ratification process of Convention 108 with the Council of Europe.

Mauritius’ DPA applies only when processing of personal data is concerned.  Failure to comply with Section 28 of the DPA, which establishes the lawful purposes for which personal data may be processed, can result in a fine and up to five years imprisonment.  Section 29 sets requirements for processing special categories of data, such as ethnic origin, political adherence, and mental health condition.

There are no enforcement procedures for investment performance requirements.

Real Property

Real property rights are respected in Mauritius.  A non-citizen can hold, purchase, or acquire immovable property under the Non-Citizens (Property Restriction) Act, subject to the government’s approval.  Ownership of property is memorialized with the registration of the title deed with the Registrar-General and payment of the registration duty.  The recording system of mortgages and liens is reliable.  Traditional use rights are not an issue in Mauritius as there were no indigenous peoples present at the time of European colonization.  According to the World Bank’s 2020 Doing Business Report, Mauritius ranks 23rd out of 190 countries for the ease of registering property.

Intellectual Property Rights

Intellectual property rights (IPR) in Mauritius are protected by two pieces of legislation, namely     the 2014 Copyrights Act and the 2019 Industrial Property Act of 2019.  In August 2019, the new Industrial Property bill was enacted. (http://www.mauritiustrade.mu/ressources/pdf/industrial-property-act-2019.pdf)  It consolidates different elements of industrial property (patents, utility models, layout-designs of integrated circuits, breeder’s rights, industrial designs, marks, trade names, and geographical indications).  The 2019 act also makes provisions for Mauritius to adhere to treaties that the World Intellectual Property Organization (WIPO) administers,, such as the Patent Cooperation Treaty (PCT) for the international registration of patents, the Hague Agreement Concerning the International Registration of Industrial Designs, and the Madrid Protocol to facilitate the registration of trademarks.

In 2017, the Copyright Act was amended to redefine and better safeguard the interests of copyright owners and to put in place a new regulatory framework for the Mauritius Society of Authors (MASA).  MASA is responsible for collection of copyright fees and for administering the economic rights of copyright owners.  Amendments to the Copyright Act can be accessed on the Supreme Court website: https://supremecourt.govmu.org/_layouts/CLIS.DMS/Legislations/SearchLegislations.aspx.  

Mauritius is a member of WIPO and party to the Paris Convention for the Protection of Industrial Property the Berne Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Convention.  The Industrial Property Act complies with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  A trademark is initially registered for 10 years and may be renewed for another 10 years.  A patent expires 20 years after the application filing date.

While IPR legislation in Mauritius is consistent with international norms, enforcement is relatively weak. According to a leading IPR law firm, police will normally only take action against IPR infringement in cases where the rights-holder has an official representative in Mauritius because the courts require a representative to testify that the products seized are counterfeit.

The Customs Department of the Mauritius Revenue Authority is the primary agency responsible for safeguarding Mauritian borders against counterfeit goods and piracy.  The Customs Department requires owners or authorized users of patents, industrial designs, collective marks, marks, or copyrights to apply in writing to the Director General to suspend clearance of goods suspected of infringing intellectual property rights.  Once an application is approved, it remains valid for two years.  There are no administrative costs to pay for an application.  An application can also be filed as a preventive measure.  Further details on the documents required to apply can be found at  https://www.mra.mu/download/BrochureIPR.pdf.  

Customs may act upon its own initiative to suspend clearance if there is evidence of IPR infringement..  Customs will then contact the owner or authorized user for follow-up actions.  IPR owners  are recommended to join the World Customs Organization’s Interface Public-Members tool, which allows Customs officers to access operational data input by rights holders concerning their products, thus facilitating the identification of counterfeit goods.

The Customs Department keeps a record of counterfeit goods seized.  Customs has authority to seize and destroy counterfeit goods.  In 2019, the Customs Department carried out seizures of a total of 261,267 goods valued at USD 2.3 million. The infringing party is responsible for paying for the storage and/or destruction of the counterfeit goods.

Mauritius is not listed in the U.S. Trade Representative (USTR) Special 301 Report or the Notorious Market List.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at https://www.wipo.int/directory/en/details.jsp?country_code=MU 

Embassy Contact for IPR:

Smita Bheenick
Economic/Commercial Section
U.S. Embassy Port Louis, Mauritius
Tel: +230 202 4430; Fax: +230 208 9534
Email:bheenicks@state.gov

Some IPR Law Firms in Mauritius:

Law firms are listed for convenience and should not be taken to imply U.S. government endorsement.

Sanjeev Ghurburrun
Director, Geroudis
27-29, Dr. Lesur Street
Beau Bassin, Mauritius
Tel: +230 210 3838; Fax: + 230 210 3912
sanjeev@geroudis.com 
www.geroudis.com 

Marc Hein
Chairman, Juristconsult Chambers (DLA Piper Africa)
Level 12 Nexteracom Tower II, Ebene Cyber City
Ebene, Mauritius
Tel: +230 465 0020; Fax: +230 465 0021
mhein@juristconsult.com
www.juristconsult.com

Michael Hough
CEO, Eversheds Sutherland
Suite 310, 3rd Floor Barkly Wharf, Le Caudan Waterfront
Port Louis, Mauritius
Tel: +230 211 0550; fax: +230 211 0780
Email: michaelhough@eversheds-sutherland.mu
https://www.eversheds-sutherland.com/global/en/where/africa/mauritius/offices/index.page 

Capital Markets and Portfolio Investment

The GoM welcomes foreign portfolio investment.  The Stock Exchange of Mauritius (SEM) was opened to foreign investors following the lifting of foreign exchange controls in 1994.  Foreign investors do not need approval to trade shares, except for when doing so would result in their holding more than 15 percent in a sugar company, a rule detailed in the Securities (Investment by Foreign Investors) Rules of 2013.  Incentives to foreign investors include no restrictions on the repatriation of revenue from the sale of shares and exemption from tax on dividends for all resident companies and for capital gains of shares held for more than six months.

The SEM currently operates two markets:  the Official Market and the Development and Enterprise Market (DEM).  As of December 2019, the shares of 62 companies (local, global business, and foreign companies) were listed on the Official Market, representing a market capitalization of USD 9.8 billion.  Unique in Africa, the SEM can list, trade, and settle equity and debt products in U.S. dollars, euros, pounds sterling, South African rand, as well as Mauritian rupees.  A variety of new asset classes of securities such as global funds, depositary receipts, mineral companies, and specialist securities including exchange-traded funds and structured products have also been introduced on the SEM.  The DEM was launched in 2006 and the shares of 37 companies are currently listed on this market with a market capitalization of USD 1.4 billion.  Foreign investors accounted for 39.5 percent of trading volume on the exchange for the financial year 2018-2019.  Standard & Poor’s, Morgan Stanley, Dow Jones, and FTSE have included the Mauritius stock market in a number of their stock indices.  Since 2005, the SEM has been a member of the World Federation of Exchanges.  The SEM is also a partner exchange of the Sustainable Stock Exchanges Initiative.  In 2018, in line with its strategy to digitalize its investor services, SEM launched the mySEM mobile application.

The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.  A variety of credit instruments is available to local and foreign investors through the banking system.

Money and Banking System

Mauritius has a sophisticated banking sector.  As of April 2020, 20 banks are licensed to undertake banking business, of which five are local banks, nine are foreign-owned subsidiaries, one is a joint venture, four are branches of foreign banks, and one is licensed as a private bank.  One bank conducts solely Islamic banking.  Further details can be obtained at https://www.bom.mu/financial-stability/supervision/licensees/list-of-licensees .  On April 1, 2020, the Bank of Mauritius appointed a conservator for BanyanTree Bank.  Details were scarce, but the law allows the central bank to appoint a conservator to protect the bank’s assets.

According to the Banking Act of 2004, all banks are free to conduct business in all currencies.  There are also six non-bank deposit-taking institutions, as well as 12 money changers and foreign exchange dealers.  There are no official government restrictions on foreigners opening bank accounts in Mauritius, but banks may require letters of reference or proof of residence for their due diligence.  The Bank of Mauritius, the country’s central bank, carries out the supervision and regulation of banks as well as non-bank financial institutions authorized to accept deposits.  The Bank of Mauritius has endorsed the Core Principles for Effective Banking Supervision as set out by the Basel Committee on Banking Supervision.

The banking system is dominated by two long-established domestic entities:  the Mauritius Commercial Bank (MCB) and the State Bank of Mauritius (SBM), which together constitute about 60 percent of the total domestic market.  Maubank, the third-largest bank in the country, became operational in 2016 following a merger between the Mauritius Post & Cooperative Bank and the National Commercial Bank.  The Bank of China started operations in Mauritius in 2016.  Other foreign banks present in Mauritius include HSBC, Barclays Bank, Bank of Baroda, Habib Bank, BCP Bank (Mauritius), Standard Bank, Standard Chartered Bank, State Bank of India, and Investec Bank.  As of February 2020, commercial banks’ total assets amounted to USD 41.7 billion.

According to the Bank of Mauritius 2019 Annual Report, the banking sector remained healthy with an average capital adequacy ratio of 19 percent as of June 2019.  Banks’ asset quality was unchanged from end-June 2018 to end-June 2019 and is generally considered to be sound.  Non-performing loans as a ratio to total outstanding loans stood at 5.5 per cent in June 2019.

In July 2017, the Banking Act was amended to double the minimum capital requirement to USD 11.2 million from USD 5.8 million.  The Central Bank began reporting the liquidity coverage ratio in 2017 to improve the liquidity profile of banks and their ability to withstand potential liquidity disruptions.  The latest International Monetary Fund Article IV report highlights that banks have increased exposure to the region and that the Bank of Mauritius has strengthened cross-border supervision and cooperation with foreign regulators.  The IMF report also recommends that additional steps be taken to strengthen financial stability, including lowering the high non-performing loans stock through a more stringent approach to writing-off legacy exposures, and by safeguarding the longer-term forex funding needs stemming from banks’ swift expansion abroad.

The Covid-19 crisis is expected to heavily impact banks’ profitability due to increased defaults and delayed loan repayments.  As part of its Covid-19 response, the Bank of Mauritius has made USD 132 million available through commercial banks as special relief funds to help meet cash flow and working capital requirements.  The cash reserve ratio applicable to commercial banks was reduced from 9 percent to 8 percent.  The Bank of Mauritius also put on hold the Guideline on Credit Impairment Measurement and Income Recognition, which was effective since January 2020.

In July 2019, the Bank of Mauritius Act was amended to allow the Bank of Mauritius to use special reserve funds in exceptional circumstances and with approval of the central bank’s board for the repayment of central government external debt obligations, provided that repayments would not adversely affect the bank’s operations.  This provision was used in January 2020 to repay government debt worth USD 450 million, raising concerns about the central bank’s independence.

Most major banks in Mauritius have correspondent banking relationships with large banks overseas.  In recent years, according to industry experts, no banks have lost correspondent banking relationships and none report being in jeopardy of doing so as of April 2020.

In January 2019, the Central Bank signed a memorandum of cooperation with the Mauritius Police Force on financial crimes and illicit activities relating to the financial services sector.  In February 2020, the Financial Action Task Force (FATF) named Mauritius as a jurisdiction under increased monitoring, commonly known as the Grey List.  At that time, Mauritius made a high-level political commitment to work with the FATF and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) to strengthen the effectiveness of its AML/CFT regime.  Since the completion of its Mutual Evaluation Report in 2018, Mauritius has made progress on a number of its recommended actions to improve technical compliance and effectiveness, including amending the legal framework to require legal persons and legal arrangements to disclose of beneficial ownership information and improving the processes of identifying and confiscating proceeds of crimes.  Mauritius is working to implement its action plan, including (i) demonstrating that the supervisors of its global business sector and Designated Non-Financial Businesses and Professions implement risk-based supervision; (ii) ensuring the access to accurate basic and beneficial ownership information by competent authorities in a timely manner; (iii) demonstrating that law enforcement agencies have capacity to conduct money laundering investigations, including parallel financial investigations and complex cases; (iv) implementing a risk based approach for supervision of its non-profit sector to prevent abuse for terrorism financing purposes, and (v) demonstrating the adequate implementation of targeted financial sanctions through outreach and supervision.

In May 2020, the European Commission added Mauritius to its list of AML-CTF high-risk jurisdictions, pending approval from the European Council and European Parliament, and not to take effect until October 2020.

In February 2018, the Fintech and Innovation-driven Financial Services (FIFS) Regulatory Committee held its first meeting at the Financial Services Commission, the regulator for the non-banking financial services, to assess the regulatory framework concerning FIFS regulations in Mauritius and to identify priority areas within the regulatory space of fintech activities.  In May 2018, the Committee submitted recommendations for regulating the fintech sector to authorities.  A National Regulatory Sandbox License (RSL) Committee was set up to assess all fintech applications requiring a sandbox license for business activities without an existing legal framework.  Guidelines to apply to the RSL for fintech projects can be found at https://www.edbmauritius.org/opportunities/financial-services/fs-fintech-and-innovation.    

Effective March 2019, the Financial Services Commission allows businesses that provide custodial services for digital assets.  According the Bank of Mauritius 2019 Annual Report, the FIFS committee has initiated work on approaches to regulate Fintech tools such as artificial intelligence, big data, distributed ledger technologies, and biometrics.

Foreign Exchange and Remittances

Foreign Exchange 

The government of Mauritius abolished foreign exchange controls in 1994.  Consequently, no approval is required for converting, transferring, or repatriating profits, dividends, or capital gains earned by a foreign investor in Mauritius.  Funds associated with any form of investment can be freely converted into any world currency.

The exchange rate is generally market-determined, though the Bank of Mauritius, the central bank, occasionally intervenes.  Between January 2019 and December 2019, the Mauritian rupee depreciated against the U.S. dollar by 6.4 percent, the pound by 8.3 percent, and the euro by 3.6 percent.  Due to the Covid-19 crisis, the Bank of Mauritius intervened regularly on the domestic foreign exchange market in early 2020.

Remittance Policies

There are no time or quantity limits on remittance of capital, profits, dividends, and capital gains earned by a foreign investor in Mauritius.  Mauritius has a well-developed and modern banking system.  There is no legal parallel market in Mauritius for investment remittances.  The Embassy is unaware of any proposed changes by the government to its investment remittance policies.

Sovereign Wealth Funds

The government of Mauritius does not have a Sovereign Wealth Fund.

The government’s stated policy is to act as a facilitator to business, leaving production to the private sector.  The government, however, still controls key services directly or through parastatal companies in the power and water, television broadcasting, and postal service sectors.  The complete list of SOEs can be found at https://www.icac.mu/wp-content/uploads/2019/08/The-Declaration-of-Assets-Stated-owned-Enterprises.pdf.   

The government also holds controlling shares in the State Bank of Mauritius, Air Mauritius (the national airline), and Mauritius Telecom.  These state-controlled companies have Boards of Directors on which seats are allocated to senior government officials.  The government nominates the chairperson and CEO of each of these companies.  In April 2020, Air Mauritius requested voluntary administration, similar to Chapter 11 bankruptcy in the United States, because it could not comply with financial obligations.

The government also invests in a wide variety of Mauritian businesses through its investment arm, the State Investment Corporation.  The government is also the owner of Maubank and the National Insurance Company.

Two parastatal entities are involved in the importation of agricultural products:  the Agricultural Marketing Board (AMB) and the State Trading Corporation (STC).  The AMB’s role is to ensure that the supply of certain basic food products is constant and their prices remain affordable.  The STC is the only authorized importer of petroleum products, liquefied petroleum gas, and flour.  SOEs purchase from or supply goods and services to private sector and foreign firms through tenders.

Audited accounts of SOEs are published in their annual reports.  Mauritius is part of the OECD network on corporate governance of state-owned enterprises in southern Africa.

Privatization Program

The government has no specific privatization program.  In 2017, however, as part of its broader water reform efforts, the government agreed to a World Bank recommendation to appoint a private operator to maintain and operate the country’s potable water distribution system.  Under the World Bank’s proposed public-private partnership, the Central Water Authority (CWA) would continue to own distribution and supply assets, and will be responsible for business planning, setting tariffs, capital expenditure, and monitoring and enforcing the private operator’s performance.

In March 2018, despite protest by trade unions and consumer associations, the Minister of Energy and Public Utilities reiterated his intention to engage by the end of the year a private operator as a strategic partner to take over the water distribution services of the CWA.  To date, this has not materialized.  The government has said for years it planned to sell control of Maubank, into which it has injected about USD 173 million since it nationalized the bank in 2015.  In the 2019-2020 budget speech, the prime minister said the government would sell non-strategic assets to reduce government debt.  His office never identified a list of assets, but in parliament the prime minister has mentioned Maubank, the National Insurance Company, and Casinos of Mauritius as possible divestments.

The National Committee for Corporate Governance (NCCG) was established under Section 63 of the Financial Reporting Act (2004) and is the coordinating body responsible for all matters pertaining to corporate governance in Mauritius. The purpose of the Committee is to: (i) establish principles and practices of corporate governance; (ii) promote the highest standards of corporate governance; (iii) promote public awareness about corporate governance principles and practices; and (iv) act as the national coordinating body responsible for all matters pertaining to corporate governance.  The latest Code of Corporate Governance for Mauritius (2016) was launched on February 13, 2017, and can be accessed at http://www.miod.mu/info-centre/new-code-of-corporate-governance-for-mauritius-2016 . The Financial Reporting Council (FRC), also set up under the Financial Reporting Act (2004), aims to advocate for the provision of high-quality reporting of financial and non-financial information by public interest entities and to improve the quality of accountancy and audit service.

The Ministry of Financial Services and Good Governance was established following the December 2014 elections.  Its mandate is to provide guidance and support for enforcement of good governance and the eradication of corruption.  The Mauritius Institute of Directors (MIoD) is an independent, private sector-led organization that also promotes high standards and best practices of corporate governance, with additional information available at http://www.miod.mu.  

In 2017, the government set up a National Corporate Social Responsibility (CSR) Foundation, which operated under the Ministry of Social Integration and Economic Empowerment.  In 2019, this foundation became the National Social Inclusion Foundation (NSIF).  The NSIF is managed by a council consisting of members from the private and public sectors, civil society, and academia.  Under the 2016 Finance Act, every company registered in Mauritius must set up a CSR fund and contribute each year the equivalent of 2 percent of its taxable income from of the previous year.  In 2017 and 2018, companies were required to remit at least 50 percent of their CSR funds to tax authorities for the National CSR Foundation.  The required contribution increased in 2019 to 75 percent.  The NSIF is supposed to channel the money to NGO projects in priority areas identified by the government.  These priority areas are poverty alleviation, educational support, social housing, family protection, people with severe disabilities, and victims of substance abuse.  Further details can be found on the NSIF website: https://www.nsif.mu.

The prevalence of corruption in Mauritius is low by regional standards, but graft and nepotism nevertheless remain concerns and are increasingly a source of public frustration. Several high-profile cases involving corruption have reinforced the perception that corruption exists at the highest political levels, despite the fact that Mauritian law provides for criminal penalties for corruption by officials.  A former prime minister was arrested in 2015 on allegations of money laundering although courts have since dismissed all charges.  The state prosecutors appealed the last dismissal in late 2019 and the appeal is pending.  A minister in the previous government had to step down in 2016 on allegations of bribery.  In March 2017, allegations surfaced concerning possible political interference in the Financial Services Commission’s issuance of an investment banking license to an Angolann billionaire, who is being investigated for alleged corruption in Portugal.  In March 2018, the president of Mauritius resigned after press reported that she bought apparel, jewelry, and a laptop computer with a credit card provided by an NGO financed by the same Angolan businessman.

Investors should know that while the constitution and law require arrest warrants to be based on sufficient evidence and issued by a magistrate, police may detain an individual for up to 21 days under a “provisional charge” based on a reasonable suspicion, with the concurrence of a magistrate.  Two French businessmen claimed that in February 2015 authorities held them against their will.  A U.S. investor has been unable to leave Mauritius since February 1, 2020, without charges filed against him.

In 2002, the government adopted the Prevention of Corruption Act, which led to the establishment of an Independent Commission Against Corruption (ICAC).  ICAC has the power to investigate corruption and money laundering offenses and can also seize the proceeds of corruption and money laundering.  The Director of ICAC is nominated by the prime minister.  The Good Governance and Integrity Reporting Act of 2015 was announced as a measure to recover “unexplained wealth” and came into force in early 2016.  Critics of the act dislike its presumption of guilt, requiring the accused to demonstrate a lawful source of questionable assets, as well as the application of the law retroactively for seven years. The 2018 Declaration of Assets Act (DoA) entered into force in June 2019 and defines which public officials are required to declare assets and liabilities to the ICAC.  These public officials include members of the National Assembly, mayors, chairpersons and chief executive officers of state-owned enterprises and statutory bodies, among others.

Mauritius is the 52nd least-corrupt nation out of 175 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International, up from 51st in 2018 and down from 54th in 2017.  However, Mauritius retained its first rank in overall governance in Africa for the 12th consecutive year, according to the 2018 Ibrahim Index of African Governance.

Although Mauritius’ generally positive reputation for transparency and accountability has been hurt by some high-profile scandals.  U.S. investors, in conversations with embassy personnel, have not identified corruption as an obstacle to investment in the country.  They have, however, encountered attempts for bribery.

Resources to Report Corruption:

Navin Beekharry
Director-General
Independent Commission Against Corruption
Reduit Triangle, Moka, Mauritius
+230 402 6600
icacoffice@intnet.mu

Contact at watchdog organization:

Rajen Bablee
Director
Transparency Mauritius
4th Floor, Fon Sing Building, 12 Edith Cavell Street, Port Louis, Mauritius
+ 230 213 0796
transparency.mauritius@gmail.com

Mauritius has a long tradition of political and social stability.  Civil unrest and political violence are uncommon.  Free and fair national elections are held every five years with the last general elections held in November 2019.  Those most recent elections took place without incident.  The incumbent prime minister, who as finance minister in January 2017 was appointed prime minister when his father resigned (in accordance with the constitution), won the elections.

Crime rates are low but petty and violent crime can occur.  Visitors should keep track of their belongings at all times due to the potential for pick-pocketing and purse-snatching, especially in crowded and tourist areas.  Visitors should also avoid walking alone, particularly on isolated beaches and at night, and should avoid demonstrations.

According to the Mauritian government, total employment stood at 551,300 in 2019, an increase from 543,700 in 2018.  The unemployment rate decreased to 6.7 percent in 2019 from 6.9 percent in 2018, with a high jobless rate among youth and women.  In the fourth quarter of 2019, the youth unemployment rate was 23 percent, and 62 percent of the total 37,900 unemployed people were women.

The labor market remains restricted by rising unemployment among graduates and low-skilled workers, and a high number of unemployed women.  It is further characterized by a persistent mismatch between qualifications of the unemployed and the skills required in an increasingly services-oriented economy.  Government labor market programs aimed at building human capital have been extended, with policies to develop skills of the unemployed focusing on apprenticeships and placements.  In November 2016, the government introduced the National Skills Development Program (NSDP), a fully-funded  technical training program for youth, which was still running as of April 2020.  The NSDP is managed by the Human Resource Development Council (HRDC), which operates under the Ministry of Education and is responsible for promoting the development of the labor force in Mauritius.  The HRDC, with technical and financial support from the French development agency, is also devising a National Skills Development Strategy (NSDS) for 2020-2024.  The aim of the NSDS is to improve the effectiveness and efficiency of skills development programs.  In 2018, the government introduced the SME Employment Scheme, which allows SMEs to employ recent graduates and the government pays the graduates a monthly stipend for one year.  In 2019, the government opened the scheme to diploma holders as well.

In 2017, the National Assembly passed the National Employment Act.  The object of the act was to repeal the Employment and Training Act and introduce a modern legislative framework.  The act provides the labor market with information on supply and demand of skills, job seekers, and training institutions; promotes placement and training of job seekers, including young persons and persons with disabilities; and promotes labor migration and home-based work.  In November 2017, the Equal Opportunities Act was amended to protect prospective employees with criminal records from discrimination when being considered for recruitment or promotion.

In 2018, the government introduced a minimum monthly wage of 9,000 Mauritian rupees (approximately USD 255) for all workers, affecting over 100,000 low-paid workers.  In November 2019, the cabinet, following a recommendation from the National Wage Consultative Council, increased the  minimum wage again to 10,200 rupees (USD 284), effective January 2020.  Workers’ rights are protected under the 2019 Workers’ Rights Act, taking effect in January 2020.  The legislation provides for a portable retirement gratuity fund, fair compensation in case of termination, harmonization of working conditions in different sectors, the flexibility to request the right to work from home either on a full- or part-time basis, and equal remuneration for equal work, among others.  The act also adds to the Equal Opportunities Act through several measures against discrimination in employment and occupation.

Trade unions are independent of government and employers.  Mauritius has an active trade union movement, representing about 25 percent of the workforce, and labor-management relations are generally positive.  A list of trade unions is available at http://labour.govmu.org/English/Publications/Pages/Reports-and-publications.aspx .  The last major strike affecting the economy took place in 1979.  The government generally seeks to avoid strikes through a system that promotes settlement through negotiation or arbitration by the Employment Relations Tribunal and the National Remuneration Board.  Mauritius participates actively in the annual International Labor Organization (ILO) conference in Geneva, Switzerland, and adheres to ILO core conventions protecting workers’ rights.

In December 1997, Mauritius signed an investment incentive agreement with OPIC: https://www.state.gov/wp-content/uploads/2019/02/12912-Mauritius-Finance-Guarantees-12.15.1997.pdf.  Mauritius, being classified as an upper-middle income country, is not a priority for DFC programs, but may be considered for programs that address key agency priorities.   Mauritius is also a member of the World Bank’s Multilateral Investment Guarantee Agency.  Countries with significant government-financed investment in Mauritius include India, France, and China.

*Source: National Accounts 2018, Statistics Mauritius, http://statsmauritius.govmu.org/English/StatsbySubj/Documents/Digest/National%20Accounts/Digest_NA_Yr18.pdf 

Smita Bheenick
Economic/Commercial Section
U.S. Embassy Port Louis, Mauritius
Tel: +230 202 4430; Fax: +230 208 9534
Email: bheenicks@state.gov

Policies Towards Foreign Direct Investment

Morocco actively encourages foreign investment through macro-economic policies, trade liberalization, structural reforms, infrastructure improvements, and incentives for investors.  Law 18-95 of October 1995, constituting the Investment Charter , is the foundational Moroccan text governing investment and applies to both domestic and foreign investment (direct and portfolio).  Morocco’s 2014 Industrial Acceleration Plan (PAI), a new approach to industrial development based on establishing “ecosystems” that integrate value chains and supplier relationships between large companies and small and medium-sized enterprises (SMEs), has guided Ministry of Industry policy for the last six years.  The Ministry of Industry announced a second PAI to run from 2021-2025.  Moroccan legislation governing FDI applies equally to Moroccan and foreign legal entities, with the exception of certain protected sectors.

Morocco’s Investment and Export Development Agency (AMDIE) is the national agency responsible for the development and promotion of investments and exports.  Following reform to the governance of the country’s Regional Investment Centers (CRIs) in 2019, each of the 12 regions is empowered to lead their own investment promotion efforts.  The CRI websites aggregate relevant information for interested investors and include investment maps, procedures for creating a business, production costs, applicable laws and regulations, and general business climate information, among other investment services.  The websites vary by region, with some functioning better than others. AMDIE and the 12 CRIs work together throughout the phases of investment at the national and regional level.  For example, AMDIE and the CRIs coordinate contact between investors and partners.  Regional investment commissions examine investment applications and send recommendations to AMDIE.

Further information about Morocco’s investment laws and procedures is available on AMDIE ’s website or through the individual websites of each of the CRIs.  For information on agricultural investments, visit the Agricultural Development Agency (ADA) website  or the National Agency for the Development of Aquaculture (ANDA) website .

When Morocco acceded to the OECD Declaration on International Investment and Multinational Enterprises in November 2009, Morocco guaranteed national treatment of foreign investors (i.e., according equal treatment for both foreign and national investors in like circumstances).  The only exception to this national treatment of foreign investors is in those sectors closed to foreign investment (noted below), which Morocco delineated upon accession to the Declaration.  Per a Moroccan notice published in 2014, the lead agency on adherence to the Declaration is AMDIE.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities may establish and own business enterprises, barring certain restrictions by sector.  While the U.S. Mission is unaware of economy-wide limits on foreign ownership, Morocco places a 49 percent cap on foreign investment in air and maritime transport companies and maritime fisheries.  Morocco prohibits foreigners from owning agricultural land, though they can lease it for up to 99 years.  The Moroccan government holds a monopoly on phosphate extraction through the 95 percent state-owned Office Cherifien des Phosphates (OCP).  The Moroccan state also has a discretionary right to limit all foreign majority stakes in the capital of large national banks but apparently has never exercised that right.  In the oil and gas sector, the National Agency for Hydrocarbons and Mines (ONHYM) retains a compulsory share of 25 percent of any exploration license or development permit.  The Moroccan Central Bank (Bank Al-Maghrib) may use regulatory discretion in issuing authorizations for the establishment of domestic and foreign-owned banks.  As established in the 1995 Investment Charter, there is no requirement for prior approval of FDI, and formalities related to investing in Morocco do not pose a meaningful barrier to investment.  The U.S. Mission is not aware of instances in which the Moroccan government refused foreign investors for national security, economic, or other national policy reasons.  The U.S. Mission is unaware of any U.S. investors disadvantaged or singled out by ownership or control mechanisms, sector restrictions, or investment screening mechanisms, relative to other foreign investors.

Other Investment Policy Reviews

The last third-party investment policy review  of Morocco was the World Trade Organization (WTO) 2016 Trade Policy Review  (TPR), which found that the trade reforms implemented since the prior TPR in 2009 contributed to the economy’s continued growth by stimulating competition in domestic markets, encouraging innovation, creating new jobs, and contributing to growth diversification.

Business Facilitation

In the World Bank’s 2020 Doing Business Report , Morocco ranks 53 out of 190 economies, rising seven places since the 2019 report.  Since 2012, Morocco has implemented reforms that facilitate business registration, such as eliminating the need to file a declaration of business incorporation with the Ministry of Labor, reducing company registration fees, and eliminating minimum capital requirements for limited liability companies.  Morocco maintains a business registration website that is accessible through the various Regional Investment Centers (CRI – Centre Regional d’Investissement ).  The business registration process is generally streamlined and fully digital.

Foreign companies may utilize the online business registration mechanism.  Foreign companies, with the exception of French companies, are required to provide an apostilled Arabic translated copy of their articles of association and an extract of the registry of commerce in its country of origin.  Moreover, foreign companies must report the incorporation of the subsidiary a posteriori to the Foreign Exchange Office (Office de Changes) to facilitate repatriation of funds abroad such as profits and dividends.  According to the World Bank, the process of registering a business in Morocco takes an average of nine days, significantly less than the Middle East and North Africa regional average of 20 days.  Morocco does not require that the business owner deposit any paid-in minimum capital.

On January 21, 2019, law 88-17 on the electronic creation of businesses was published, but the implementation texts have not yet been adopted and published, meaning the new process is not yet operational.  The new system will eventually allow for the creation of businesses online via an electronic platform managed by the Moroccan Office of Industrial and Commercial Property (OMPIC).  Once launched, all procedures related to the creation, registration, and publication of company data will be carried out via this platform.  A separate (yet-to-be-issued) decree will determine the list of documents required during the electronic business creation process.  A new national commission will monitor the implementation of the procedures.

The business facilitation mechanisms provide for equitable treatment of women and underrepresented minorities in the economy.  Notably, according to the World Bank, the length of time and cost to register a new business is equal for men and women in Morocco.  The U.S. Mission is unaware of any official assistance provided to women and underrepresented minorities through the business registration mechanisms.  In cooperation with the Moroccan government, civil society, and the private sector, there have been several initiatives aimed at improving gender quality in the workplace and access to the workplace for foreign migrants, particularly those from sub-Saharan Africa.

Outward Investment

The Government of Morocco prioritizes investment in Africa. The African Development Bank ranks Morocco as the second biggest African investor in Sub-Saharan Africa, after South Africa, with up to 85 percent of Moroccan FDI going to the region.  Morocco is the largest African investor in West Africa.  The U.S. Mission is not aware of a standalone outward investment promotion agency, though AMDIE’s mission includes supporting Moroccan exporters and investors seeking to invest outside of Morocco. Nor is the U.S. Mission aware of any restrictions for domestic investors attempting to invest abroad.   However, under the Moroccan investment code, repatriation of funds is limited to “convertible” Moroccan Dirham accounts.  Morocco’s Foreign Exchange Office (“Office des Changes,” OC) implemented several changes for 2020 that slightly liberalize the country’s foreign exchange regulations.  Moroccans going abroad for tourism can now exchange up to $4,700 in foreign currency per year, with the possibility to attain further allowances indexed to their income tax filings.  Business travelers can also obtain larger amounts of foreign currency, provided their company has properly filed and paid corporate income taxes.  Another new provision permits banks to use foreign currency accounts to finance investments in Morocco’s Industrial Acceleration Zones.

Morocco has signed bilateral investment treaties (BITs) with 71 countries , of which 50 are in force.  Morocco’s most recent BIT, signed in January of 2020, is with Japan.

Morocco has also signed a quadrilateral FTA with Tunisia, Egypt, Lebanon, and Jordan, an FTA with Turkey, an FTA with the United Arab Emirates, the European FTA with Iceland, Liechtenstein, and Norway, and the Greater Arab Free Trade Area agreement (which eliminates certain tariffs among 15 Middle East and North African countries).  The Association Agreement (AA) between the EU and Morocco came into force in 2000, creating a free trade zone in 2012 that liberalized two-way trade in goods.  The EU and Morocco developed the AA further through an agreement on trade in agricultural, agro-food, and fisheries products, and a protocol establishing a bilateral dispute settlement mechanism, all of which entered into force in 2012.  However, the legal standing of the agreement’s rules of origin, particularly for fisheries, has come into question in recent years with both sides seeking to resolve the issue.  Following an initial stay on the EU-Morocco agricultural agreement issued by the European Court of Justice in 2016, the European Parliament formally adopted an amended agreement in January 2019.  In 2008, Morocco was the first country in the southern Mediterranean region to be granted “advanced status” by the EU, which promotes closer economic integration by reducing non-tariff barriers, liberalizing the trade in services, ensuring the protection of investments, and standardizing regulations in several commercial and economic areas.

On March 3, 2018, Morocco signed an agreement, along with 43 other African states, forming the African Continental Free Trade Area (CFTA) establishing a market of over 1.2 billion people, with a combined gross product of over $3 trillion.  The CFTA is a flagship project of Agenda 2063, the African Union’s (AU) long-term vision for an integrated, prosperous, and peaceful Africa.  The agreement entered into force in May 2019 following ratification by 22 member states.  While continent-wide trade under the agreement is expected to begin in July 2020, as of February 2020, Morocco has not deposited its instruments of ratification to the AU.

The United States signed an income tax treaty  with Morocco in 1977.

Transparency of the Regulatory System

Morocco is a constitutional monarchy with an elected parliament and a mixed legal system of civil law based primarily on French law, with some influences from Islamic law.  Legislative acts are subject to judicial review by the Constitutional Court excluding royal decrees (Dahirs) issued by the King, which have the force of law.  Legislative power in Morocco is vested in both the government and the two chambers of Parliament, the Chamber of Representatives (Majlis Al-Nuwab) and the Chamber of Councilors (Majlis Al Mustashareen).  The principal sources of commercial legislation in Morocco are the Code of Obligations and Contracts of 1913 and Law No. 15-95 establishing the Commercial Code.  The Competition Council and the National Authority for Detecting, Preventing, and Fighting Corruption (INPPLC) have responsibility for improving public governance and advocating for further market liberalization.  All levels of regulations exist (local, state, national, and supra-national).  The most relevant regulations for foreign businesses depend on the sector in question.  Ministries develop their own regulations and draft laws, including those related to investment, through their administrative departments, with approval by the respective minister.  Each regulation and draft law is made available for public comment.  Key regulatory actions are published in their entirety in Arabic and usually French in the official bulletin on the website  of the General Secretariat of the Government.  Once published, the law is final.  Public enterprises and establishments can adopt their own specific regulations provided they comply with regulations regarding competition and transparency.

Morocco’s regulatory enforcement mechanisms depend on the sector in question, and enforcement is legally reviewable.  The National Telecommunications Regulatory Agency (ANRT), for example, created in February 1998 under Law No. 24-96, is the public body responsible for the control and regulation of the telecommunications sector.  The agency regulates telecommunications by participating in the development of the legislative and regulatory framework.  Morocco does not have specific regulatory impact assessment guidelines, nor are impact assessments required by law.  Morocco does not have a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies.

The U.S. Mission is not aware of any informal regulatory processes managed by nongovernmental organizations or private sector associations. The Moroccan Ministry of Finance posts quarterly statistics  (compiled in accordance with IMF recommendations) on public finance and debt on their website.  A report on public debt is published on the Ministry of Economy and Finance’s website and is used as part of the budget bill formulation and voting processes. Fiscal year 2020 debt report was published October 11, 2019.

International Regulatory Considerations

Morocco joined the WTO in January 1995 and reports technical regulations that could affect trade with other member countries to the WTO.  Morocco is a signatory to the Trade Facilitation Agreement  and has a 91.2 percent implementation rate of TFA requirements.  European standards are widely referenced in Morocco’s regulatory system.  In some cases, U.S. or international standards, guidelines, and recommendations are also accepted.

Legal System and Judicial Independence

The Moroccan legal system is a hybrid of civil law (French system) and some Islamic law, regulated by the Decree of Obligations and Contracts of 1913 as amended, the 1996 Code of Commerce, and Law No. 53-95 on Commercial Courts.  These courts also have sole competence to entertain industrial property disputes, as provided for in Law No. 17-97 on the Protection of Industrial Property, irrespective of the legal status of the parties.  According to the European Bank for Reconstruction and Development’s 2015 Morocco Commercial Law Assessment Report , Royal Decree No. 1-97-65 (1997) established commercial court jurisdiction over commercial cases including insolvency.  Although this led to some improvement in the handling of commercial disputes, the lack of training for judges on general commercial matters remains a key challenge to effective commercial dispute resolution in the country.  In general, litigation procedures are time consuming and resource-intensive, and there is no legal requirement with respect to case publishing.  Disputes may be brought before one of eight Commercial Courts (located in Rabat, Casablanca, Fes, Tangier, Marrakech, Agadir, Oujda, and Meknes), and one of three Commercial Courts of Appeal (located in Casablanca, Fes, and Marrakech).  There are other special courts such as the Military and Administrative Courts.  Title VII of the Constitution provides that the judiciary shall be independent from the legislative and executive branches of government.  The 2011 Constitution also authorized the creation of the Supreme Judicial Council, headed by the King, which has the authority to hire, dismiss, and promote judges.  Enforcement actions are appealable at the Courts of Appeal, which hear appeals against decisions from the court of first instance.

Laws and Regulations on Foreign Direct Investment

The principal sources of commercial legislation in Morocco are the 1913 Royal Decree of Obligations and Contracts, as amended; Law No. 18-95 that established the 1995 Investment Charter; the 1996 Code of Commerce; and Law No. 53-95 on Commercial Courts.  These courts have sole competence to hear industrial property disputes, as provided for in Law No. 17-97 on the Protection of Industrial Property, irrespective of the legal status of the parties.  Morocco’s CRIs and AMDIE   provide users with various investment related information on key sectors, procedural information, calls for tenders, and resources for business creation.  Their websites are infrequently updated.

Competition and Anti-Trust Laws

Morocco’s Competition Law No. 06-99 on Free Pricing and Competition (June 2000) outlines the authority of the Competition Council  as an independent executive body with investigatory powers.  Together with the INPPLC, the Competition Council is one of the main actors charged with improving public governance and advocating for further market liberalization.  Law No. 20-13, adopted on August 7, 2014, amended the powers of the Competition Council to bring them in line with the 2011 Constitution.  The Competition Council’s responsibilities include making decisions on anti-competition practices and controlling concentrations, with powers of investigation and sanction; providing opinions in official consultations by government authorities; and publishing reviews and studies on the state of competition.  After four years of delays, the Moroccan Government nominated and approved all members of the Competition Council in December of 2018.

The Competition Council is investigating years of alleged collusion by oil distribution companies, releasing an incriminating preliminary report in 2019.  The case includes investigations into two foreign-owned firms:  Vivo Energy, an affiliate of the British-Dutch company Royal Dutch Shell, and Total Maroc, a subsidiary of the French multinational Total. Also in 2019, the council released a report outlining barriers to entry that protect established fuel distribution companies like Vivo and Total Maroc, to the detriment of consumers.

In February 2020, the Moroccan telecommunications regulator, National Telecommunications Regulatory Agency (ANRT), issued a $340 million fine against Maroc Telecom for abusing its dominant position in the market.  Maroc Telecom is majority owned by Etisalat, based in the United Arab Emirates (UAE), and is minority owned by the Moroccan government.  ANRT ruled in favor of rival telecoms operator INWI, which is majority-owned by Morocco’s royal holding company, and is minority-owned by Kuwait’s sovereign wealth fund and a private Kuwaiti company, which had filed the complaint with ANRT.

Expropriation and Compensation

Expropriation may only occur in the public interest for public use by a state entity, although in the past, private entities that are public service “concessionaires” mixed economy companies, or general interest companies have also been granted expropriation rights.  Article 3 of Law No. 7-81 (May 1982) on expropriation, the associated Royal Decree of May 6, 1982, and Decree No. 2-82-328 of April 16, 1983 regulate government authority to expropriate property.  The process of expropriation has two phases: in the administrative phase, the State declares public interest in expropriating specific land and verifies ownership, titles, and appraised value of the land.  If the State and owner are able to come to agreement on the value, the expropriation is complete.  If the owner appeals, the judicial phase begins, whereby the property is taken, a judge oversees the transfer of the property, and payment compensation is made to the owner based on the judgment.  The U.S. Mission is not aware of any recent, confirmed instances of private property being expropriated for other than public purposes (eminent domain), or in a manner that is discriminatory or not in accordance with established principles of international law.

Dispute Settlement

ICSID Convention and New York Convention

Morocco is a member of the International Center for Settlement of Investment Disputes (ICSID) and signed its convention in June 1967.  Morocco is a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  Law No. 08-05 provides for enforcement of awards made under these conventions.

Investor-State Dispute Settlement

Morocco is signatory to over 60 bilateral treaties recognizing binding international arbitration of trade disputes, including one with the United States.  Law No. 08-05 established a system of conventional arbitration and mediation, while allowing parties to apply the Code of Civil Procedure in their dispute resolution.  Foreign investors commonly rely on international arbitration to resolve contractual disputes.  Commercial courts recognize and enforce foreign arbitration awards.  Generally, investor rights are backed by a transparent, impartial procedure for dispute settlement.  There have been no claims brought by foreign investors under the investment chapter of the U.S.-Morocco Free Trade Agreement since it came into effect in 2006.  The U.S. Mission is not aware of any investment disputes over the last year involving U.S. investors.

Morocco officially recognizes foreign arbitration awards issued against the government.  Domestic arbitration awards are also enforceable subject to an enforcement order issued by the President of the Commercial Court, who verifies that no elements of the award violate public order or the defense rights of the parties.  As Morocco is a member of the New York Convention, international awards are also enforceable in accordance with the provisions of the convention.  Morocco is also a member of the Washington Convention for the International Centre for Settlement of Investment Disputes (ICSID), and as such agrees to enforce and uphold ICSID arbitral awards.  The U.S. Mission is not aware of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Morocco has a national commission on Alternative Dispute Resolution (ADR) with a mandate to regulate mediation training centers and develop mediator certification systems.  Morocco seeks to position itself as a regional center for arbitration in Africa, but the capacity of local courts remains a limiting factor.  The Moroccan government established the Center of Arbitration and Mediation in Rabat and the Casablanca International Mediation and Arbitration Center (CIMAC).  The U.S. Mission is not aware of any investment disputes involving state owned enterprises (SOEs).

Bankruptcy Regulations

Morocco’s bankruptcy law is based on French law.  Commercial courts have jurisdiction over all cases related to insolvency, as set forth in Royal Decree No. 1-97-65 (1997).  The Commercial Court in the debtor’s place of business holds jurisdiction in insolvency cases.  The law gives secured debtors priority claim on assets and proceeds over unsecured debtors, who in turn have priority over equity shareholders.  Bankruptcy is not criminalized.  The World Bank’s 2020 Doing Business report ranked Morocco 73 out of 190 economies in “Resolving Insolvency”.  The GOM revised the national insolvency code in March of 2018.

Investment Incentives

As set out in the Investment Code (Section 2.4), Morocco offers incentives designed to encourage foreign and local investment.  Morocco’s Investment Charter gives the same benefits to all investors regardless of the industry in which they operate (except agriculture and phosphates, which remain outside the scope of the Charter).  With respect to agricultural incentives, Morocco launched the Plan Maroc Vert  (Green Morocco Plan) in 2008 to improve the competitiveness of the agribusiness industry.  This plan offers technical and financial support to federations in the citrus and olive sectors to boost agribusiness value chains.

Morocco has several free zones offering companies incentives such as tax breaks, subsidies, and reduced customs duties. Free zones aim to attract investment by companies seeking to export

products from Morocco.  As part of a government-wide strategy to strengthen its position as an African financial hub, Morocco offers incentives for firms that locate their regional headquarters in Morocco at Casablanca Finance City (CFC), Morocco’s flagship financial and business hub launched in 2010.  For details on CFC eligibility, see CFC’s website . Morocco is on the European Union’s tax “grey list ” for pursuing a harmful tax policy based on the tax advantages offered to export companies, companies operating in free zones, and CFC.  In response to EU pressure and the desire to avoid negative consequences for investment, Morocco’s 2020 budget law transforms the country’s free zones into “Industrial Acceleration Zones” with a 15 percent corporate tax rate following an initial five years of exemption, compared to a previous corporate tax rate of 8.75 percent over 20 years.  Similarly, companies holding CFC status will be taxed 15 percent both on their local and export activities as of 2021, after a five-year tax exoneration.  The new measures adopted pertain to both Moroccan and foreign companies already established in these zones.

The Moroccan government launched its “investment reform plan” in 2016 to create a favorable environment for the private sector to drive growth.  The plan includes the adoption of investment incentives to support the industrial ecosystem, tax and customs advantages to support investors and new investment projects, import duty exemptions, and a value added tax (VAT) exemption.  AMDIE’s website  has more details on investment incentives, but generally these incentives are based on sectoral priorities (i.e. aerospace).  Morocco does not issue guarantees or jointly finance FDI projects, except for some public-private partnerships in fields such as utilities.

The Moroccan Government offers several guarantee funds and sources of financing for investment projects to both Moroccan and foreign investors. For example, the Caisse Centrale de Garantie  (CCG), a public finance institution offers co-financing, equity financing, and guarantees.

Beyond tax exemptions granted under ordinary law, Moroccan regulations provide specific advantages for investors with investment agreements or contracts with the Moroccan Government provided that they meet the required criteria. These advantages include: subsidies for certain expenses related to investment through the Industrial Development and Investment Fund, subsidies of certain expenses for the promotion of investment in specific industrial sectors and the development of new technologies through the Hassan II Fund for Economic and Social Development, exemption from customs duties within the framework of Article 7.I of the Finance Law n°12/98, and exemption from the Value Added Tax (VAT) on imports and domestic sales.

More information on specific incentives can be found at the Invest in Morocco website .

Foreign Trade Zones/Free Ports/Trade Facilitation

The government maintains several “free zones” in which companies enjoy lower tax rates in exchange for an obligation to export at least 85 percent of their production.  In some cases, the government provides generous incentives for companies to locate production facilities in the country.  The Moroccan government also offers a VAT exemption for investors using and importing equipment goods, materials, and tools needed to achieve investment projects whose value is at least $20 million.  This incentive lasts for a period of 36 months from the start of the business.  Due in part to an ongoing dispute with the European Union, the 2020 budget law will transform the country’s free zones into “Industrial Acceleration Zones” with a corporate tax of 15 percent after an initial five years of tax exemption.  Previously, companies in free zones paid a corporate tax rate of 8.75 percent.

Performance and Data Localization Requirements

The Moroccan government views foreign investment as an important vehicle for creating local employment.  Visa issuance for foreign employees is contingent upon a company’s inability to find a qualified local employee for a specific position and can only be issued after the company has verified the unavailability of such an employee with the National Agency for the Promotion of Employment and Competency (ANAPEC).  If these conditions are met, the Moroccan government allows the hiring of foreign employees, including for senior management.  The process for obtaining and renewing visas and work permits can be onerous and may take up to six months, except for CFC members, where the processing time is reportedly one week.

The government does not require the use of domestic content in goods or technologies.  The WTO Trade Related Investment Measures’ (TRIMs) database does not indicate any reported Moroccan measures that are inconsistent with TRIMs requirements.  Though not required, tenders in some industries, including solar energy, are written with targets for local content percentages.  Both performance requirements and investment incentives are uniformly applied to both domestic and foreign investors depending on the size of the investment.

The Moroccan Data Protection Act (Act 09-08) stipulates that data controllers may only transfer data if a foreign nation ensures an adequate level of protection of privacy and fundamental rights and freedoms of individuals with regard to the treatment of their personal data.  Morocco’s National Data Protection Commission (CNDP) defines the exceptions according to Moroccan law.  Local regulation requires the release of source code for certain telecommunications hardware products.  However, the U.S. Mission is not aware of any Moroccan government requirement that foreign IT companies should provide surveillance or backdoor access to their source-code or systems.

Real Property

Morocco permits foreign individuals and foreign companies own land, except agricultural land.  Foreigners may acquire agricultural land in order to carry out an investment or other economic project that is not agricultural in nature, subject to first obtaining a certificate of non-agricultural use from the authorities.  Morocco has a formal registration system maintained by the National Agency for Real Estate Conservation, Property Registries, and Cartography (ANCFCC), which issues titles of land ownership.  Approximately 30 percent of land is registered in the formal system, and almost all of that is in urban areas.  In addition to the formal registration system, there are customary documents called moulkiya issued by traditional notaries called adouls.  While not providing the same level of certainty as a title, a moulkiya can provide some level of security of ownership.  Morocco also recognizes prescriptive rights whereby an occupant of a land under the moulkiya system (not lands duly registered with ANCFCC) can establish ownership of that land upon fulfillment of all the legal requirements, including occupation of the land for a certain period of time (10 years if the occupant and the landlord are not related and 40 years if the occupant is a family member).  There are other specific legal regimes applicable to some types of lands, among which:

• Collective lands: lands which are owned collectively by some tribes, whose members only benefit from rights of usufruct;
• Public lands: lands which are owned by the Moroccan State;
• Guich lands: lands which are owned by the Moroccan State, but whose usufruct rights are vested upon some tribes;
• Habous lands: lands which are owned by a party (the State, a certain family, a religious or charity organization, etc.) subsequent to a donation, and the usufruct rights of which are vested upon such party (usually with the obligation to allocate the proceeds to a specific use or to use the property in a certain way).

Morocco’s rating for “Registering Property” regressed over the past year, with a ranking of 81 out of 190 countries worldwide in the World Bank’s Doing Business 2020 report.  Despite reducing the time it takes to obtain a non-encumbrance certificate, Morocco made property registration less transparent by not publishing statistics on the number of property transactions and land disputes for the previous calendar year, resulting in a lower score than in 2019.

Intellectual Property Rights

The Ministry of Industry, Trade, Investment, and the Digital Economy oversees the Moroccan Office of Industrial and Commercial Property (OMPIC), which serves as a registry for patents and trademarks in the industrial and commercial sectors.  The Ministry of Communications oversees the Moroccan Copyright Office (BMDA), which registers copyrights for literary and artistic works (including software), enforces copyright protection, and coordinates with Moroccan and international partners to combat piracy.

In fall 2020, OMPIC will launch its second strategic plan, Strategic Vision 2025, following the conclusion of its 2016-2020 strategic plan.  The new 2025 plan has three pillars: the creation of an environment conducive to entrepreneurship, creativity, and innovation; the establishment of an effective system for the protection and defense of intellectual property rights; and the implementation of economic and regional actions to enhance intangible assets and market-oriented research and development.  From 2015-2019, OMPIC recorded a 168 percent increase in the number of patent applications filed and a 35 percent increase in the number of trademark registration requests.

In 2016, the Ministry of Communication and World Intellectual Property Organization (WIPO) signed an MOU to expand cooperation to ensure the protection of intellectual property rights in Morocco.  The memorandum committed both parties to improving the judicial and operational dimensions of Morocco’s copyright enforcement.  Following this MOU, in November 2016, BMDA launched WIPOCOS, a database for collective royalty management organizations or societies, developed by WIPO.  In spite of these positive changes, BMDA’s current focus on redefining its legal mandate and relationship with other copyright offices worldwide has appeared to lessen its enforcement capacity.

Law No. 23-13 on Intellectual Property Rights increased penalties for violation of those rights and better defines civil and criminal jurisdiction and legal remedies.  It also set in motion an accreditation system for patent attorneys in order to better systematize and regulate the practice of patent law.  Law No. 34-05, amending and supplementing Law No. 2-00 on Copyright and Related Rights, includes 15 items (Articles 61 to 65) devoted to punitive measures against piracy and other copyright offenses.  These range from civil and criminal penalties to the seizure and destruction of seized copies.  Judges’ authority in sentencing and criminal procedures is proscribed, with little power to issue harsher sentences that would serve as stronger deterrents.

Moroccan authorities express a commitment to cracking down on all types of counterfeiting, but due to resource constraints, must focus enforcement efforts on the most problematic areas, specifically those with public safety and/or significant economic impacts.  In 2017, BMDA brought approximately a dozen court cases against copyright infringers and collected $6.1 million in copyright collections.  In 2018, Morocco’s customs authorities seized $62.7 million worth of counterfeit items.  In 2018, Morocco also created a National Customs Brigade charged with countering the illicit trafficking of counterfeit goods and narcotics.

In 2015, Morocco and the European Union concluded an agreement on the protection of Geographic Indications (GIs), which is currently pending ratification by both the Moroccan and European parliaments.  Should it enter into force, the agreement would grant Moroccan GIs sui generis. The U.S. government continues to urge Morocco to undergo a transparent and substantive assessment process for the EU GIs in a manner consistent with Morocco’s existing obligations, including those under the U.S.-Morocco Free Trade Agreement.

Morocco is not listed in USTR’s most recent Special 301 Report or notorious markets reports.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles .  For assistance, please refer to the U.S. Embassy local lawyers’ list, as well as to the regional U.S. IP Attaché .

Capital Markets and Portfolio Investment

Morocco encourages foreign portfolio investment and Moroccan legislation applies equally to Moroccan and foreign legal entities and to both domestic and foreign portfolio investment.  The Casablanca Stock Exchange (CSE), founded in 1929 and re-launched as a private institution in 1993, is one of the few exchanges in the region with no restrictions on foreign participation.  The CSE is regulated by the Moroccan Capital Markets Authority.  Local and foreign investors have identical tax exposure on dividends (10 percent) and pay no capital gains tax.  With a market capitalization of around $60 billion and 76 listed companies, CSE is the second largest exchange in Africa (after the Johannesburg Stock Exchange). Despite its position as the second largest exchange in Africa, the CSE saw only 13 new listings between 2010-2018.  There were no new initial public offerings (IPOs) in 2019.  Short selling, which could provide liquidity to the market, is not permitted.  The Moroccan government initiated the Futures Market Act (Act 42-12) in October 2015 to define the institutional framework of the futures market in Morocco and the role of the regulatory and supervisory authorities. As of February of 2020, futures trading was still pending full implementation.

The Casablanca Stock Exchange demutualized in November of 2015.  This change allowed the CSE greater flexibility, more access to global markets, and better positioned it as an integrated financial hub for the region.  Morocco has accepted the obligations of IMF Article VIII, sections 2(a), 3, and 4, and its exchange system is free of restrictions on making payments and transfers on current international transactions.  Credit is allocated on market terms, and foreign investors are able to obtain credit on the local market.

Money and Banking System

Morocco has a well-developed banking sector, where penetration is rising rapidly and recent improvements in macroeconomic fundamentals have helped resolve previous liquidity shortages.  Morocco has some of Africa’s largest banks, and several are major players on the continent and continue to expand their footprint.  The sector has several large, homegrown institutions with international footprints, as well as several subsidiaries of foreign banks.  According to the IMF’s 2016 Financial System Stability Assessment on Morocco , Moroccan banks comprise about half of the financial system with total assets of 140 percent of GDP – up from 111 percent in 2008.  According to Bank Al-Maghrib (the Moroccan central bank) there are 24 banks operating in Morocco (five of these are Islamic “participatory” banks), six offshore institutions, 28 finance companies, 13 micro-credit associations, and thirteen intermediary companies operating in funds transfer.  Among the 19 traditional banks, the top five banks comprise 79 percent of the system’s assets (including both on and off-balance sheet items.)  Attijariwafa, Morocco’s largest bank, is the sixth largest bank in Africa by total assets (approximately $54 billion in June 2019).  The Moroccan royal family is the largest shareholder.  Foreign (mainly French) financial institutions are majority stakeholders in seven banks and nine finance companies.  Moroccan banks have built up their presence overseas mainly through the acquisition of local banks, thus local deposits largely fund their subsidiaries.

The overall strength of the banking sector has grown significantly in recent years.  Since financial liberalization, credit is allocated freely and Bank Al-Maghrib has used indirect methods to control the interest rate and volume of credit.  The banking penetration rate is approximately 56 percent, with significant opportunities remaining for firms pursuing rural and less affluent segments of the market.  At the start of 2017, Bank Al-Maghrib approved five requests to open Islamic banks in the country.  By mid-2018, over 80 branches specializing in Islamic banking services were operating in Morocco.  The first Islamic bonds (sukuk) were issued in October 2018.  In 2019, Islamic banks in Morocco granted $930 million in financing. The GOM passed a law authorizing Islamic insurance products (takaful) in 2019, but the implementation regulations are still pending, and the products are not yet active.

Following an upward trend beginning in 2012, the ratio of non-performing loans (NPL) to bank credit stabilized at 7.5 percent in 2017 at $6.5 billion.  According to the most recent data from the IMF, NPL rates in July 2019 were 7.7 percent.

Morocco’s accounting, legal, and regulatory procedures are transparent and consistent with international norms.  Morocco is a member of UNCTAD’s international network of transparent investment procedures .  Bank Al-Maghrib is responsible for issuing accounting standards for banks and financial institutions.  Circular 56/G/2007 issued by Bank Al Maghrib requires that all entities under its supervision use International Financial Reporting Standards (IFRS).  The Securities Commission is responsible for issuing financial reporting and accounting standards for public companies.  Circular No. 06/05 of 2007 reaffirmed the Moroccan Stock Exchange Law (Law No. 52-01), which stipulated that all companies listed on the Casablanca Stock Exchange (CSE), other than banks and similar financial institutions, can choose between IFRS and Moroccan Generally Accepted Accounting Principles (GAAP).  In practice, most public companies use IFRS.

Legal provisions regulating the banking sector include Law No. 76-03 on the Charter of Bank Al-Maghrib, which created an independent board of directors and prohibits the Ministry of Finance and Economy from borrowing from the Central Bank except under exceptional circumstances.  Law No. 34-03 (2006) reinforced the supervisory authority of Bank Al-Maghrib over the activities of credit institutions.  Foreign banks and branches are allowed to establish operations in Morocco and are subject to provisions regulating the banking sector.  At present, the U.S. Mission is not aware of Morocco losing correspondent banking relationships.

There are no restrictions on foreigners’ abilities to establish bank accounts.  However, foreigners who wish to establish a bank account are required to open a “convertible” account with foreign currency.  The account holder may only deposit foreign currency into that account; at no time can they deposit dirhams. One issue, reported anecdotally, is that Moroccan banks have closed accounts without giving appropriate warning and that it has been difficult for some foreigners to open bank accounts in Morocco.

Morocco prohibits the use of cryptocurrencies, noting that they carry significant risks that may lead to penalties.

Foreign Exchange and Remittances

Foreign Exchange

Foreign investments financed in foreign currency can be transferred tax-free, without amount or duration limits.  This income can be dividends, attendance fees, rental income, benefits, and interest.  Capital contributions made in convertible currency, contributions made by debit of forward convertible accounts, and net transfer capital gains may also be repatriated.  For the transfer of dividends, bonuses, or benefit shares, the investor must provide balance sheets and profit and loss statements, annexed documents relating to the fiscal year in which the transfer is requested, as well as the statement of extra-accounting adjustments made in order to obtain the taxable income.

A currency-convertibility regime is available to foreign investors, including Moroccans living abroad, who invest in Morocco.  This regime facilitates their investments in Morocco, repatriation of income, and profits on investments.  Morocco guarantees full currency convertibility for capital transactions, free transfer of profits, and free repatriation of invested capital, when such investment is governed by the convertibility arrangement.  Generally, the investors must notify the government of the investment transaction, providing the necessary legal and financial documentation.  With respect to the cross-border transfer of investment proceeds to foreign investors, the rules vary depending on the type of investment.  Investors may import freely without any value limits to traveler’s checks, bank or postal checks, letters of credit, payment cards or any other means of payment denominated in foreign currency.  For cash and/or negotiable instruments in bearer form with a value equal to or greater than $10,000, importers must file a declaration with Moroccan Customs at the port of entry.  Declarations are available at all border crossings, ports, and airports.

Morocco has achieved relatively stable macroeconomic and financial conditions under an exchange rate peg (60/40 Euro/Dollar split), which has helped achieve price stability and insulated the economy from nominal shocks. In March of 2020, the Moroccan Ministry of Economy, Finance, and Administrative Reform, in consultation with the Central Bank, adopted a new exchange regime in which the Moroccan dirham may now fluctuate within a band of ± 5 percent compared to the Bank’s central rate (peg).  The change loosened the fluctuation band from its previous ± 2.5 percent. The change is designed to strengthen the capacity of the Moroccan economy to absorb external shocks, support its competitiveness, and contribute to improving growth.

Remittance Policies

Amounts received from abroad must pass through a convertible dirham account.  This type of account facilitates investment transactions in Morocco and guarantees the transfer of proceeds for the investment, as well as the repatriation of the proceeds and the capital gains from any resale.  AMDIE recommends that investors open a convertible account in dirhams on arrival in Morocco in order to quickly access the funds necessary for notarial transactions.

Sovereign Wealth Funds

Ithmar Capital is Morocco’s investment fund and financial vehicle, which aims to support the national sectorial strategies.  Ithmar Capital is a full member of the International Forum of Sovereign Wealth Funds and follows the Santiago Principles.  Established in November 2011 by the Moroccan government and supported by the royal Hassan II Fund for Economic and Social Development, the fund initially supported the government’s long-term Vision 2020 strategic plan for tourism.  The fund is currently part of the long-term development plan initiated by the government in multiple economic sectors.  Its portfolio of assets is valued at $1.8 billion.

Boards of directors (in single-tier boards) or supervisory boards (in dual-tier boards) oversee Moroccan SOEs.  The Financial Control Act and the Limited Liability Companies Act govern these bodies.  The Ministry of Economy and Finance’s Department of Public Enterprises and Privatization monitors SOE governance.  Pursuant to Law No. 69-00, SOE annual accounts are publicly available.  Under Law No. 62-99, or the Financial Jurisdictions Code, the Court of Accounts and the Regional Courts of Accounts audit the management of a number of public enterprises.  A list of SOEs is available on the Ministry of Finance’s website .

As of March 2020, the Moroccan Treasury held a direct share in 225 state-owned enterprises (SOEs) and 43 companies.  Several sectors remain under public monopoly, managed either directly by public institutions (rail transport, some postal services, and airport services) or by municipalities (wholesale distribution of fruit and vegetables, fish, and slaughterhouses).  The Office Cherifien des Phosphates (OCP), a public limited company that is 95 percent held by the Moroccan government, is a world-leading exporter of phosphate and derived products.  Morocco has opened several traditional government activities using delegated-management or concession arrangements to private domestic or foreign operators, which are generally subject to tendering procedures.  Examples include water and electricity distribution, construction and operation of motorways, and the management of non-hazardous wastes.  In some cases, SOEs continue to control the infrastructure while allowing private-sector competition through concessions.  SOEs benefit from budgetary transfers from the state treasury for investment expenditures.

Morocco established the Moroccan National Commission on Corporate Governance in 2007.  It prepared the first Moroccan Code of Good Corporate Governance Practices in 2008.  In 2011, the Commission drafted a code dedicated to SOEs, drawing on the OECD Guidelines on Corporate Governance of SOEs.  The code, which came into effect in 2012, aims to enhance SOEs’ overall performance.  It requires greater use of standardized public procurement and accounting rules, outside audits, the inclusion of independent directors, board evaluations, greater transparency, and better disclosure.  The Moroccan government prioritizes a number of governance-related initiatives including an initiative to help SOEs contribute to the emergence of regional development clusters.  The government is also attempting to improve the use of multi-year contracts with major SOEs as a tool to enhance performance and transparency.

Privatization Program

The government relaunched Morocco’s privatization program in the 2019 budget.  Parliament enacted the updated annex to Law 38-89 (which authorizes the transfer of publicly held shares to the private sector) in February 2019 through publication in the official bulletin, including the list of entities to be privatized. The state still holds significant shares in the main telecommunications companies, banks, and insurance companies, as well as railway and air transport companies.

Responsible business conduct (RBC) has gained strength in the broader business community in tandem with Morocco’s economic expansion and stability.  The Moroccan government does not have any regulations requiring companies to practice RBC nor does it give any preference to such companies.  However, companies generally inform Moroccan authorities of their planned RBC involvement.  Morocco joined the UN Global Compact network in 2006.  The Compact provides support to companies that affirm their commitment to social responsibility.  In 2016, the Ministry of Employment and Social Affairs launched an annual gender equality prize to highlight Moroccan companies that promote women in the workforce.  While there is no legislation mandating specific levels of RBC, foreign firms and some local enterprises follow generally accepted principles, such as the OECD RBC guidelines for multinational companies.  NGOs and Morocco’s active civil society are also taking an increasingly active role in monitoring corporations’ RBC performance.  Morocco does not currently participate in the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights, though it has held some consultations aimed at eventually joining EITI.  No domestic transparency measures exist that require disclosure of payments made to governments.  There have not been any cases of high-profile instances of private sector impact on human rights in the recent past.

In the 2019 Corruption Perceptions Index  published by Transparency International (TI), Morocco declined one point from the previous year (from 40 to 41) and moved down seven spots in the rankings (from 73^rd to 80^th out of 180 countries).  According to the State Department’s 2019 Country Report on Human Rights Practices, Moroccan law provides criminal penalties for corruption by officials, but the government generally did not implement the law effectively.  Officials sometimes engaged in corrupt practices with impunity.  There were reports of government corruption in the executive, judicial, and legislative branches during the year.

According to the Global Corruption Barometer Africa 2019 report published in July 2019, 53 percent of Moroccans surveyed think corruption increased in the previous 12 months, 31 percent of public services users paid a bribe in the previous 12 months, and 74 percent believe the government is doing a bad job in tackling corruption.

The 2011 constitution mandated the creation of a national anti-corruption entity.  Morocco formally adopted the National Authority for Probity, Prevention, and Fighting Corruption (INPLCC) through a law published in 2015.  The INPLCC did not come into operation until late 2018 when its board was appointed by King Mohammed VI, although a weaker predecessor organization continued in existence until that time.  The INPLCC is tasked with initiating, coordinating, and overseeing the implementation of policies for the prevention and fight against corruption, as well as gathering and disseminating information on the issue. Additionally, Morocco’s anti-corruption efforts include enhancing the transparency of public tenders and implementation of a requirement that senior government officials submit financial disclosure statements at the start and end of their government service, although their family members are not required to make such disclosures. Few public officials submitted such disclosures, and there are no effective penalties for failing to comply. Morocco does not have conflict of interest legislation. In 2018, thanks to the passage of an Access to Information (AI) law, Morocco joined the Open Government Partnership, a multilateral effort to make governments more transparent.

Although the Moroccan government does not require that private companies establish internal codes of conduct, the Moroccan Institute of Directors (IMA) was established in June 2009 with the goal of bringing together individuals, companies, and institutions willing to promote corporate governance and conduct.  IMA published the four Moroccan Codes of Good Corporate Governance Practices.  Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.  Morocco signed the UN Convention against Corruption in 2007 and hosted the States Parties to the Convention’s Fourth Session in 2011.  However, Morocco does not provide any formal protections to NGOs involved in investigating corruption.  Although the U.S. Mission is not aware of cases involving corruption with regard to customs or taxation issues, American businesses report encountering unexpected delays and requests for documentation that is not required under the FTA or standardized shipping norms.

Resources to Report Corruption

Organization: National Authority for Probity, Prevention, and Fighting Corruption

Address: Avenue Annakhil, Immeuble High Tech, Hall B, 3eme etage, Hay Ryad-Rabat
Telephone number: +212-5 37 57 86 60
Email address: contact@icpc.ma
Fax: +2125 37 71 16 73

Organization: Transparency International National Chapter
Address: 24 Boulevard de Khouribga, Casablanca 20250
Email Address: transparency@menara.ma
Telephone number: +212-22-542 699
http://www.transparencymaroc.ma/index.php 

Morocco does not have a significant history of politically motivated violence or civil disturbance.  There has not been any damage to projects and/or installations, which has had a continuing impact on the investment environment.  Demonstrations occur in Morocco and usually center on political, social, or labor issues.  They can attract thousands of people in major city centers, but most have been peaceful and orderly.

In the Moroccan labor market, many Moroccan university graduates cannot find jobs commensurate with their education and training, and employers report insufficient skilled candidates. The educational system does not prioritize STEM literacy and industrial skills and many graduates are unprepared to meet contemporary job market demands. In 2011, the Moroccan government restructured its employment promotion agency, the National Agency for Promotion of Employment and Skills (ANAPEC), in order to assist new university graduates prepare for and find work in the private sector that requires specialized skills. The Bureau of Professional Training and Job Promotion (OFPPT), Morocco’s main public provider for professional training, also launched the Specialized Institute for Aeronautics and Airport Logistics (ISMALA) in Casablanca in 2013 to offer technical training in aeronautical maintenance. According to official figures released by the government planning agency, unemployment was 10 percent in 2019, with youth (ages 15-24) unemployment hovering around 40 percent in some urban areas. The World Bank and other international institutions estimate that actual unemployment – and underemployment – rates may be higher.

The Government of Morocco pursues a strategy to increase the number of students in vocational and professional training programs. The government opened 27 such training centers between 2015 and 2018 and nearly doubled the number of students receiving scholarships for training between 2017 and 2018. The government announced that the number of scholarships granted to vocational trainees increased by 177 percent between 2018 and 2019. In 2018, the Government of Morocco launched a National Plan for Job Promotion, created after three years of collaboration with government partners involved in employment policy, to support job creation, strengthen the job market, and consolidate regional resources devoted to job promotion. This plan promotes entrepreneurship – especially in the context of regionalization outside the Casablanca-Rabat corridor – to boost youth employment.

Pursuing a forward-leaning migration policy, the Moroccan government has regularized the status of over 50,000 sub-Saharans migrants since 2014.  Regularization provides these migrants with legal access to employment, employment services, and education and vocation training.  The majority of sub-Saharan migrants who benefitted from the regularization program work in call centers and education institutes, if they have strong French or English skills, or domestic work and construction.

According to section VI of the labor law, employers in the commercial, industrial, agricultural, and forestry sectors with ten or more employees must communicate a dismissal decision to the employee’s union representatives, where applicable, at least one month prior to dismissal.  The employer must also provide grounds for dismissal, the number of employees concerned, and the amount of time intended to undertake termination.  With regards to severance pay (article 52 of the labor law), the employee bound by an indefinite employment contract is entitled to compensation in case of dismissal after six months of work in the same company regardless of the mode of remuneration and frequency of payment and wages.  The labor law differentiates between layoffs for economic reasons and firing.  In case of serious misconduct, the employee may be dismissed without notice or compensation or payment of damages.  The employee must file an application with the National Social Security Funds (CNSS) agency of his or her choice, within a period not exceeding 60 days from the date of loss of employment. During this period, the employee shall be entitled to medical benefits, family allowances, and possibly pension entitlements.  Labor law is applicable in all sectors of employment; there are no specific labor laws to foreign trade zones or other sectors. More information is available from the Moroccan Ministry of Foreign Affairs Economic Diplomacy unit.

Morocco has roughly 20 collective bargaining agreements in the following sectors: Telecommunications, automotive industry, refining industry, road transport, fish canning industry, aircraft cable factories, collection of domestic waste, ceramics, naval construction and repair, paper industry, communication and information technology, land transport, and banks. The sectoral agreements that exist to date are in the banking, energy, printing, chemicals, ports, and agricultural sectors.  According to the State Department’s Country Report on Human Rights Practices, the Moroccan constitution grants workers the right to form and join unions, strike, and bargain collectively, with some restrictions (S 396-429 Labor Code Act 1999, No. 65/99).  The law prohibits certain categories of government employees, including members of the armed forces, police, and some members of the judiciary, from forming and joining unions and from conducting strikes.  The law allows several independent unions to exist but requires 35 percent of the total employee base to be associated with a union for the union to be representative and engage in collective bargaining.  The government generally respected freedom of association and the right to collective bargaining.  Employers limited the scope of collective bargaining, frequently setting wages unilaterally for the majority of unionized and nonunionized workers. Domestic NGOs reported that employers often used temporary contracts to discourage employees from affiliating with or organizing unions.  Legally, unions can negotiate with the government on national-level labor issues.

Labor disputes (S 549-581 Labor Code Act 1999, No. 65/99) are common, and in some cases, they result in employers failing to implement collective bargaining agreements and withholding wages.  Trade unions complain that the government sometimes uses Article 288 of the penal code to prosecute workers for striking and to suppress strikes.  Labor inspectors are tasked with mediation of labor disputes.  In general, strikes occur in heavily unionized sectors such as education and government services, and such strikes can lead to disruptions in government services but usually remain peaceful.  In July 2016, the Moroccan government passed the Domestic Worker Law and the long-debated pension reform bill; the former entered into force in 2018.  The new pension reform legislation is expected to keep Morocco’s largest pension fund, the Caisse Marocaine de Retraites (CMR), solvent until 2028, with an increase in the retirement age from 60 to 63 by 2024, and adjustments in contributions and future allocations.

Chapter 16 of the U.S.-Morocco Free Trade Agreement (FTA) addresses labor issues and commits both parties to respecting international labor standards.

OPIC had a long history of supporting projects in Morocco and has provided finance or insurance support to 22 deals over the past four decades.  Morocco signed an agreement with OPIC in 1961.  The agreement was updated in 1995 and ratified by the Moroccan parliament in June 2004.  The agreement can be found on OPIC’s website .  In August 2013, OPIC provided its consent for a new $40 million, eight-year term loan facility with Attijariwafa Bank to support loans to small and medium-sized enterprises (SMEs) in Morocco under a risk-sharing agreement between OPIC and Citi Maghreb.  In August 2014, OPIC signed an additional agreement with Attijariwafa and Wells Fargo to provide additional support to SMEs.  With DFC’s wider financing latitudes as a result of the BUILD Act, more projects in Morocco could be eligible for DFC products.

* Source for Host Country Data: Moroccan GDP data from Bank Al-Maghrib, all other statistics from the Moroccan Exchange Office .  Conflicts in host country and international statistics are likely due to methodological differences

Table 4: Sources of Portfolio Investment
Data not available.

Foreign Commercial Service
U.S. Consulate General Casablanca, Morocco
+212522642082
Office.casablanca@trade.gov

Policies Towards Foreign Direct Investment

The government of Mozambique welcomes foreign investment and sees it as a key driver of economic growth and job creation. With the exception of a few sectors related to national security, all business sectors are open to foreign investment.

Mozambique’s Law on Investment, Decree No. 3/93, passed in 1993, and its related regulations, govern national and foreign investment. In August 2009, Decree No. 43/2009 replaced earlier amendments from 1993 and 1995, providing new regulations to the Investment Law. In general, large investors receive more support from the government than small and medium-sized investors. Government authorities must approve all foreign and domestic investment requiring guarantees and incentives. Regulations for the Code of Fiscal Benefits were established by Decree No. 56/2009 and approved in October 2009. The Code of Fiscal Benefits, Law No. 4/2009, passed in January 2009, can be found at: http://investmentpolicyhub.unctad.org/InvestmentLaws/laws/110 .

The Agency for Promotion of Investments and Exports (APIEX, Agencia para a Promocao de Investimentos e Exportacoes) is the primary investor contact within the GRM, operating under the Ministry of Industry and Commerce. Its objective is to promote and facilitate private and public investment. It also oversees the promotion of national exports. APIEX can assist with administrative, financial, and property issues. Through APIEX, investors can receive exemptions from some customs and value-added tax (VAT) duties when importing “class K” equipment, which includes capital investments.

Contact information for APIEX is:

Agency for Promotion of Investments and Exports
http://www.apiex.gov.mz/ 
Rua da Imprensa, 332 (ground floor)
Tel: (+258) 21313310
Ahmed Sekou Toure Ave., 2539
Telephone: (+258) 21 321291
Mobile: (+258 ) 823056432

Limits on Foreign Control and Right to Private Ownership and Establishment

Mozambique investment law and its regulations generally do not distinguish between investor origin or limit foreign ownership or control of companies. With the exception of security, safety, media, entertainment, and certain game hunting concessions, there were no legal requirements that Mozambican citizens own shares of foreign investments until 2011.

Law No. 15/2011, passed in August 2011 and often referred to as the “Mega-Projects Law,” governs public-private partnerships, largescale ventures, and major business concessions. It states that Mozambican persons must hold between 5 percent to 20 percent of the equity capital of the project company. Implementing regulations were approved by the Council of Ministers in June 2012.

Article 4.1 in Law 14/2014, often referred to as the “Petroleum Law,” states that the GRM regulates the exploration, research, production, transportation, trade, refinery, and transformation of liquid hydrocarbons and their by-products, including petrochemical activities. Article 4.6 established the state-owned oil company, the National Hydrocarbon Company (ENH, Empresa National das Hidorcorbonetos) as the government’s exclusive representative for investment and participation in oil and gas projects. ENH typically owns up to 15 percent of shares in oil and gas projects in the country.

Depending on the size of the investment, the government approves both domestic and foreign investments at the provincial or national level–there is no other formal investment screening process.

Other Investment Policy Reviews

Mozambique has undergone investment policy reviews by the following international organizations:

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

WTO Trade Policy review – Report by the Secretariat – Mozambique – Revision (2017) https://www.wto.org/english/tratop_e/tpr_e/tp454_e.htm 

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

Business Facilitation

APIEX promotes and facilitates investment in Mozambique. It provides multiple services to investors including: incorporation, business licensing, entrance visas, work permits, residence permits, identification and licensing of land, identification of business partners, troubleshooting, project monitoring, and implementation follow-up.

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 familiar with the bureaucracy at the national, provincial, and district levels.

In 2019, Mozambique ranked 135 among 190 countries in the World Bank Doing Business report. Mozambique performs slightly better than the sub-Saharan average for the ease of doing business but below peers such as Botswana and South Africa in the Southern African region. Mozambique ranks 174 out of 190 countries in how easy it is to start a business, taking 17 days to complete the process, requiring 10 procedures, and costing 120 percent of the per capita income. The report also indicates that access to credit and enforcing contracts are comparatively more challenging in Mozambique than most countries. The GRM has made improvements in areas such as getting construction permits and electricity.

Outward Investment

The government 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.

Transparency of the Regulatory System

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, a scenario that is aggravated by the prevailing low wages for administrative clerks. Labor, health, safety, and environmental regulations 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 private sector, through the Confederation of Business Associations (CTA, Confederacao das Associacoes Economicas), Mozambique’s primary business and industry association, maintains an ongoing dialogue with the government, holding quarterly meetings with the Prime Minister and an annual meeting with the President. CTA provides feedback to the GRM on laws and regulations that impact the business environment on behalf of its members and other business associations. However, because of its exclusive role in communicating with the government on behalf of the private sector, some businesses have expressed concern that minority voices are not heard and that CTA, because of its close relationship with the government, is no longer an effective advocate.

Draft bills are usually made available for public comments through the business associations or relevant sectors or in public meetings. 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. There have been complaints of short comment periods and that comments are not properly reflected in the National Gazette. The government is considering a law that would make public consultation on future legislation mandatory.

Overall fiscal transparency in Mozambique is improving gradually in the wake of the 2016 hidden debt crisis which saw the government own up to contracting around $2 billion dollars in secret loans in 2013 and 2014. Publicly available budget documents provide an incomplete picture of the government’s planned expenditures and revenue streams, especially with regard to natural resource revenues and allocations to and earnings from state-owned enterprises, which generally did not have publicly available audited financial statements. The government also maintains off-budget accounts not subject to adequate audit or oversight. For portions of the budget that were relatively complete, the provided information is generally reliable.

International Regulatory Considerations

Mozambique is a member of SADC (Southern African Development Community). In June 2016, the SADC EPA Group, which includes Mozambique, Botswana, Lesotho, Namibia, South Africa, and Swaziland, signed an Economic Partnership Agreement (EPA) with the European Union. 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.

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 which went into effect in 2006. 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. In 2018, the Council of Ministers passed new provisions for the Commercial Code, which were debated and approved in Parliament. In recent years Mozambique’s legal system has shown a degree of greater independence, for example pursuing some politically connected former officials and their family members for their role in the hidden debt scandal.

Laws and Regulations on Foreign Direct Investment

The Code of Fiscal Benefits, Law No. 4/2009, passed in January 2009, and Decree No. 56/2009, approved in October 2009, form the legal basis for foreign direct investment in Mozambique. Operating within these regulations, APIEX (http://invest.apiex.gov.mz/ ) analyzes the fiscal and customs incentives available for a particular investment.  Investors must establish foreign business representation and acquire a commercial representation license. During project development, investors must document their community consultation efforts related to the project. If the investment requires the use of land, the investor will also have to present, among other documents, a topographic plan or an outline of the site where the project will be developed.

If the investment involves an area under 1,000 hectares and the investment is up to approximately $25 million, the governor of the province where it will be located can approve the investment. There has been no update to the law since the introduction of provincial level State Secretaries with the new government in 2020. APIEX has the authority to approve any project between $25 million-$40 million. The Minister of Economy and Finance must approve national or foreign investment between $40 -$225 million. If the investment (national or foreign) occupies an area of 10,000 hectares or an area superior to 100,000 hectares for a forestry concession, or it amounts to more than $225 million, the project must be approved by the Council of Ministers.

Competition and Anti-Trust Laws

Law 10/2013, passed on April 11, 2013, and known as the Competition Law, established a modern legal framework for competition in Mozambique and created the Competition Regulatory Authority. A budget has still not been allocated to this body, but the government appointed a director in April 2020.

The framework is inspired by the Portuguese competition enforcement system. Violating the prohibitions contained in the Competition Law (either by entering into an illegal agreement or practice or by implementing a concentration subject to mandatory filing) could result in a fine of up to 5 percent of the turnover of the company in the previous year. Competition Regulatory Authority decisions may be appealed in the Judicial Court in Maputo, for cases leading to fines or other sanctions, or to the Administrative Court for merger control procedures.

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.” No American companies have been subject to expropriation issues in Mozambique since the adoption of the 1990 Constitution.

Dispute Settlement

ICSID Convention and New York Convention

Mozambique acceded in 1998 to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

For disputes between U.S. and Mozambican companies where a Bilateral Investment Treaty (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.

International Commercial Arbitration and Foreign Courts

In 1999, the Parliament passed Law no. 11/99 (Law on Arbitration), which allows access to modern commercial arbitration for foreign investors. The Judicial Council approved Resolutions No. 1/CJ/2017 and No. 2/CJ/2017 in 2017, creating the Regulations of Mediation Services in Judicial Courts and the Judicial Mediators’ Code of Conduct. These new resolutions are designed to promote the mediation process as an alternative to litigation. Labor and commercial arbitration are recognized by local courts as well as cases judged internationally.

The Center of Arbitration, Conciliation, and Mediation (CACM) offers commercial arbitration. During 2019, CACM handled 22 cases of commercial arbitration, and another ten cases are in process. CACM has 316 arbitrators, 12 of which are international. One of the main constraints to the use of arbitration is that many contracts do not incorporate a clause that allows conflicts to be resolved via arbitration instead of in the courts.

Bankruptcy Regulations

In June 2014, the GRM passed a comprehensive legal regime for bankruptcy, streamlining the bankruptcy process and setting the rules for business recovery. Globally, Mozambique stands at 86 of 190 economies on the ease of resolving insolvency issues, according to the 2019 Doing Business Report.

In the 2020 World Bank Doing Business Report, Mozambique ranked 86 overall for resolving insolvency, scoring well above average for sub-Saharan Africa, but below South Africa and Mauritius in the most recent report.

Investment Incentives

The Code of Fiscal Benefits contains specific incentives for 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 percent of the total investment (with a right to carry the credit forward for five years). Additional modest incentives are available for professional training and 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 2009, is available at: https://investmentpolicyhubold.unctad.org/InvestmentLaws/laws/108 . The Regulations for the Code of Fiscal Benefits are set forth in Decree No. 56/2009, which was approved in October 2009. APIEX can assist companies with the investment incentives stipulated in the Code of

Fiscal Benefits

With the exception of sectors like oil and gas where government participation is mandatory, the government does not issue joint guarantees or jointly finance foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Mozambique has seven free trade zones in the country, which provide a variety of fiscal exemptions depending on the sector of investment as well as the project location. Investors should 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. Information regarding business registration and administrative practices are available at: http://www.portaldogoverno.gov.mz/por/Empresas/Registos .

Performance and Data Localization Requirements

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. Within certain sectors, however, the government has implemented sector specific local content requirements. A proposed “Local Content” law could create additional requirements in this realm and consolidate the various requirements into a single law. This proposed law has been drafted and presented at the Council of Ministers, and is likely to be approved before the end of 2020.

Regulations for new mining and petroleum laws may require investors to give preference to local sources available in Mozambique if the goods or services are of an internationally comparable quality and competitively priced.

Companies may hire foreign workers only when there are not sufficient Mozambican workers available that meet specific job qualifications. The Ministry of Labor enforces quotas for foreign workers as a percentage of the workforce within companies that varies based on the size of the company. Per the 2007 Labor Law (23/2007) companies with 10 employees or fewer can employ no more than 10 percent expatriates (effectively 1 person in a 10 person company), companies with 11-100 employees may employ up to 8 percent expatriates, and large companies with over 100 employees may employ no more than 10 percent expatriates. Many companies use foreigners as outside consultants, which allows them to get around the quota system by hiring a “company” instead of a foreigner who would be subject to the quota requirement. Work permits for foreigners cost approximately USD370 and take at least one month to be issued. All investments must specify the number and category of Mozambican and foreign workers.

There are currently no data localization policies in effect in Mozambique. The government agency responsible for enforcing IT policies and rules is:

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

Real Property

The legal system recognizes and protects property rights to buildings and movable property. Private ownership of land, however, is not allowed in Mozambique. Land is owned by the State. The government grants land-use concessions called DUATs (Direitos de Uso e Aproveitamento de Terra, or a land-use title) for periods of up to 50 years, with options to renew for an additional 50 years. Essentially, land-use concessions serve as proxies for land titles. There is no robust market in land use rights and land use titles are not easily transferable. The process to award land concessions is not transparent and the government at times has granted overlapping land concessions that often require lengthy negotiation to resolve. It takes an average of 90 days to issue a land title for most of the concessions. Banks in Mozambique rely on property other than land – cars, private houses, and infrastructure – as collateral, as it is not possible to securitize property for lending purposes.

In urban areas, the DUAT of a plot passes automatically to the purchaser following the sale of a house or building. In rural areas, the purchaser of physical infrastructure or improvements and crops must request authorization from the government for the DUAT to be transferred. This requirement is often cited as a barrier for loans in the agricultural sector and is seen as a potential barrier to investment in the agriculture sector and the transition to more intensive, commercial forms of agriculture.

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

Intellectual Property Rights

Intellectual property rights (IPR) enforcement in Mozambique remains sporadic and inconsistent. Mozambique’s National Inspectorate of Economic Activities (INAE) has increased seizures, confiscating Hewlett-Packard (HP) toner cartridges, Nike, Adidas, Ralph Lauren, and other falsely branded merchandise in several raids in 2019. However, in general, enforcement and prosecutions are limited. Pirated DVDs and other counterfeit goods are commonly sold in Mozambique.

The Parliament passed a copyright and related rights bill in 2000, which, when combined with the 1999 Industrial Property Act, brought Mozambique into compliance with the World Trade Organization (WTO) Agreement on 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 rights (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 stemming from the use of counterfeit products.

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

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at https://www.wipo.int/directory/en/details.jsp?country_code=MZ  .

Capital Markets and Portfolio Investment

The Mozambique Stock Exchange (BVM, Bolsa de Valores de Mocambique) is a public institution under the guardianship of the Minister of Economy and Finance and the supervision of the Central Bank of Mozambique. In general, the BVM is underutilized as a means of financing and investment. However, the government has expressed interest in reforming market rules in an effort to increase capitalization and potentially prepare the ground for new rules that would require foreign companies active in Mozambique to be listed on the local stock exchange. Corporate and government bonds are traded on the BVM 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. 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 BVM remains illiquid, in the sense that very limited activity occurs outside the issuing time. Investors tend to hold their instruments until maturity. The market also lacks a bond yield curve as government issuances use a floating price regime for the coupons with no price discovery for tenures above 12 months.

The GRM notified the 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

According to the Mozambican Association of Banks (AMB) and KPMG, in 2019 the Banco Comercial e de Investimentos SA (BCI), Banco Internacional de Mocambique SA (BIM), and Standard Bank accounted for more than 65% of the total assets, total loans and advances, and total deposits held by commercial banks in Mozambique. In 2018, Mozambique had 669 bank branches, up from 641 in 2017. The majority of these branches is concentrated in major cities and rural districts often have no banks at all. As of December 2019 there were 1790 Automated Teller Machines (ATMs) throughout the country. Thanks to the partnership between mobile communications companies and banks for electronic or mobile-money transactions, the number of services available from ATMs is also increasing.

Credit is allocated on market terms, but eligibility requirements exclude much of the population from obtaining credit. Banks request collateral, but since land cannot be used as collateral, the majority of individuals do not 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.

The value of non performing loans increased by 16 percent from 18.6 billion meticais as of December 2017 to 21.5 billion meticais as of December 2018. This increase happened at a time when the value of all loans remained largely unchanged when compared to the previous year. The non performing loans (NPLs) ratio for the sector has slightly improved from 8.3 percent at the end of 2017 to 7.1 percent by December 2018, due in part to write offs.

Foreign Exchange and Remittances

Foreign Exchange

In December 2017, Mozambique approved new exchange control rules in Decree 49/2017. Residents in Mozambique are now required to remit export earnings to Mozambique into an export earnings account in foreign currency, which can only be used for specifically defined purposes. Under the new decree, the mandatory registration of foreign exchange operations will now be processed electronically in real time by the commercial banks. Applications for capital operations are now processed by commercial banks and forwarded to the Central Bank of Mozambique. Foreign direct investment (FDI) up to USD 250,000 no longer requires prior authorization from the Bank of Mozambique and only needs to be registered with the commercial bank handling the transactions. Shareholder and intercompany loans made by foreign entities up to USD 5 million require no authorization from the Central Bank, provided the loans are interest free or lower than the base lending rate for the relevant currency, the repayment period is at least three years, and no other fees or charges apply.

A special foreign exchange regime for oil, gas, and mining sectors allows for greater flexibility in foreign exchange and financing operations. The law, which went into force in January 2018, stipulates that profits from petroleum rights are entirely taxed at an autonomous tax rate of 32 percent. The law also guarantees tax stabilization for up to 10 years, starting from the beginning of commercial production with an investment amount of USD 100 million. The Ministry of Economy and Finance can also approve the use of U.S. dollars, if the company has invested at least USD 500 million and more than 90 percent of its transactions are in U.S. dollars. The law also revoked a 50 percent tax rate reduction related to the production tax that was available when extracted products were used locally.

Remittance Policies

Under the 2017 Decree, there is no longer an obligation to convert 50 percent of export proceeds into the local currency. The new decree only requires that a sufficient quantity be converted into the local currency to cover payments to residents locally.

Sovereign Wealth Funds

The government is exploring establishing a sovereign wealth fund for LNG revenues that are expected in the next decade. Currently there is an off-budget account for capital gains revenues, in particular the approximate USD 830 million the government received following the transfer of Anadarko’s Mozambique assets to Total. The 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. The Ministry of Economy and Finance is currently leading efforts to develop a proposal for a sovereign wealth fund that it hopes to present to parliament before the end of 2020.

Mozambique’s State-owned enterprises (SOEs) have their origin in the socialist period directly following independence in 1975, with a variety of SOEs competing with the private sector in the Mozambican economy. Government participation varies depending on the company and sector. SOEs are managed by the Institute for the Management of State Participation (IGEPE – Portuguese acronym). Following past privatization and restructuring programs, IGEPE now holds majority and minority interests in 128 firms, down from 156. IGEPE’s holdings are listed on its website: http://www.igepe.org.mz/ 

Some of the largest SOEs, such as 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. Many SOEs benefit from state subsidies. In some instances, SOEs have benefited from non-compete contracts that should have been competitively tendered. SOE accounts are generally not transparent and not thoroughly audited by the Supreme Audit Institution. SOE debt represents an unknown, but potentially significant liability for the GRM. SOEs were also at the heart of the hidden debt scandal revealed in 2016.

In March 2018, the Parliament passed a new law that broadens the definition of state-owned enterprises (SOEs) to include all public enterprises and shareholding companies. The law seeks to unify SOE oversight and harmonize the corporate governance structure, placing additional financial controls, borrowing limits, and financial analysis and evaluation requirements for borrowing by SOEs. The law requires the oversight authority to publish a consolidated annual report on SOEs, with additional reporting requirements for individual SOEs. The Council of Ministers approved regulations for the SOE law in early 2019, but there has still not been a meaningful increase in public disclosure by the state owned companies.

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 tend to follow their own responsible business conduct (RBC) standards. For some large investment projects, RBC-related issues are negotiated directly with the GRM. Responsible business conduct is an increasingly high-profile issue in Mozambique, especially in the extractive industries, with some projects requiring resettlement of communities.

The Government of Mozambique (GRM) joined the Extractive Industries Transparency Initiative (EITI) in May 2009. The EITI Governing Board labeled Mozambique as a compliant country in 2012.

Corruption is a major concern in Mozambique. Though Mozambique has made progress developing the legal framework to combat corruption, the policies and leadership necessary to ensure effective implementation have been insufficient. While the 2016 hidden debt scandal involving a cadre of former government officials is the most infamous example of government corruption, it is not the only case.

However, the government is taking concerted action to address the problem. In 2019, Mozambique made a string of arrests of 20 politically connected individuals related to the hidden debt case. The government also moved forward with cases against the former Minister of Transport and Communications Paulo Zucula, the former CEO of the national airlines (LAM – a parastatal), and Mateus Zimba, former director of Sasol. In 2019, the government in cooperation with the IMF also released a Diagnostic Report on Transparency, Governance and Corruption outlining 29 measures to fight corruption and improve transparency. The full report is available online at: https://www.imf.org/en/Publications/CR/Issues/2019/08/23/Republic-of-Mozambique-Diagnostic-Report-on-Transparency-Governance-and-Corruption-48613 .

Thanks in part to these efforts, Mozambique rose six places on Transparency International’s 2019 Corruption Perceptions Index, and now ranks 146 out of 180 countries in 2019.

Mozambique’s civil society and journalists remain vocal on corruption-related issues. Action related to the hidden debt scandal is being led by a civil society umbrella organization known as the Budget Monitoring Forum (FMO, Forum de Monitoria de Orcamento) that brings together around 20 different organizations for collective action on transparency and corruption related issues. Another civil society organization, the Center for Public Integrity (CIP, Centro de Integridade Publica), also continues to publicly pressure the government to act against corrupt practices. CIP finds that many local businesses are closely linked to the government and have little incentive to promote transparency.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

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

Contact at “watchdog” organization

Fatima Mimbire
Project Coordinator Extractive Industries
Center for Public Integrity (Centro de Integridade Publica)
Rua Fernão Melo e Castro, 124
+258 82 5293957
fatima.mimbire@cipmoz.org

The greatest security concern in Mozambique is the growing Islamic insurgency in the country’s northern provinces. What started as a homegrown threat in October 2017, likely emboldened by Tanzania-based extremist leaders, has evolved into a more organized insurgency, and was officially recognized by the Islamic State (IS) as an affiliate organization in June 2019. IS now provides support to the combatants in northern Mozambique and frequently claims credit for their attacks. The violence has resulted in an estimated 930 deaths and led to more than 150,000 internally displaced persons in Cabo Delgado Province (CDP). Since 2017, the IS-affiliate has carried out more than 250 deliberate attacks against unarmed civilians, creating a high risk for atrocities committed by the violent extremist organization. 2020 is on pace to be the conflict’s deadliest year.

The Islamic State-affiliate primarily operates in CDP, which is also the site of the major LNG investments being led by Total and the ENI/ExxonMobil consortium, but maintains networks in neighboring Niassa and Nampula provinces, and has proven capable of attacking villages in southern Tanzania. In early 2019, the insurgents killed a contractor associated with the LNG project and there have since been several other victims among LNG company staff. However, to date, the insurgents’ target remains villages and government forces and institutions. While the violence has not directly impacted the LNG project site, it has raised costs and put a damper on follow-on investments in CDP that could provide services to the projects in a more permissive security environment. Mozambique’s military and police forces have often proved ineffective in defending many communities in CDP. While the GRM is in need of outside military assistance, the continued use of private military companies risks further aggravating local grievances.

In March 2020, the GRM announced the creation of the Integrated Development Agency of the North. The United States and other international partners look forward to working with this new agency to address the underlying socio-economic drivers of violent extremism in Cabo Delgado.

In addition, following Mozambique’s largely peaceful elections in October 2019, there has been a resurgence of violence in central Mozambique led by a Renamo splinter group known as the “Junta” despite the definitive ceasefire and peace agreement signed in August 2019. Renamo denies any connections to or support for the Junta. Until recently, the splinter group primarily targeted road transport along the major north-south and east-west highways that pass through Manica and Sofala provinces. However, in April 2020, the group attacked a logging camp killing one expatriate worker and wounding several others. The Junta leader does not recognize the leader of the Renamo party and has stated that the attacks will continue until the government enters into direct negotiations with him.

The labor market is dominated by the informal economy with the vast majority of people (approximately 70 percent) working in subsistence agriculture, particularly in rural areas. 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 limits the number of expatriates a business can employ in relation to the number of Mozambican citizens it employs. The government passed a labor regulation in 2016 strengthening the requirement for employers to devise a skills transfer program that trains Mozambican nationals to eventually replace the foreign workers.

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 employers’ or workers’ organizations, 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 does not exist and there is not a social safety net program for workers laid off for economic reasons.

The Government of Mozambique is reviewing the Labor Law to align it with international conventions related to forced labor, health and safety issues in mining, and the worst forms of child labor. The proposed law would also extend the maternity leave period from 60 to 90 days. The new labor law will also address sexual harassment.

The DFC (then OPIC) signed an investment incentive agreement with Mozambique in 1999. In September 2019, the DFC announced it would provide up to $5 billion in financing to support the development of Mozambique’s LNG resources. DFC’s Development Credit Agency is also actively engaged in lending in partnership with five local banks to support investment in the agricultural sector.

UAE and Mauritius are both have bilateral tax agreements with Mozambique and host holding company accounts used by companies involved in Mozambique’s LNG industry.

Table 4: Sources of Portfolio Investment
Data not available.

Elizabeth Filipe
Economic Assistant
U.S. Embassy Maputo
Avenida Kenneth Kaunda, 193
+32 258 21 29 27 97
filipeec@state.gov

Policies Towards Foreign Direct Investment

The Namibian government welcomes increased foreign investment to help develop the national economy and benefit its population.  The Foreign Investment Act of 1993 (FIA) currently governs FDI in Namibia and guarantees equal treatment for foreign investors and Namibian firms, including the possibility of fair compensation in the event of expropriation, international arbitration of disputes between investors and the government, the right to remit profits, and access to foreign exchange.  Investment and tax incentives are also available for the manufacturing sector.  The government prioritizes investment retention and maintains ongoing dialogue with investors including through investment conferences.  The government is cognizant that some of its bureaucratic processes (such as the time it takes to get a business visa) impede the ease of doing business and is working to address outstanding challenges.  The Namibian Investment Promotion Act as been under review since 2016 to replace the FIA.

The Namibia Investment and Promotion Board (NIPB) – formerly called the Namibia Investment Center (NIC) – now housed in the Office of the President, serves as Namibia’s official investment promotion and facilitation office.  Often the first point of contact for potential investors, the NIPB offers comprehensive services from the initial inquiry stage through to operational stages.  The NIPB also provides general information packages, coordinates trade delegations, and assists with advice on investment opportunities, incentives, and procedures.  The NIPB is tasked with assisting investors in minimizing bureaucratic red tape, including obtaining work visas for foreign investors, by coordinating with government ministries as well as regulatory bodies.

Limits on Foreign Control and Right to Private Ownership and Establishment

Under FIA, foreign and domestic entities may establish and own business enterprises and engage in all forms of remunerative activities.  The Ministry of Home Affairs, Immigration, Safety and Security grants renewable and non-renewable temporary employment permits for a period of up to 12 months for skills not locally or readily available.  However, work permits and long-term residence permits are subject to bureaucratic hurdles and are hard to obtain for jobs that could be performed by a Namibian.  Complaints about delays in renewing visas and work permits are common.

Foreigners must pay a 10 percent non-resident shareholder tax on dividends.  There are no capital gains or marketable securities taxes, although certain capital gains are taxed as normal income.  As a member of the Common Monetary Area, the Namibian dollar (NAD) is pegged at parity with the South African rand.

There are no general mandatory limits on foreign ownership, but some sectors have a mandatory joint ownership between a local firm and foreign firm, such as in the natural resources sector.  Government procurements usually also require a variable percentage of local ownership.

Other Investment Policy Reviews

Namibia has not undergone any third party investment policy reviews in the last three years by the OECD, WTO, or UNCTAD.  The Southern Africa Customs Union (SACU), of which Namibia is a member, was last reviewed by the WTO in 2015.

Business Facilitation

Foreign and domestic investors may conduct business in the form of a public or private company, branch of a foreign company, closed corporation, partnership, joint venture, or sole trader.  Companies are regulated under the 2004 Companies Act, which covers both domestic companies and those incorporated outside Namibia but traded through local branches.  To operate in Namibia, businesses must also register with the relevant local authorities, the Workmen’s Compensation Commission, and the Social Security Commission.

Most investors find it helpful to have a local presence or a local partner in order to do business in Namibia, although this is not currently a legal requirement, except in sectors that require a joint venture partner.  Companies usually establish business relationships before tender opportunities are announced.  The World Bank’s Doing Business 2020 report notes that it takes ten steps and an average of 37 days to start a business in Namibia.  Some accounting and law firms provide business registration services.

In 2014, the Namibian government established the Business and Intellectual Property Authority (BIPA) to improve service delivery and ensure effective administration of business and intellectual property rights (IPRs) registration.  BIPA serves as a one-stop-center for all business and IPR registrations and related matters.  It also provides general advisory services and information on business registration and IPRs.  Website: http://www.bipa.gov.na/. 

According to the Business and Intellectual Property Authority Act of 2016, the functions of BIPA include:

• regulate and administer the registration of business and industrial property under the applicable legislation;
• consolidate the offices involved in the registration and administration of business and intellectual property;
• maintain information concerning business and intellectual property; and
• facilitate the flow of relevant information between BIPA and the business community, users of business and intellectual property, general public, and other regulatory authorities and government institutions.

Outward Investment

Namibia provides incentives for outward investment mainly aimed at stimulating manufacturing, attracting foreign investment to Namibia, and promoting exports.  To take advantage of the incentives, companies must be registered with MIT and the Ministry of Finance.  Tax and non-tax incentives are accessible to both existing and new manufacturers.  The NIPB maintains a list of investment incentives on its website: http://investnamibia.gov.na/incentives-regime/. 

Namibia currently has an Export Processing Zone (EPZ) regime that offers favorable conditions for companies wishing to manufacture and export products.  The EPZ scheme is due to be phased out, possibly in 2020, and replaced by Special Economic Zones, outlined in the Income Tax Amendment Bill, which the Minister of Finance tabled in Parliament on February 19, 2020.  There is a moratorium on new applications under the existing EPZ regime.  In 2019, there were 19 EPZ companies in operation, most of which were closely linked to minerals beneficiation, including Namzinc (which produces Special High Grade zinc at the Skorpion zinc mine), Namibia Custom Smelters (which produces blister copper from imported copper concentrates), and a variety of diamond cutting and polishing operations (which cut and polish locally and internationally sourced rough diamonds).

Transparency of the Regulatory System

Namibia’s legal, regulatory, and accounting systems are relatively transparent and consistent with international norms.  Draft bills, proposed legislation, and draft regulations are normally not available for public comment and are not required to be, although there are consultations on such documents throughout the government.  Depending on the topic, bills are customarily drafted within the relevant ministry with minimal stakeholder or public consultation and then presented to the parliament for debate.  Comments on draft legislation and regulations may also be solicited through public meetings or targeted outreach to stakeholder groups.  Such comments are also not required to be made public and generally are not.  There is no formal process of appeal or reconsideration of published regulations.  Approved legislation and regulations are publicly available and published in the Government Gazette, the official journal of the government of Namibia.

Public finances are generally transparent, with the annual budget and mid-term budget reviews published on the Ministry of Finance’s website and in the Government Gazette.  The Bank of Namibia publishes the government of Namibia’s debt position – including explicit and contingent liabilities – in its annual reports and quarterly bulletins.

International Regulatory Considerations

The national coordinating bureau for standards is the Namibian Standards Institution.  Namibia is also a member of the International Organization for Standardization.  As a member of SACU and SADC, Namibia’s national regulations conform to both regional agreements.  Namibia is a member of the World Trade Organization (WTO) and notifies the Committee on Technical Barriers to Trade on draft technical regulations.

Legal System and Judicial Independence

The Namibian court system is independent and is widely perceived to be free from government interference.  Namibia’s legal system, based on Roman Dutch law, is similar to that of South Africa.  The system provides effective means to enforce property and contractual rights, but the speed of justice is generally very slow due to a backlog of cases across the judicial spectrum.  Regulation and enforcement actions are appealable.

Laws and Regulations on Foreign Direct Investment

The Foreign Investment Act (FIA) provides for liberal foreign investment conditions and equal treatment of foreign and local investors.  With limited exceptions, all sectors of the economy are open to foreign investment.  There is no local participation requirement in the FIA, but the Namibian government is increasingly emphasizing the need for investors to partner with Namibian-owned companies and/or to have a majority of local employees in order to operate in the country.

The FIA reiterates the protection of investment and property provided for in the Namibian Constitution.  It also provides for equal treatment of foreign investors and Namibian firms, including the possibility of fair compensation in the event of expropriation, international arbitration of disputes between investors and the government, the right to remit profits, and access to foreign exchange.

The Business and Intellectual Property Agency (BIPA) acts as a one-stop-shop for business registrations and provides information on relevant laws, rules, procedures, and reporting requirement for investors. More information is available at: http://www.bipa.gov.na/ .

The FIA will be replaced by the revised NIPA once revisions are complete and approved by Parliament.  The NIPA provides for transparent admission procedures for investors, the reservation of certain categories of business and sectors, and the establishment of an Integrated Client Service Facility or one-stop-shop for investors.

Competition and Anti-Trust Laws

The Competition Act of 2003 establishes the legal framework to “safeguard and promote competition in the Namibian market.”  The Competition Act establishes a legal and regulatory framework that attempts to safeguard competition while boosting the prospects for Namibian businesses and recognizing the role of foreign investment.  The act is intended to promote:

• The efficiency, adaptability, and development of the Namibian economy;
• Competitive prices and product choices for customers;
• Employment and advancement of the social and economic welfare of Namibians;
• Expanded opportunities for Namibian participation in world markets;
• Participation of small enterprises in the economy by ensuring a level playing field; and
• Greater enterprise ownership particularly among the historically disadvantaged.

The Act established the Namibia Competition Commission (NaCC), which was officially launched in December 2009.  The NaCC has the mandate to review any potential mergers and acquisitions that might limit the competitive landscape or adversely impact the Namibian economy.  The Minister of Industrialisation and Trade is the final arbiter on merger decisions and may accept or reject a NaCC decision.  Any investor can file an appeal with the ministry, though no formal process for doing so has been established.

Expropriation and Compensation

The Namibian Constitution enshrines the right to private property but allows the state to expropriate property in the public interest subject to the payment of just compensation.  The Agricultural (Commercial) Land Reform Act 6 of 1995 (ACLRA) is the primary legal mechanism allowing for expropriation, but the government has adhered to a “willing seller/willing buyer” policy as part of land reform programs.  In 2004, the government announced it would proceed with land expropriations after much criticism about the slow pace of land reform.  To date the government has only expropriated farms from a small number of owners, and in each instance ultimately either compensated the owner or returned the land.  In March 2008 Namibia’s High Court ruled against the government in Gunter Kessl v. Ministry of Lands and Resettlement in the sole instance in which appropriation was legally challenged, and in doing so established a strong legal precedent protecting individual land rights.  Non-binding resolutions adopted at the Second National Land Conference in 2018 resolved to abolish the “willing seller/willing buyer” policy and bar foreign-ownership of agricultural land; however, no legislation formalizing these resolutions has been proposed.  The Namibian Constitution makes pragmatic provision for different types of economic activity and a “mixed economy” (Article 98), accepts the importance of foreign investment (Article 99), and enshrines the principle that the ownership of natural resources is vested in the Namibian state (Article 100).  Section 11 of the FIA reiterates the commitment to market compensation in the case of expropriation in terms of Article 16 of the Constitution.  Holders of a Certificate of Status Investment must be compensated in foreign currency and can opt for international arbitration if any disputes arise.

Dispute Settlement

ICSID Convention and New York Convention

Namibia signed but has not ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).  The ICSID and New York Convention are therefore not applicable.

Investor-State Dispute Settlement

The FIA allows for the settlement of disputes by international arbitration for investors that have obtained a Certificate of Status Investment (CSI) that includes a provision for international arbitration.  The FIA stipulates that arbitration “shall be in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law in force at the time when the Certificate was issued” unless the CSI stipulated another form of dispute resolution.

International Commercial Arbitration and Foreign Courts

As the envisioned “one-stop-shop” for investors, the  Namibia Investment and Promotion Board (NIPB) should be the body that first learns of an investment dispute between a foreign investor and a domestic enterprise.  The NIPB has not yet received a report of an investment dispute involving U.S. entities.  Investment disputes can be handled by the courts.

There is no domestic arbitration body in Namibia.  Investors without a CSI that encounter a dispute have to address their dispute in the Namibian courts or in the court system which has jurisdiction according to the investor’s contract.  The Namibian court system is independent and is widely perceived to be free from government interference, including when SOEs are involved in investment disputes.

Bankruptcy Regulations

The Companies Act of 1973, amended in 2004, governs company and corporate liquidations while the Insolvency Act 12 of 1936, as amended by the Insolvency Amendment Act of 2005, governs insolvent individuals and their estates.  The Insolvency Act details sequestration procedures and the rights of creditors.  Through the law, all debtors (whether foreign or domestic) may file for both liquidation and reorganization, and a creditor may file for both liquidation and reorganization.  As reorganization (judicial management) is rarely successful; however, the most likely insolvency procedure is liquidation.  International credit monitoring agency TransUnion is a licensed credit bureau in Namibia.  The World Bank’s Doing Business Report ranks Namibia’s resolution of insolvency at 127 out of 190.

Investment Incentives

Incentives are mainly aimed at stimulating manufacturing, attracting foreign investment to Namibia, and promoting exports.  To take advantage of the incentives, companies must be registered with MIT and the Ministry of Finance.  Tax and non-tax incentives are accessible to both existing and new manufacturers. MIT has produced a brochure on Special Incentives for Manufacturers and Exporters that is available from the Namibia Investment and Promotion Board.

The Namibian Government aims to stimulate economic growth and employment and to establish Namibia as a gateway location in the Southern African region.  To this end, the government has introduced numerous incentives that are largely concentrated on stimulating manufacturing in Namibia and prompting exports into the region and to the rest of the world.  General tax regulations that are indicative of the government’s commitment are:

• Non–resident Shareholders’ Tax is only 10%;
• Dividends accruing to Namibian companies or resident shareholders are tax-exempt;
• Plant, machinery and equipment can be fully written off over a period of three years;
• Buildings of non-manufacturing operations can be written off, 20% in the first year and the balance at 4% over the ensuing 20 years;
• Import or purchase of manufacturing machinery and equipment is exempted from Value Added Tax (VAT); and,
• Preferential market access to EU, USA, and other markets for manufacturers is provided.

The government does issue guarantees, but reluctantly.  Joint financing for foreign direct investment is occasionally implemented through the Namibia Development Corporation or another, sector-relevant state-owned enterprise.

Foreign Trade Zones/Free Ports/Trade Facilitation

Namibia has an Export Processing Zone (EPZ) regime that offers favorable conditions for companies wishing to manufacture and export products.  The government of Namibia has announced plans to repeal the EPZ Act and replace it with Special Economic Zones.  Existing EPZ users will be accommodated, but there is a moratorium on new applications under the current regime.  The Minister of Finance tabled a proposal for the Special Economic Zones on 19 February 2020, which is due to be debated in Parliament.

There are 19 EPZ companies in operation, most of which were closely linked to minerals beneficiation, including Namzinc (which produces Special High Grade zinc at the Skorpion zinc mine), Namibia Custom Smelters (which produces blister copper from imported copper concentrates), and a variety of diamond cutting and polishing operations (which cut and polish locally and internationally sourced rough diamonds).

Under the EPZ regime, the government offered a package of tax and non-tax special incentives, applicable to both existing and new manufacturing enterprises, exporters, and EPZ enterprises. Companies operating under the EPZ regime are free to locate their operations anywhere in Namibia. Through the Offshore Development Company (ODC), EPZ enterprises also have access to factory facilities rented at economical rates.

Current EPZ incentives are:

• Corporate tax holiday;
• Exemption from import duties on imported intermediate and capital goods;
• Exemption from sales tax, stamp and transfer duties on goods and services required for EPZ activities;
• Reduction in foreign exchange controls;
• Guarantee of free repatriation of capital and profits;
• Permission for EPZ investors to hold foreign currency accounts locally;
• Access to streamlined regulatory service (‘one stop shop’);
• Refund of up to 75% of costs of pre-approved training of Namibian citizens;
• No strike or lock-outs allowed in EPZs;
• Provision of factory facilities for rent at economical rates.

Performance and Data Localization Requirements

The government actively encourages partnerships with historically disadvantaged Namibians.  The Equity Commission requires all firms to develop an affirmative action plan for management positions and to report annually on its implementation.  Namibia’s Affirmative Action Act strives to create equal employment opportunities, improve conditions for the historically disadvantaged, and eliminate discrimination.  The Equity Commission facilitates training programs, provides technical and other assistance, and offers expert advice, information, and guidance on implementing affirmative action in the work place.

In certain industries, the government has employed specific techniques to increase Namibian participation.  In the fishing sector, for example, companies pay lower quota fees if they operate Namibian-flagged vessels based in Namibia with crews that are predominantly Namibian.

The lengthy and administratively burdensome process of obtaining and renewing work permits in Namibia is among investors’ greatest complaints.  Although the government cites the country’s high unemployment rate as its motivation for a strict policy on work permits, Namibia’s labor force does not yet meet many of the skills needed to fill jobs that foreigners currently hold.

Economic empowerment legislation for previously disadvantaged groups, called the New Equitable Economic Empowerment Framework (NEEEF), is under consideration in the legislature.  A bill is expected to be introduced in 2020 and is expected to contain provisions relating to ownership, management, value addition, human resource capacity building, job creation, and corporate social responsibility.

The Namibian government does not have “forced localization” requirements for data storage.  Domestic content is encouraged. State owned enterprises are including local ownership/participation.

Real Property

The Namibian Constitution guarantees all persons the right to acquire, own, and dispose of all forms of property throughout Namibia, but also allows Parliament to make laws concerning expropriation of property (see Expropriation and Compensation Section) and to regulate the right of foreign nationals to own or buy property in Namibia.  There are no restrictions on the establishment of private businesses, size of investment, sources of funds, marketing of products, source of technology, or training in Namibia.  All deeds of sales are registered with the Deeds Office. Property is usually purchased through real estate agents and most banks provide credit through mortgages.  The Namibian Constitution prohibits expropriation without just compensation.  The World Bank’s Doing Business Report ranks Namibia 173 out of 190 for the ease of registering property.

Intellectual Property Rights

Namibia is a party to the World Intellectual Property Organization (WIPO) Convention, the Berne Convention for the Protection of Literary and Artistic Works, and the Paris Convention for the Protection of Industrial Property.  Namibia is also a party to the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks and the Patent Cooperation Treaty.  Namibia is a signatory to the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty.

The responsibility for intellectual property rights (IPR) protection is divided among three government ministries.  The MIT oversees industrial property and is responsible for the registration of companies, private corporations, patents, trademarks, and designs through its Business and Intellectual Property Authority (BIPA).  The Ministry of Information and Communication Technology (MICT) manages copyright protection, while the Ministry of Environment, Forestry and Tourism (MEFT) protects indigenous plant varieties and any associated traditional knowledge of these plants.

Two copyright organizations, the Namibian Society of Composers and Authors of Music (NASCAM) and the Namibian Reproduction Rights Organization (NAMRRO), are the driving forces behind the government’s anti-piracy campaigns.  NASCAM administers IPR for authors, composers, and publishers of music.  NAMRRO protects all other IPR, including literary, artistic, broadcasting, satellite, traditional knowledge, and folklore.

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

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

Capital Markets and Portfolio Investment

There is a free flow of financial resources within Namibia and throughout the Common Monetary Area (CMA) countries of the South African Customs Union (SACU), which include Namibia, Botswana, Swaziland, South Africa, and Lesotho.  Capital flows with the rest of the world are relatively free, subject to the South African currency exchange rate.  The Namibia Financial Institutions Supervisory Authority (NAMFISA) registers portfolio managers and supervises the actions of the Namibian Stock Exchange (NSX) and other non-banking financial institutions.

Although the NSX is the second-largest stock exchange in Africa, this ranking is largely because many South African firms listed on the Johannesburg exchange are also listed (dual listed) on the NSX.  By law, Namibia’s government pension fund and other Namibian funds are required to allocate a certain percentage of their holdings to Namibian investments.  Namibia has a world-class banking system that offers all the services needed by a large company.  Foreign investors are able to get credit on local market terms.

There are no laws or practices by private firms in Namibia to prohibit foreign investment, participation, or control; nor are there any laws or practices by private firms or government precluding foreign participation in industry standards-setting consortia.

Money and Banking System

Namibia’s central bank, the Bank of Namibia (BON), regulates the banking sector.  Namibia has a highly sophisticated and developed commercial banking sector that is comparable with the best in Africa.  There are eight commercial banks: Standard Bank, Nedbank Namibia, Bank Windhoek, FNB Namibia, Trustco Bank, Letshego Bank Limited, Banco BIC, and Banco Atlantico.  Bank Windhoek and Trustco Bank are the only locally-owned banks, and Trustco Bank specializes in micro-finance.  Standard Bank, Nedbank, and FNB are South African subsidiaries, Banco BIC and Banco Atlantico are Angolan.  A significant proportion of bank loans come in the form of bonds or mortgages to individuals.  There is little or no investment banking activity.

The Development Bank of Namibia (DBN) and Agribank are Namibian government-owned banks with a mandate for development project financing. Agribank’s mandate is specifically in the agriculture sector.

While there are no restrictions on foreigners’ ability to open bank accounts, a non-resident must open a “non-resident” account at a Namibian commercial bank to facilitate loan repayments.  This account would normally be funded from abroad or from rentals received on the property purchased, subject to the bank holding the account being provided with a copy of any rental.  Non-residents who are in possession of a valid Namibian work permit/permanent residency are considered to be residents for the duration of their work permit and are therefore not subject to borrowing restrictions placed on non-residents without the necessary permits.

The BON does not recognize cryptocurrencies, such as Bitcoin, as legal tender in Namibia.  The BON is reluctant to allow the implementation of blockchain technologies in banking transactions.

Foreign Exchange and Remittances

Foreign Exchange

The Namibian dollar is pegged at parity to the South African rand, and rand are accepted as legal tender in Namibia.  The FIA offers investors meeting certain eligibility criteria the opportunity to obtain a Certificate of Status Investment (CSI).  A “status investor” is entitled to:

• Preferential access to foreign exchange to repay foreign debt, pay royalties and similar charges, and remit branch profits and dividends;
• Preferential access to foreign currency in order to repatriate proceeds from the sale of an enterprise to a Namibian resident;
• Exemption from regulations which might restrict certain business or categories of business to Namibian participation;
• Right to international arbitration in the event of a dispute with the government; and
• Payment of just compensation without undue delay and in freely convertible currency in the event of expropriation.

Remittance Policies

According to World Bank Development Indicators, remittances to Namibia have been consistently less than 0.15 percent of GDP for at least the last decade.  The majority of remittances are processed through commercial banks.  There have been no plans to change investment remittance policies in recent times.

Sovereign Wealth Funds

Namibia does not have a Sovereign Wealth Fund (SWF).  The Government Institution Pension Fund (GIPF) provides retirement and benefits for employees in the service of the Namibian government as well as institutions established by an act of the Namibian Parliament.

While Namibian companies are generally open to foreign investment, government-owned enterprises have generally been closed to all investors (Namibian and foreign), with the exception of joint ventures discussed below.  More than 90 State Owned Enterprises (SOEs, also known as parastatals) include a wide variety of commercial companies, financial institutions, regulatory bodies, educational institutions, boards, and agencies.  Generally, employment at SOEs is highly sought after because their remuneration packages are not bound by public service constraints.  Parastatals provide most essential services, such as telecommunications, transport, water, and electricity.  A list of SOEs can be found on the Ministry of Public Enterprises’ website: www.mpe.gov.na .  The following are the most prominent SOEs:

• Air Namibia (air carrier)
• Namibia Airports Company (airport management company)
• Namibia Institute of Pathology (medical laboratories)
• Namibia Wildlife Resorts (tourism)
• Namport (maritime port authority)
• Nampost (postal and courier services)
• Namwater (water sanitation and provisioning)
• Roads Contractor Company
• Telecom Namibia (primarily fixed-line) and MTC (mobile communications)
• TransNamib (rail company)
• NamPower (electricity generation and transmission)
• Namcor (national petroleum company)
• Epangelo (mining)

The government owns numerous other enterprises, from media ventures to a fishing company.  Parastatals own assets worth approximately 40 percent of GDP and most receive subsidies from the government. Most SOEs are perennially unprofitable and have only managed to stay solvent with government subsidies.  In industries where private companies compete with SOEs (e.g., tourism and fishing), SOEs are sometimes perceived to receive favorable concessions from the government.  Foreign investors have participated in joint ventures with the government in a number of sectors, including mobile telecommunications and mining. In 2015, the Namibian President created a new Ministry of Public Enterprises intended to improve the management and performance of SOEs.  Legislation to shift oversight of commercial SOEs from line ministries to the Ministry of Public Enterprises was passed by Parliament in 2019.

Privatization Program

Namibia does not have a privatization program, but discussions have begun within the government to consider privatizing certain SOEs.

Most large firms, including SOEs, have well defined (and publicized) social responsibility programs that provide assistance in areas such as education, health, environmental management, sports, and SME development.  Many firms include Black Economic Empowerment (BEE) programs within their larger Corporate Social Responsibility (CSR) programs.  Firms operating in the mining sector – Namibia’s most important industry – generally have visible CSR programs that focus on education, community resource management, environmental sustainability, health, and BEE.  Many Namibian firms have HIV/AIDS workplace programs to educate their employees about how to prevent contracting and spreading the virus/disease.  Some firms also provide anti-retroviral treatment programs beyond what may be covered through government and private insurance systems.

Namibia’s mining sector is considered a leader in the region for its sound mining policy and responsible business conduct.  Namibia ranked as the best jurisdiction in Africa on its mining policy in a 2019 Fraser Institute survey.  Namibia is also a member of the U.S. Department of State’s Energy Resource Governance Initiative that seeks to promote sound mining governance and resilient energy mineral supply chains.  Namibia is not a member of the Extractive Industries Transparency Initiative (EITI).

The Anti-Corruption Act of 2003 created an Anti-Corruption Commission (ACC), which began operations in 2006.  The ACC attempts to complement civil society’s anti-corruption programs and support existing institutions such as the Ombudsman’s Office and the Office of the Attorney General. Anti-corruption legislation is in place to combat public corruption.  In a nationwide survey commissioned by the ACC and released in 2016, corruption was listed at the third-most important development challenge facing Namibia (6 percent, after unemployment at 37 percent and poverty at 30 percent). 78 percent of survey respondents rated corruption as “very high” in Namibia. The highest result comes from those in rural areas.

In 2019, Namibia was embroiled in a fishing industry corruption scandal in which government ministers and business leaders were charged and imprisoned for allegedly co-opting the national fishing quota system for personal gain.  The scandal allegedly cost Namibia billions of U.S. dollars.  The accused are in prison awaiting trial.  The scandal has resulted in Namibia and its ACC taking a closer look at other industries susceptible to corruption.

Namibia has signed and ratified the UN Convention against Corruption and the African Union’s African Convention on Preventing and Combating Corruption.  Namibia has also signed the Southern African Development Community’s Protocol against Corruption.

Resources to Report Corruption

Paulus Noa
Director
Namibia Anti Corruption Commission
Corner of Montblanc & Groot Tiras Street, Windhoek
+264-61-370-600
anticorruption@accnamibia.org

Namibia is a stable multiparty and multiracial democracy.  The protection of human rights is enshrined in the Namibian Constitution, and the government generally respects those rights. Political violence is rare and damage to commercial projects and/or installations as a result of political violence is unlikely.  The State Department’s Country Report on Human Rights for Namibia provides additional information.

Namibian law allows for the formation of independent trade unions to protect workers’ rights and to promote sound labor relations and fair employment practices.  The law provides for the right to form and join independent unions, conduct legal strikes, and bargain collectively; however, the law prohibits workers in certain sectors, such as the police, military, and correctional facilities, from joining unions. Except for workers in services designated as essential services, such as public health and safety, workers may strike once mandatory conciliation procedures are exhausted and 48 hours’ notice is given to the employer and labor commissioner.  Workers may take strike actions only in disputes involving specific worker interests, such as pay raises.

Namibia has ratified all of the International Labor Organization’s fundamental conventions.  Businesses operating within export processing zones are required to adhere to the Labor Act.  The 2007 Labor Act contained a provision that prohibited the hiring of temporary or contract workers (“labor hire”), but the provision was ruled unconstitutional by the Supreme Court.  The Labor Amendment Act of 2012 introduced strict regulations with respect to the use of temporary workers, according to which temporary workers must generally receive equal compensation and benefits as non-temporary workers.

Child labor in Namibia may occur in certain sectors, such as domestic work, but its occurrence and prevalence is difficult to verify.  Although Namibia has ratified all key international conventions concerning child labor, there continue to be gaps in Namibia’s domestic legal framework.

There is a shortage of specialized skilled labor in Namibia.  Employers often cite labor productivity and the shortage of skilled labor as the biggest obstacles to business growth.  The 2019 Global Competitiveness Report ranked Namibia 94th out of 141 economies.  An inadequately educated workforce, access to financing, and low innovation capability are listed in the report as the most problematic factors for doing business.

The government offers manufacturing companies special tax deductions of up to 25 percent if they provide technical training to employees.  The government will also reimburse companies for costs directly related to employee training under approved conditions.

As of April 1, 2014, the Namibian government implemented a Vocational Education and Training (VET) levy to facilitate and encourage vocational education and training.  The levy, which is payable to the Namibia Training Authority (NTA), is imposed on every employer with an annual payroll of at least NAD 1,000,000 (approximately USD 54,000), at the rate of one percent of the employer’s total annual payroll.  The NTA will collect and administer the levy and will use the funds to provide financial and technical assistance to employers, vocational training providers, employees, students, and other bodies to promote vocational education and training.  In addition, companies can get a rebate from NTA of up to fifty percent of training costs for their employees.

The United States has had an Investment Incentive Agreement with Namibia since 1990.  The Development Finance Corporation (DFC) replaces the Overseas Private Investment Corporation (OPIC) as the USG entity that provides political risk insurance and credit facilities to qualified U.S. investors in Namibia.  Namibia is also a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

* Source for Host Country Data: Namibia Statistics Agency

Table 4: Sources of Portfolio Investment
Data not available.

Tabitha Snowbarger
Political, Economic, and Commercial Section Deputy Chief
14 Lossen Street, Windhoek, Namibia
+264-61-295-8500
Econ_Comm_Windhoek@state.gov

Policies Towards Foreign Direct Investment

The Nigerian Investment Promotion Commission (NIPC) Act of 1995 dismantled controls and limits on FDI, allowing for 100 percent foreign ownership in all sectors, except the petroleum sector where FDI is limited to joint ventures or production-sharing contracts.  It also created the NIPC with a mandate to encourage and assist investment in Nigeria.  The NIPC features a One-Stop Investment Center (OSIC) that nominally includes participation of 27 governmental and parastatal agencies (not all of which are physically present at the OSIC) 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.  The NIPC’s ability to attract new investment has been limited because of the unresolved challenges to investment and business.

The Nigerian government continues to promote import substitution policies such as trade restrictions, foreign exchange restrictions, and local content requirements in a bid to attract investment that would develop domestic production capacity 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 government to incentivize domestic investment.  The government began closing land borders to commercial trade in August 2019 to try and curb smuggling.  Investors generally find Nigeria a difficult place to do business despite the government’s stated goal to attract investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign control of investments; however, Nigerian regulatory bodies may insist on domestic equity as a prerequisite to doing business.  The NIPC Act of 1995 liberalized the ownership structure of business in Nigeria allowing foreign investors to own and control 100 percent of the shares in any company except the petroleum industry.  Ownership prior to the NIPC Act was limited to a 60/40 percentage in favor of majority Nigeria control.   The foreign control of investments applies to all industries minus a few exceptions.  Investment in the oil and gas sector is limited to joint ventures or production-sharing agreements.  Laws also control investment in the production of items critical to national security (i.e. firearms, ammunition, and military and paramilitary apparel) to domestic investors.  Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990.  The NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in case of national interest.

Other Investment Policy Reviews

The OECD completed an investment policy review of Nigeria in 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 2017, 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/tp456_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 its reports 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.  NIPC and the Federal Inland Revenue Service published a compendium of investment incentives which is available online at https://nipc.gov.ng/compendium .

Business Facilitation

Although the NIPC offers the OSIC, Nigeria does not have an online single window business registration website, as noted by Global Enterprise Registration (www.GER.co ).  The Nigerian Corporate Affairs Commission (CAC) maintains an information portal and in 2018 the Trade Ministry launched an online portal for investors called “iGuide Nigeria” (https://theiguides.org/public-docs/guides/nigeria ).  Many steps for business registration can be completed online, but the final step requires submitting original documents to a CAC office to complete registration.  On average, a foreign-owned limited liability company (LLC) in Nigeria (Lagos) can be established in 10 days through eight steps.  This average is significantly faster than the 23-day average for Sub-Saharan Africa.  Timing may vary in different parts of the country.  Only a local legal practitioner accredited by the CAC can incorporate companies in Nigeria.  According to the Nigerian Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, foreign capital invested in an 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 (NCS).

Although not online, the OSIC co-locates relevant government agencies to provide more efficient and transparent services to investors.  The OSIC assists with visas for investors, company incorporation, business permits and registration, tax registration, immigration, and customs issues.  Investors may pick up documents and approvals that are statutorily required to establish an investment project in Nigeria.  The Nigerian government has not established uniform definitions for micro, small, and medium enterprises (MSMEs) with different agencies using different definitions, so the process may vary from one company to another.

Outward Investment

The Nigerian Export Promotion Council (NEPC) administered an Export Expansion Grant (EEG) scheme to improve non-oil export performance, but the government suspended the program in 2014 due to concerns about corruption on the part of companies that collected grants but did not actually export.  The program was revised and re-launched in 2018 when the federal government set aside 5.12 billion naira (roughly USD 14.2 million) in the 2019 budget for the EEG scheme.  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 coupled with 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 sufficient quantities to support exports and meet domestic demand.  Most Nigerian manufacturers remain unable to or uninterested in competing in the international market,  given the size of Nigeria’s domestic market.

Transparency of the Regulatory System

Nigeria’s legal, accounting, and regulatory systems comply with international norms, but application and enforcement remain 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 application.  The general public has opportunity to comment through targeted outreach, including business groups and stakeholders, and during the public hearing process before a bill becomes law.  There is no specialized agency tasked with publicizing proposed changes and the time period for comment may vary.  Ministries and agencies do conduct impact assessments, including environmental, but assessment methodologies may vary.  The National Bureau of Statistics reviews regulatory impact assessments conducted by other agencies.  Laws and regulations are publicly available.

Fiscal management occurs at all three tiers of government: federal, 36 state governments and Federal Capital Territory (FCT) Abuja, and 774 local government areas (LGAs).  Revenues from oil and non-oil sources are collected into the federation account and then shared among the different tiers of government by the Federal Account Allocation Committee (FAAC) in line with a statutory sharing formula.  All state governments can collect internally generated revenues, which vary from state to state.  The fiscal federalism structure does not compel states to be accountable to the federal government or transparent about revenues generated or received from the federation account.  The federal government’s finances are more transparent as budgets are made public and the financial data are published by the Central Bank of Nigeria (CBN), Debt Management Office (DMO), the Budget Office of the Federation, and the National Bureau of Statistics.  The state-owned oil company’s (Nigerian National Petroleum Corporation) financial data is very opaque.

The DMO puts Nigeria’s total debt stock at USD 84 billion as of December 2019 – USD 27.7 billion or nearly 33 percent of which is external.  The total debt figures presented by the DMO usually do not include off-balance-sheet financing such as sovereign guarantees.

International Regulatory Considerations

Foreign companies operate successfully in Nigeria’s service sectors, including telecommunications, accounting, insurance, banking, and advertising.  The Investment and Securities Act of 2007 forbids monopolies, insider trading, and unfair practices in securities dealings.  Nigeria is not a party to the WTO’s Government Procurement Agreement (GPA).  Nigeria generally regulates investment in line with the WTO’s Trade-Related Investment Measures (TRIMS) Agreement, but the government’s local content requirements in the oil and gas sector and the Information and Communication Technology (ICT) sector may conflict with Nigeria’s commitments under TRIMS.

In 2013, the National Information Technology Development Agency (NITDA), under the auspices of the Ministry of Communication, issued the Guidelines for Nigerian Content Development in the ICT sector.  The Guidelines require original ICT equipment manufacturers, within three years from the effective date of the guidelines, to use 50 percent local manufactured content and to use Nigerian companies to provide 80 percent of value added on networks.  The Guidelines also require multinational companies operating in Nigeria to source all hardware products locally; all government agencies to procure all computer hardware only from NITDA-approved original equipment manufacturers; and ICT companies to host all consumer and subscriber data locally, use only locally manufactured SIM cards for telephone services and data, and to use indigenous companies to build cell towers and base stations.  Enforcement of the Guidelines is largely inconsistent.  The Nigerian government generally lacks capacity and resources to monitor labor practices, technology compliancy, and digital data flows.  There are reports that individual Nigerian companies periodically lobby the National Assembly and/or NITDA to address allegations (warranted or not) against foreign firms that they are in non-compliance with the Guidelines.

The goal is to promote development of domestic production of ICT products and services for the Nigerian and global markets, but the guidelines pose 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 remain concerned about whether the guidelines would be implemented in a fair and transparent way toward all Nigerian and foreign companies.  All ICT companies, including Nigerian companies, use foreign manufactured equipment as Nigeria does not have the capacity to supply ICT hardware that meets international standards.

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.  An internal CET implementation committee headed by the Fiscal Policy/Budget Monitoring and Evaluation Department of the NCS was set up to develop the implementation work plans that were consistent with national and ECOWAS regulations.  The CET was slated to be fully harmonized by 2020, but in practice some ECOWAS Member States have maintained deviations from the CET beyond the January 1, 2020, deadline.  The country has put in place a CET monitoring committee domiciled at the Ministry of Finance, consisting of several ministries, departments, and agencies (MDAs) related to the CET.  Nigeria applies five tariff bands under the CET:  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 such as palm oil, meat products, dairy, and poultry that the Nigerian government seeks to protect.  The CET permits ECOWAS member governments to calculate import duties 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 comprised of English common law, Islamic law, and Nigerian customary law.  Most business transactions are governed by common law modified by statutes to meet local demands and conditions.  The Supreme Court is 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.  Judges frequently fail to appear for trials and court officials lack proper equipment and training.

The constitution and law provide for an independent judiciary; however, 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.

The World Bank’s publication, Doing Business 2020, ranked Nigeria 73 out of 190 on enforcement of contracts, a significant improvement from previous years.  The Doing Business report credited business reforms for improving contract enforcement by issuing new rules of civil procedure for small claims courts which limit adjournments to unforeseen and exceptional circumstances but noted that there can be variation in performance indicators between cities in Nigeria (as in other developing countries).  For example, resolving a commercial dispute takes 476 days in Kano but 376 days in Lagos.  In the case of Lagos, the 376 days includes 40 days for filing and service, 194 days for trial and judgment, and 142 days for enforcement of the judgment with total costs averaging 42 percent of the claim.  In Kano, however, filing and service only takes 21 days with enforcement of judgement only taking 90 days, but trial and judgment accounts for 365 days with total costs averaging lower at 28 percent of the claim.  In comparison, in OECD countries the corresponding figures are an average of 589.6 days and averaging 21.5 percent of the claim and in sub-Saharan countries an average of 654.9 days and averaging 41.6 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 remains 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 NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in case of national interest, but the Embassy is unaware of specific instances of such interference by the government.

Competition and Anti-Trust Laws

After years of debate, the Nigerian government enacted the Federal Competition and Consumer Protection (FCCPC) Act in February 2019.  The act repealed the Consumer Protection Act of 2004 and replaced the previous Consumer Protection Council with a Federal Competition and Consumer Protection Commission while also creating a Competition and Consumer Protection Tribunal to handle issues and disputes arising from the operations of the Act.  Under the terms of the Act, businesses will be able to lodge anti-competitive practices complaints against other firms in the Tribunal.  The act prohibits agreements made to restrain competition, such as price fixing, price rigging, collusive tendering, etc. (with specific exemptions for collective bargaining agreements and employment, among other items).  The act empowers the President of Nigeria to regulate prices of certain goods and services on the recommendation of the Commission.

The law prescribes stringent fines for non-compliance.  The law mandates a fine of up to 10 percent of the company’s annual turnover in the preceding business year for offences.  The law harmonizes oversight for consumer protection, consolidating it under the FCCPC.

Expropriation and Compensation

The FGN 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 and 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 Nigerian government as well as between foreign investors and Nigerian businesses.  The courts occasionally rule against the government.  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 Act 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:
  1. 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
  2. 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
  3. 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 or Free Trade Agreement 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 whereas corporate bankruptcy is referred to as insolvency.  The former is regulated by the Bankruptcy Act of 1990, as amended by Bankruptcy Decree 109 of 1992.  The latter is regulated by Part XV of the Companies and Allied Matters Act Cap 59 1990 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 Nigerian government maintains different and overlapping incentive programs.  The Industrial Development/Income Tax Relief Act, Cap 17, Laws of the Federation of Nigeria, 2004 provides incentives to pioneer industries deemed beneficial to Nigeria’s economic development and to labor-intensive industries, such as apparel.  There are currently 99 industries and products that qualify for the pioneer status incentive through the NIPC, following the addition of 27 industries and products added to the list in 2017.  The government has added a stipulation calling for a review of the qualifying industries and products to occur every two years.  Companies that receive pioneer status may benefit from a tax holiday from payment of company income tax for an initial period of three years, extendable for one or two additional years.  A pioneer industry sited in an economically disadvantaged area is entitled to a 100 percent tax holiday for seven years and an additional five percent depreciation allowance over and above the initial capital depreciation allowance.  Additional tax incentives are available for investments in domestic research and development, for companies that invest in LGAs deemed disadvantaged, for local value-added processing, for investments in solid minerals and oil and gas, and for several other investment scenarios.  For a full list of incentives, refer to the NIPC website at https://www.nipc.gov.ng/investment-incentives/ .

The NEPC administers an EEG scheme to improve non-oil export performance.  The program was suspended in 2014 due to concerns about corruption on the part of companies that collected grants but did not actually export.  It was revised and relaunched in 2018.  The federal government set aside 5.12 billion naira (roughly USD 14.2 million) in the 2019 budget for the EEG scheme.  The 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 for the importation of machinery and raw materials used for generating exports.  Repayment terms are typically up to seven years, including a moratorium period of up to two years depending on the loan amount and the project being finance.  Agencies created to promote industrial exports remain burdened by uneven management, vaguely defined policy guidelines, and corruption.

The NIPC states that up to 120 percent of expenses on research and development (R&D) are tax deductible, provided that such R&D activities are carried out in Nigeria and relate to 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.  Long-term research will be regarded as a capital expenditure and 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 100 percent of production in an export processing zone may be sold domestically based on valid permits and upon payment of applicable duties.  Investors in the zones are exempt from foreign exchange regulations and taxes and may freely repatriate capital.  The Nigerian government 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 and the Agreement entered into force in 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 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 CAC, 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.  Long-term expatriate personnel do not require work permits but are subject to needs quotas requiring them to obtain residence permits that allow salary remittances abroad.  Expatriates looking to work in Nigeria on a short-term basis can either request a temporary work permit, which is usually granted for a two-month period and extendable to six months, or a business visa, if only traveling to Nigeria for the purpose of meetings, conferences, seminars, trainings, or other brief business activities.  Authorities permit larger quotas for professions deemed in short supply, such as deep-water oilfield divers.  U.S. companies often report problems in obtaining quota permits.  The Nigerian government’s Immigration Regulations 2017 introduced additional means by which foreigners can obtain residence in Nigeria.  Foreign nationals who have imported an annual minimum threshold of capital over a certain period may be issued a permanent residence permit, if the investment is not withdrawn.  The Nigerian Oil and Gas Content Development Act, 2010 restricts the number of expatriate managers to five percent of the total number of personnel for companies in the oil and gas sector.

The National Office of Industrial Property Act of 1979 established the National Office for Technology Acquisition and Promotion (NOTAP) to regulate the international acquisition of technology while creating an environment conducive to developing local technology.  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.  NOTAP reviews the Technology Transfer Agreements (TTAs) required to import 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.

U.S. firms complain that the approval process for TTAs is lengthy and can routinely take three months or more.  NOTAP took steps to automate the TTA process to reduce processing time to one month or less; however, from the date of filing the application to the issuance of confirmation of reasonableness, TTA processing still requires 60 business days.  https://notap.gov.ng/sites/default/files/stages_involved.pdf .

The Nigerian Oil and Gas Content Development Act of 2010 has technology-transfer requirements that may violate a company’s intellectual property rights.

The Guidelines for Nigerian Content Development in the ICT sector issued by the NITDA in 2013, require ICT companies to host all consumer and subscriber data locally to ensure the security of government data and promote development of the ICT sector by mandating all 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 Nigerian government lacks capacity and resources to monitor digital data flows.  Federal government data is hosted locally in data centers that meet international standards.  In 2019, NITDA updated the 2013 Guidelines for Data Protection (https://nitda.gov.ng/wp-content/uploads/2019/01/Nigeria%20Data%20Protection%20Regulation.pdf ) and rolled out the regulatory framework for providers of public internet access services such that only registered, verified and vetted providers can provide public internet access service in Nigeria.

The NCS and the Nigerian Ports Authority (NPA) exercise exclusive jurisdiction over customs services and port operations respectively.  Nigerian law allows importers to clear goods on their own, but most importers employ clearing and forwarding agents to minimize tariffs and lower landed costs.  Others ship their goods to ports in neighboring countries, primarily Benin, after which they transport overland legally or smuggle into the country.  The Nigerian government began closing land borders to trade in August 2019, reportedly to stem the tide of smuggled goods entering from neighboring countries and has not reopened borders as this year’s report.  The Nigerian government implements a destination inspection scheme whereby all inspections occur upon arrival into Nigeria, rather than at the ports of origin.  In 2013, the NCS regained the authority to conduct destination inspections, which had previously been contracted to private companies.  NCS also introduced the Nigeria Integrated Customs Information System (NICIS) platform and an online system for filing customs documentation via a Pre-Arrival Assessment Report (PAAR) process.  The NCS still carries out 100 percent cargo examinations, and shipments take more than 20 days to clear through the process.

Shippers report that efforts to modernize and professionalize the NCS and the NPA have largely been unsuccessful – port congestion persists and clearance times are long.  A  presidential directive in 2017 for the Apapa Port, which handles over 40 percent of Nigeria’s legal trade, to run a 24-hour operation and achieve 48-hour cargo clearance is not effective.  The port is congested, inefficient and the proliferation of customs units incentivizes corruption from official and unofficial middlemen who complicate and extend the clearance process.  Freight forwarders usually resort to bribery of customs agents and port officials to avoid long delays clearing imported goods through the NPA and NCS.  Other ports face logistical and security challenges leaving most operating well below capacity.  Nigeria does not currently have a true deep-sea port although one is under construction near Lagos but not expected to be finished before 2021.  Smuggled goods routinely enter Nigeria’s seaports and cross its land borders.

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.  In 2018, Nigeria instituted a visa-on-arrival system, which works relatively well, but still requires lengthy processing at an embassy or consulate abroad before an authorization is issued.  Some U.S. businesses have reported being solicited for bribes in the visa-on-arrival program.  Visa-on-arrival is not valid for employment or residence.  Investors report that the residency permit process is cumbersome and can take from two to 24 months and cost USD 1,000 to USD 3,000 in facilitation fees.  The Nigerian government announced a visa rule in 2011 to encourage foreign investment, under which legitimate investors can obtain multiple-entry visas at points of entry.  Obtaining a visa prior to traveling to Nigeria is strongly encouraged.

Real Property

The Nigerian government 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 Doing Business 2020 Report, Nigeria ranked 183 out of the 190 countries surveyed for registering property, a decline of one point over its 2019 ranking.  Property registration in Lagos required an average of 12 steps over 105 days at a cost of 11.1 percent of the property value while in Kano registering property averages 11 steps over 47 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.  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.

Intellectual Property Rights

Nigeria’s legal and institutional infrastructure for protecting intellectual property rights (IPR) remains in need of further development and more funding, even though there are laws on the books for enforcing most IPR. The areas in which the legislation is deficient include online piracy, geographical indications, and plant and animal breeders’ rights.  A bill to establish the industrial property commission to take over the functions of registration of trademarks, patents, designs, plant varieties, animal breeders and farmers’ rights, and supervise the new registries created under the industrial property act has been in the works since 2016.  No new IPR legislation has been enacted.

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.  The Nigerian Copyright Commission, a division of the Ministry of Justice, administers the Act.  The International Anti-Counterfeiting Coalition (IACC) has long noted that the Copyright Act should be amended to provide stiffer penalties for violators. Nigeria is a member of the World Intellectual Property Organization (WIPO) and in 2017 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.  The  Draft Copyright Bill in 2016 was revised to bring it into compliance with these two treaties and sent to the National Assembly in 2017, but it was never enacted.

In 2013, he Ministry of Communication Technology (MCT) issued local content guidelines (Guidelines for Nigerian Content Development in Information and Communications Technology) that  raised IPR concerns. Among other issues,  there is concern about the future ability of the Nigerian government to protect data and trade secrets because of the localization processes requiring the disclosure of source code and other sensitive design elements as a condition of doing business.  The ICT 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 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 largely due to a culture of inadequate enforcement.  That culture stems from several factors, including insufficient resources among enforcement agencies, lack of political will and focus on IPR, porous borders, entrenched trafficking systems that make enforcement difficult (and sometimes dangerous), and corruption.  The Nigerian Copyright Commission (NCC) has primary responsibility for copyright enforcement but 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 2018, the NCC conducted  five anti-piracy operations and seized 288 copyrighted works, including DVDs, books, MP3s, and software.  Anti-piracy operations in 2018 led to  seven arrests.

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 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 NCC bears the costs of moving and storing infringing goods.   If, after investigations, any persons are identified with the infringing materials, a decision to prosecute may be made. Where no persons are identified or could be traced, the NCC may obtain an order of court to enable it to destroy such works.  The NCC works in cooperation with rights owners’ associations and stakeholders in the copyright industries on such matters.

Nigeria is not listed in the United States Trade Representative (USTR) Special 301Report or the Notorious Markets List. For additional information about treaty obligations and points of contact at local IP offices, please see the WIPO 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, a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments.

The Nigeria Stock Exchange (NSE) was reflective of the sluggishness in the larger economy in 2019 as it posted a negative return of -14.6 percent to close the year with its All Share Index at 26,842.07.   The poor performance was mostly attributed to government regulatory uncertainty and the 2019 presidential elections.   However, the equity market capitalization increased by 11 percent to USD 36.0 billion from USD 32.5 billion in 2018, largely due to the notable listings of telecom companies MTN Nigeria Communications Plc and Airtel Africa which had been long awaited.   As of December 2019 the NSE had 164 listed companies.  The total number of securities listed increased by 26 percent to 361 from 286 securities in 2018, largely due to a growth in government bonds.  The Nigerian government has considered requiring companies in certain sectors such as telecoms, oil and gas, or over a certain size to list on the NSE as a means to encourage greater corporate participation and sectoral balance in the Nigerian Stock Exchange, but those proposals have not been enacted to date.

The Government employs debt instruments, issuing bonds of various maturities ranging from two to 20 years.  Nigeria has issued bonds to restructure the government’s domestic debt portfolio from short- 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 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 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.  At the same time, it 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 CBN, including the adoption of uniform year-end International Financial Reporting Standards (IFRS) 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 banks, identified as “Systemically Important Banks” (SIBs) as 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 banks are:  First Bank of Nigeria, United Bank for Africa, Zenith Bank, Access Bank, Ecobank Nigeria, Guaranty Trust Bank, and Polaris 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.  In September 2018, the CBN revoked the operating license of one of the SIBs, due to the deterioration of its share capital and its board’s failure to recapitalize the bank, making it the fourth bank to be nationalized.

The CBN reported that total deposits increased by N2.34tn or 10.7 percent and aggregate credit grew by N2.2tn or 14.5 percent by December 2019.  Non-performing loans (NPLs) declined to 6.1 percent in December, 2019 from 14.2 percent in 2018.  However, NPLs are expected to rise following the CBN’s directive to banks to increase their loan to deposit ratio to 6 percent or be penalized.  This has forced several banks to grant more credits, many of which may result in default.  Nigerian government and private sector analysts assess that the volume of NPLs 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.  Several banks have established Islamic banking operations in Nigeria including Jaiz Bank International Plc, Nigeria’s first full-fledged non-interest bank, which commenced operations in 2012.  A second non-interest bank, Taj Bank, started operations in December 2019.   There are five licensed merchant banks: Coronation Merchant Bank Limited, FBN Merchant Bank, FSDH Merchant Bank Ltd, NOVA Merchant Bank, and Rand Merchant Bank Nigeria Limited.

The CBN has issued regulations for foreign banks regarding mergers with or acquisitions of existing local banks in the country.  Foreign institutions’ aggregate investment must not be more than 10 percent 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.  Low value foreign exchange may also be procured at a premium from foreign exchange bureaus, called Bureaus de Change.  Domestic and foreign businesses have frequently 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; the number of categories has since been increased to 44.  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.  In February 2019, the Governor of the Central Bank commented that the Bank is currently considering adding more items to the list and bringing the number as high as 50 items.

https://www.cbn.gov.ng/out/2015/ted/ted.fem.fpc.gen.01.011.pdf 

In 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.    The CBN also established the “investors and exporters” window in 2017, which allows trade to occur at prevailing market rates (around 360 naira to the dollar in December 2019).  In March 2020, the CBN announced it had collapsed its multiple exchange rate policy following a currency adjustment such that the investor and exporters window rate was increased to 380 naira to the dollar, and government transactions are now contracted at approximately 360 naira to the dollar.

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 repatriating dividends from Nigeria.  Money transfers usually take no more than 48 hours.  In 2015, the CBN implemented restrictions on foreign exchange remittances.  All such transfers must occur through banks.  Such remittances may take several weeks depending on 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 Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

Sovereign Wealth Funds

The Nigeria Sovereign Investment Authority (NSIA) manages Nigeria’s sovereign wealth fund.  It was created by the NSIA Act in 2011 and began operations in October 2012 with USD 1 billion seed capital and received an additional USD 500 million in 2017.  In its most recent annual report, the total assets being managed by NSIA, increased to N617.7 billion (USD 2.0 billion) in 2018, an increase of 15.7 percent from 2017.  The NSIA also posted total comprehensive income of N44.3 billion (USD 144.9 million) in 2018, a 58.8 percent growth over the 2017 figure of N27.9 billion (USD 91.2 million).  http://www.nsia.com.ng/~nsia/sites/default/files/annual-reports/NSIA%20Annual%20Report%202018.pdf   It was created to receive, manage, and grow a diversified portfolio that will eventually replace government revenue currently 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.  The NSIA does not take an active role in management of companies.  The Embassy has not received any report or indication that NSIA activities limit private competition.

The Nigerian government does not have an established practice consistent with the OECD Guidelines on Corporate Governance for state-owned enterprises (SOEs), but SOEs do have enabling legislation that governs their ownership.  To legalize the existence of state-owned enterprises, 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 SOEs to encourage more efficient operations, such as state-owned telecommunications company Nigerian Telecommunications and mobile subsidiary Mobile Telecommunications in 2014.

Nigeria does not operate a centralized ownership system for its state-owned enterprises.  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 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, appointments have been viewed as a reward to political affiliates.

The Nigerian National Petroleum Corporation (NNPC) is Nigeria’s most prominent state-owned enterprise.  NNPC Board appointments are made by the presidency, but day-to-day management is overseen by the Group Managing Director (GMD).  The GMD reports to the Minister of Petroleum.  In the current administration the President has retained that ministerial role for himself, and the appointed Minister of State for Petroleum acts as the de facto Minister of Petroleum in the President’s stead.  The National Assembly passed a Petroleum Industry Governance Bill in March 2018, but the President sent it back to the National Assembly requesting amendments.  The bill would clarify regulatory, policy, and operational roles in the petroleum sector and pave the way for partial privatization of NNPC.

NNPC is Nigeria’s biggest and arguably most important state-owned enterprise and is responsible for exploration, refining, petrochemicals, products transportation, and marketing.  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 capacity, if at all.  Nigeria’s tax agency receives taxes on petroleum profits and other hydrocarbon-related levies, while the Department of Petroleum Resources under the Ministry 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 state-owned enterprise 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 which greatly hinder the nation’s electricity output and supply.  TCN emerged from the defunct National Electric Power Authority as an incorporated entity in 2005.  It is the only major component of Nigeria’s electric power sector, which was not 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, 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.

The BPE has privatized and concessioned more than 140 enterprises since 1999, including an aluminum complex, a steel complex, cement manufacturing firms, hotels, a petrochemical plant, aviation cargo handling companies, vehicle assembly plants, and electricity generation and distribution companies.  The electricity transmission company remains state-owned.  Foreign investors can and do participate in 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.)

The National Assembly has questioned the propriety of some of these privatizations, with one ongoing case related to an aluminum complex privatization the subject of a Supreme Court ruling on ownership.  In addition, the failure of the 2013 power sector privatization to restore financial viability to the sector has raised criticism of the privatized power generation and distribution companies.  Nevertheless, the government’s long-delayed sale in 2014 of state-owned Nigerian Telecommunications and Mobile Telecommunications shows a continued commitment to the privatization model.

There is no specific Responsible Business Conduct 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.  While the Nigerian government has no specific action plan regarding OECD Responsible Business Conduct guidelines, most government procurements are done transparently and in line with the Public Procurement Act which stipulates advertisement and a transparent bidding process.

Nigeria participates in the Extractive Industries Transparency Initiative (EITI) and is an EITI compliant country.  Specifically, in February 2019 the EITI Board determined that Nigeria had made satisfactory progress overall with implementing the EITI Standard after having fully addressed the corrective actions from the country’s first Validation in 2017.  The next EITI Validation study of Nigeria will occur in 2022.

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 of 1991 for the petroleum industry is a comprehensive working document with serious consideration for the preservation and protection of the Niger Delta.

The Nigerian government provides oversight of competition, consumer rights, and environmental protection issues.  The Federal Competition and Consumer Protection Commission (FCCPC), the National Agency for Food and Drug Administration and Control, the Standards Organization of Nigeria, and other entities have the authority to impose fines and ensure the destruction of harmful substances that otherwise may have sold to the general public.  The main regulators and enforcers of corporate governance are the Securities and Exchange Commission and the Corporate Affairs Commission (which register all incorporated companies).  Nigeria has adopted multiple reforms on corporate governance.  Environmental pollution by multinational oil companies has resulted in fines being imposed locally while some cases have been pursued in foreign jurisdictions resulting in judgments being granted in favor of the oil producing communities.

The Companies Allied Matter Act 1990 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 indicate their level of compliance with the Code of Corporate Governance in their Annual Financial Reports.

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 discriminatory policies based on foreign status.  Government tenders are published in local newspapers, a “tenders” journal sold at local newspaper outlets, and occasionally 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 with the introduction of the Nigeria Open Contracting Portal in 2017 under the Bureau of Public Procurement.

The Public Procurement Law of 2007 established the Bureau of Public Procurement as the successor agency to the Budget Monitoring and Price Intelligence Unit.  It 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 277,550) reportedly undergo full “due process,” but government agencies routinely flout public procurement requirements.  Some of the 36 states of the federation have also passed public procurement legislation.

The reforms have also improved transparency in procurement by the state-owned NNPC.  Although U.S. companies have won contracts in numerous sectors, difficulties in receiving payment are not uncommon and can deter firms from bidding.  Supplier or 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.

In 2016, Nigeria announced its participation in the Open Government Partnership, a potentially significant step forward on public financial management and fiscal transparency.  The Ministry of Justice presented Nigeria’s National Action Plan for the Open Government Partnership.  Implementation of its 14 commitments has made some progress, particularly on the issues such as tax transparency, ease of doing business, and asset recovery.  The National Action Plan, which ran through 2019, covered five major themes:  ensuring citizens’ participation in the budget cycle, implementing open contracting and 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 National Action Plan would be a significant step forward for Nigeria’s fiscal transparency, although Nigeria has not fully completed any commitment to date.

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 26 out of 100 in Transparency International’s 2019 Corruption Perception Index, with an overall ranking of 146 out of the 180 countries, a two-point drop since 2018.  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 achieved 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 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, though his critics contend his anti-corruption efforts often target political rivals.  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 Corrupt Practices 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 71 cases (through 2015, latest data available) with nearly 300 cases still open and pending as of July 2018.  In 2014, a presidential committee set up to review Nigeria’s ministries, departments, and agencies 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 in 2007.  In July 2017 the Egmont Group suspended Nigeria due to concerns about the Nigeria Financial Intelligence Unit’s operational autonomy and ability to protect classified information. It lifted the suspension in September 2018 due to the Nigerian government’s efforts to address the Egmont Group’s concerns, through the passage of the Nigerian Financial Intelligence Agency Act in July 2018.

The Paris-based Financial Action Task Force (FATF) removed Nigeria from its list of Non-Cooperative Countries and Territories in 2006.  In 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.  Nigeria, as a member of the Inter-governmental Action Group Against Money Laundering in West Africa, is an associated member of FATF.

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 Nigerian government.  NEITI serves as a member of the international Extractive Industries Transparency Initiative, 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, and the ISIS-WA have waged a violent campaign to destabilize the Nigerian government, killing tens of thousands of people, forcing over two million to flee to other areas of Nigeria or into neighboring countries, and leaving more than 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 2017, Boko Haram employed hundreds of suicide bombings against the local population.  Women and children were forced to carry out many of the attacks.  There were multiple reports of Boko Haram killing entire villages suspected of cooperating with the government.  ISIS-WA targeted civilians with attacks or kidnappings less frequently than Boko Haram.  ISIS-WA employed targeted acts of violence and intimidation against civilians in order to expand its area of influence and gain control over critical economic resources.  As part of a violent and deliberate campaign, ISIS-WA also targeted government figures, traditional leaders, and contractors.

President Buhari has focused on matters of insecurity in Nigeria and in neighboring countries.   While the two insurgencies maintain the ability to stage forces in rural areas and launch attacks against civilian and military targets across the northeast, Nigeria is also facing rural violence in the Nigeria’s north-central states caused by criminal actors and by conflicts between migratory pastoralist and farming communities, often over scarce resources.  Another major trend is the rise in kidnappings for ransom and attacks on villages by armed gangs.

Due to challenging security dynamics throughout the country, the U.S. Mission to Nigeria has significantly limited official travel in the northeast and travel to other parts of Nigeria requires security precautions.

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) and the Ministry of Niger Delta Affairs, 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 militants have demonstrated their ability to attack and severely damage oil instillations at will as seen when they cut Nigeria’s production by more than half in 2016.  Attacks on oil installations have since decreased due to a revamped amnesty program and continuous high-level engagement with the region.

Other security challenges facing Nigeria include thousands of refugees fleeing to Nigeria from Cameroon’s English-speaking region due to tensions there and kidnappings for ransom.

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, Canada, 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.  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, which means overall labor costs can be high.  The Buhari Administration is pushing reforms in the education sector to improve the supply of skilled workers but this and other efforts run by state governments 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.

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 three trade union federations:  the Nigeria Labor Congress (NLC), which tends to represent junior (i.e., blue collar) workers; the United Labor Congress of Nigeria (ULC), which represents a group of unions that separated from the NLC in 2015; and the Trade Union Congress of Nigeria (TUC), which represents 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.

Collective bargaining occurred throughout the public sector and the organized private sector in 2019.  However, public sector employees have become increasingly concerned about the Nigerian governments’ and state governments’ failure to honor previous agreements from the collective bargaining process.

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.  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 Nigerian government.  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 2019.  The law forbids employers from granting general wage increases to workers without prior government approval, but the law is not often enforced.

Despite widespread opposition from state governors, in April 2019, President Buhari signed into law a new minimum wage, increasing it from 18,000 naira (USD 50) to 30,000 naira (USD 83) per month.  After months of negotiations, the government finally reached an agreement with organized labor in October 2019 on the consequential adjustments in civil servants’ salaries that must be implemented across the board to apply the new minimum wage.  While the VAT rate was recently raised from 5.5 to 7.5 percent to help fund the increased minimum wage, it will not be enough to offset the cost of the adjustments.  This, in turn, means that the government will need to borrow more money, which will not only increase the debt burden but open it to criticism that that money should be used for critical infrastructure projects rather than civil servant salaries.

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 NIC launched an Alternative Dispute Resolution Center.  Union officials question the effectiveness and independence of the NIC, believing it unable to resolve disputes stemming from Nigerian government failure to fulfill contract provisions for public sector employees.  Union leaders criticize the arbitration system’s dependence on the Minister of Labor and Employment’s referrals to the IAP.

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 Rights Act (CRA) codifies the rights of children in Nigeria and must be ratified by each State to become law in its territory.  To date, 25 states and the FCT have ratified the CRA, with all 11 of the remaining 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 (NSC) for the Elimination of the Worst Forms of Child Labor in Nigeria validated the Report on the Identification of Hazardous Child Labor in Nigeria.  The report has languished with the Ministry of Labor and Employment and still awaits the promulgation of guidelines for operationalizing the report.

The Nigerian government adopted the Trafficking in Persons (Prohibition), Enforcement, and Administration Act of 2015.  While not specifically directed against child labor, many sections of the  law support anti-child labor efforts.  The Violence against Persons Prohibition Act was signed into law in May 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.

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 Employment to inspect factories for compliance with health and safety standards.  Under-funding and limited resources undermine the Ministry’s 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.

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.

Nigeria does not have current programs under the DFC but has Overseas Private Investment Corporation (OPIC) programs in food manufacturing, banking, construction, and power sectors.

Table 4: Sources of Portfolio Investment
Data not available.

Trade and Investment Officer
Plot 1075 Diplomatic Drive
Abuja, Nigeria
Telephone: +234 (0)9 461 4000
Email: EconNigeria@state.gov

Policies Towards Foreign Direct Investment

The government of South Africa is generally open to foreign investment as a means to drive economic growth, improve international competitiveness, and access foreign markets. Merger and acquisition activity is more sensitive and requires advance work to answer potential stakeholder concerns. The 2018 Competition Amendment Bill, which was signed into law in February, 2019, introduced a mechanism for South Africa to review foreign direct investments and mergers and acquisitions by a foreign acquiring firm on the basis of protecting national security interests (see section on Laws and Regulations on Foreign Direct Investment below). Virtually all business sectors are open to foreign investment. Certain sectors require government approval for foreign participation, including energy, mining, banking, insurance, and defense.

The Department of Trade and Industry and Competition’s (the DTIC) Trade and Investment South Africa (TISA) division provides assistance to foreign investors. TISA has opened provincial One-Stop Shops that provide investment support for foreign direct investment (FDI), with offices in Johannesburg, Cape Town, and Durban, and a national One Stop Shop located on the DTIC campus in Pretoria and online at http://www.investsa.gov.za/one-stop-shop/ . An additional one-stop shop has opened at Dube Trade Port, which is a special economic zone aerotropolis linked to the King Shaka International Airport in Durban.

The DTIC actively courts manufacturing enterprises in sectors that its research indicates South Africa has a comparative advantage. It also favors manufacturing that it hopes will be labor intensive and where suppliers can be developed from local industries. The DTIC has traditionally focused on manufacturing industries over services industries, despite a strong service-oriented economy in South Africa. TISA offers information on sectors and industries, consultation on the regulatory environment, facilitation for investment missions, links to joint venture partners, information on incentive packages, assistance with work permits, and logistical support for relocation. The DTIC publishes the “Investor’s Handbook” on its website: www.thedtic.gov.za 

While the government of South Africa supports investment in principle and takes active steps to attract FDI, investors and market analysts are concerned that its commitment to assist foreign investors is insufficient in practice. Several investors reported trouble accessing senior decision makers. South Africa scrutinizes merger- and acquisition-related foreign direct investment for its impact on jobs, local industry, and retaining South African ownership of key sectors. Private sector representatives and other interested parties were concerned about the politicization of South Africa’s posture towards this type of investment. Despite South Africa’s general openness to investment, actions by some South African Government ministries, populist statements by some politicians, and rhetoric in certain political circles show a lack of appreciation for the importance of FDI to South Africa’s growth and prosperity and a lack of concern about the negative impact domestic policies may have on the investment climate. Ministries often do not consult adequately with stakeholders before implementing laws and regulations or fail to incorporate stakeholder concerns if consultations occur. On the positive side, the President, assisted by his appointment of four investment envoys in 2018, and a few business-oriented reformists in his cabinet, are working to restore a positive investment climate and appear to be making progress as they engage in senior level overseas roadshows to attract investment. Nevertheless, the government has not yet implemented any real economic reforms to address the structural deficiencies hindering South Africa’s economic growth.

Limits on Foreign Control and Right to Private Ownership and Establishment

Currently there is no limitation on foreign private ownership. South Africa’s transformation efforts – the re-integration of historically disadvantaged South Africans into the economy – has led to policies that could disadvantage foreign and some locally owned companies. The Broad-Based Black Economic Empowerment Act of 2013 (B-BBEE), and associated codes of good practice, requires levels of company ownership and participation by Black South Africans to get bidding preferences on government tenders and contracts. The DTIC created an alternative equity equivalence (EE) program for multinational or foreign owned companies to allow them to score on the ownership requirements under the law, but many view the terms as onerous and restrictive. Currently eight multinationals, most in the technology sector, participate in this program.

Other Investment Policy Reviews

The last Trade Policy Review carried out by the World Trade Organization for the Southern African Customs Union, in which South Africa is a member, was in 2015. Neither the OECD nor the UN Conference on Trade and Development (UNCTAD) has conducted investment policy reviews for South Africa.

Business Facilitation

According to the World Bank’s Doing Business report, South Africa’s rank in ease of doing business in 2020 was 84 of 190, down from 82 in 2019. It ranks 139th for starting a business, 5 points lower than in 2019. In South Africa, it takes an average of forty days to complete the process. South Africa ranks 145 of 190 countries on trading across borders.

The DTIC has a national InvestSA One Stop Shop (OSS) to simplify administrative procedures and guidelines for foreign companies wishing to invest in South Africa. The DTIC, in conjunction with provincial governments, opened physical OSS locations in Cape Town, Durban, and Johannesburg. These physical locations bring together key government entities dealing with issues including policy and regulation, permits and licensing, infrastructure, finance, and incentives, with a view to reducing lengthy bureaucratic procedures, reducing bottlenecks, and providing post-investment services. Some users of the OSS complain that not all of the inter-governmental offices are staffed, so finding a representative for certain transactions has proven difficult. The virtual OSS web site is: http://www.investsa.gov.za/one-stop-shop/ .

The Companies and Intellectual Property Commission (CIPC), a body of the DTIC, is responsible for business registrations and publishes a step-by-step process for registering a company. This process can be done on its website (http://www.cipc.co.za/index.php/register-your-business/companies/ ), through a self-service terminal, or through a collaborating private bank. New business registrants also need to register through the South African Revenue Service (SARS) to get an income tax reference number for turnover tax (small companies), corporate tax, employer contributions for PAYE (income tax), and skills development levy (applicable to most companies). The smallest informal companies may not be required to register with CIPC, but must register with the tax authorities. Companies also need to register with the Department of Labour (DoL) – www.labour.gov.za  – to contribute to the Unemployment Insurance Fund (UIF) and a compensation fund for occupational injuries. The DoL registration takes the longest (up to 30 days), but can be done concurrently with other registrations.

Outward Investment

South Africa does not incentivize outward investments. South Africa’s stock foreign direct investments in the United States in 2018 totaled USD 3.9 billion (latest figures available), a 5.6 percent decrease from 2017. The largest outward direct investment of a South African company is a gas liquefaction plant in the State of Louisiana by Johannesburg Stock Exchange (JSE) and NASDAQ dual-listed petrochemical company SASOL. There are some restrictions on outward investment, such as a R1 billion (USD 83 million) limit per year on outward flows per company. Larger investments must be approved by the South African Reserve Bank and at least 10 percent of the foreign target entities voting rights must be obtained through the investment. https://www.resbank.co.za/RegulationAndSupervision/FinancialSurveillanceAndExchangeControl/FAQs/Pages/Corporates.aspx 

Transparency of the Regulatory System

South African laws and regulations are generally published in draft form for stakeholders to comment, and legal, regulatory, and accounting systems are generally transparent and consistent with international norms.

The DTIC is responsible for business-related regulations. It develops and reviews regulatory systems in the areas of competition, standards, consumer protection, company and intellectual property registration and protections, as well as other subjects in the public interest. It also oversees the work of national and provincial regulatory agencies mandated to assist the DTIC in creating and managing competitive and socially responsible business and consumer regulations. The DTIC publishes a list of Bills and Acts that govern its work at: http://www.thedtic.gov.za/legislation/legislation-and-business-regulation/?hilite=%27IDZ%27 

The 2015 Medicines and Related Substances Amendment Act authorized the creation of the South African Healthcare Products Regulatory Authority (SAHPRA), meant in part to address the backlog of more than 7000 drugs waiting for approval to be used in South Africa. Established in 2018, and unlike its predecessor, the Medicines Control Council (MCC), SAHPRA is a stand-alone public entity governed by a board that is appointed by and accountable to the South African Ministry of Health. SAHPRA is responsible for the monitoring, evaluation, regulation, investigation, inspection, registration, and control of medicines, scheduled substances, clinical trials and medical devices, in vitro diagnostic devices (IVDs), complementary medicines, and blood and blood-based products. SAHPRA intends to do this through 207 full-time in-house technical evaluators, though this structure has not been fully staffed. Unlike with the MCC, SAHPRA’s funding is provided by the retention of registration fees. Despite its launch in 2018, the full staffing and implementation of SAPHRA is anticipated to take up to five years, and clearing the backlog of drug registration dossiers will also take significant time.

South Africa’s Consumer Protection Act (2008) went into effect in 2011. The legislation reinforces various consumer rights, including right of product choice, right to fair contract terms, and right of product quality. Impact of the legislation varies by industry, and businesses have adjusted their operations accordingly. A brochure summarizing the Consumer Protection Act can be found at: http://www.thedtic.gov.za/wp-content/uploads/CP_Brochure.pdf . Similarly, the National Credit Act of 2005 aims to promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide the general regulation of consumer credit and improves standards of consumer information. A brochure summarizing the National Credit Act can be found at: http://www.thedtic.gov.za/wp-content/uploads/NCA_Brochure.pdf 

International Regulatory Considerations

South Africa is a member of the Southern African Customs Union (SACU), the oldest existing customs union in the world. SACU functions mainly on the basis of the 2002 SACU Agreement which aims to: (a) facilitate the cross-border trade in goods among SACU members; (b) create effective, transparent and democratic institutions; (c) promote fair competition in the common customs area; (d) increase investment opportunities in the common customs area; (e) enhance the economic development, diversification, industrialization and competitiveness of member States; (f) promote the integration of its members into the global economy through enhanced trade and investment; (g) facilitate the equitable sharing of revenue arising from customs and duties levied by members; and (h) facilitate the development of common policies and strategies.

The 2002 SACU Agreement requires member States to develop common policies and strategies with respect to industrial development; cooperate in the development of agricultural policies; cooperate in the enforcement of competition laws and regulations; develop policies and instruments to address unfair trade practices between members; and calls for harmonization of product standards and technical regulations. SACU continues to work on developing these common policies.

In general, South Africa models its standards according to European standards or UK standards where those differ.

South Africa is a member of the WTO and attempts to notify all draft technical regulations to the Committee on Technical Barriers to Trade (TBT), though often after the regulations have been implemented.

In November 2017, South Africa ratified the WTO’s Trade Facilitation Agreement. According to the government, it has implemented over 90 percent of the commitments as of May 2020. The outstanding measures were notified under Category B, to be implemented by the indicative date of 2022 without capacity building support and include Article 3 and Article 10 commitments on Advance Rulings and Single Window.

The South African Government is not party to the WTO’s Government Procurement Agreement (GPO).

Legal System and Judicial Independence

South Africa has a mixed legal system composed of civil law inherited from the Dutch, common law inherited from the British, and African customary law, of which there are many variations. As a general rule, South Africa follows English law in criminal and civil procedure, company law, constitutional law, and the law of evidence, but follows Roman-Dutch common law in contract law, law of delict (torts), law of persons, and family law. South African company law regulates corporations, including external companies, non-profit, and for-profit companies (including state-owned enterprises). Funded by the national Department of Justice and Constitutional Development, South Africa has district and magistrates courts across 350 districts and high courts for each of the provinces (except Limpopo and Mpumalanga, which are heard in Gauteng). Often described as “the court of last resort,” the Supreme Court of Appeals hears appeals, and its jurisprudence may only be overruled by the apex court, the Constitutional Court. Moreover, South Africa has multiple specialized courts, including the Competition Appeal Court, Electoral Court, Land Claims Court, the Labour and Labour Appeal Courts, and Tax Courts to handle disputes between taxpayers and the South African Revenue Service. These courts exist parallel to the court hierarchy, and their decisions are subject to the same process of appeal and review as the normal courts. Analysts routinely praise the competence and reliability of judicial processes, and the courts’ independence has been repeatedly proven with high-profile rulings against controversial legislation, as well as against former presidents and corrupt individuals in the executive and legislative branches.

Laws and Regulations on Foreign Direct Investment

The February 2019 ratification of the Competition Amendment Bill introduced, among other revisions, section 18A that mandates the President create a committee – comprised of 28 Ministers and officials chosen by the President – to evaluate and intervene in a merger or acquisition by a foreign acquiring firm on the basis of protecting national security interests. The new section states that the President must identify and publish in the Gazette – the South African equivalent of the U.S. Federal Register – a list of national security interests including the markets, industries, goods or services, sectors or regions in which a merger involving a foreign acquiring firm must be notified to the South African government. It also suggests the President consider a merger’s impact on the economic and social stability of South Africa. As of May, 2020, the president has not established the committee, nor has he published the list of national security interests.

Competition and Anti-Trust Laws

The Competition Commission is empowered to investigate, control and evaluate restrictive business practices, abuse of dominant positions, and mergers in order to achieve equity and efficiency. Their public website is www.compcom.co.za 

The Competition Tribunal has jurisdiction throughout South Africa and adjudicates competition matters in accordance with the Competition Act. While the Commission is the investigation and enforcement agency, the Tribunal is the adjudicative body, very much like a court.

In addition to the points made in the previous section, the amendments, presented by the Ministry for Economic Development that revise the Competition Act of 1998 and entered effect in February 2019 extend the mandate of the competition authorities and the executive to tackle high levels of economic concentration, address the limited transformation in the economy, and curb the abuse of market power by dominant firms. The changes introduced through the Competition Amendment Act are meant to curb anti-competitive practices and break down monopolies that hinder “transformation” – the increased participation of black and HDSA in the South African economy. The amendments aim to deter the abuse of market dominance by large firms that use practices such as margin squeeze, exclusionary practices, price discrimination, and predatory pricing. By increasing the penalties for these prohibited business practices – for repeat offences the penalties could amount to between 10 percent to 25 percent of a firm’s annual turnover – and allowing the parent or holding company to be held liable for the actions of its subsidiaries that contravene competition law, the Competition Commission hopes to break down these anticompetitive practices and open up new opportunities for SMEs.

Expropriation and Compensation

Racially discriminatory property laws and land allocations during the colonial and apartheid periods resulted in highly distorted patterns of land ownership and property distribution in South Africa. Given the slow and mixed success of land reform to date, the National Assembly (Parliament) passed a motion in February 2018 to investigate a proposal to amend the constitution (specifically Section 25, the “property clause”) to allow for land expropriation without compensation (EWC). The constitutional Bill of Rights, where Section 25 resides, has never been amended. Some politicians, think-tanks, and academics argue that Section 25, as written, allows for EWC in certain cases, while others insist that in order to implement EWC more broadly, amending the constitution is required. Academics foresee a few test cases for EWC over the next year, primarily targeted at abandoned buildings in urban areas, informal settlements in peri-urban areas, and involving labor tenants in rural areas.

Parliament tasked an ad hoc Constitutional Review Committee – made up of parliamentarians from various political parties – to report back on whether to amend the constitution to allow EWC, and if so, how it should be done. In December 2018, the National Assembly adopted the committee’s report recommending a constitutional amendment. Following elections in May 2019 the new Parliament created an ad hoc Committee to Initiate and Introduce Legislation to Amend Section 25 of the Constitution. That committee drafted proposed constitutional amendment language that would explicitly allow for EWC and is currently holding public workshops and accepting public comments on the draft language. Parliament had tasked the committee with finalizing the draft language for submission to Parliament by the end of May 2020. That deadline will likely be extended due to restrictions on Parliament’s legislative abilities under the current national declaration of a state of disaster respond to the COVID-19 pandemic. South African law requires that Parliament engage in a rigorous public participation process. Parliament must publish a proposed bill to amend the Constitution in the Government Gazette at least 30 days prior to its introduction to allow for public comment. Any change to the constitution would need a two-thirds parliamentary majority (267 votes) to pass, as well as the support of six out of the nine provinces in the National Council of Provinces. Currently, no single political party has such a majority.

In addition to an amendment to Section 25 of the Constitution, Parliament must also pass an Expropriation Bill to set forth the legal procedures of how the expropriation process will occur. A draft Expropriation Bill was published in December 2018 for public comment but has not yet been submitted to Parliament.

In September 2018, President Ramaphosa appointed an advisory panel on land reform, which supports the Inter-Ministerial Committee on Land Reform chaired by Deputy President David Mabuza. Comprised of ten members from academia, social entrepreneurship, and activist organizations, the panel published its Report on Land Reform and Agriculture in May 2019 and submitted it to the National Assembly Committee on Agriculture, Land Reform and Rural Development in March 2020. The 144-page report was a comprehensive overview of all aspects of land reform in rural and urban areas, including land tenure, agriculture, access to land, infrastructure development, and the failure of the government’s current land reform policies. The panel made recommendations, many focused on improving current programs and making them more efficient. The panel recognized expropriation without compensation (EWC) as one tool of land reform but saw its usefulness in only limited circumstances and reinforced the need to protect the rights of landowners.

Existing expropriation law, including The Expropriation Act of 1975 (Act) and the Expropriation Act Amendment of 1992, entitles the government to expropriate private property for reasons of public necessity or utility. The decision is an administrative one. Compensation should be the fair market value of the property as agreed between the buyer and seller, or determined by the court, as per Section 25 of the Constitution. In several restitution cases in which the government initiated proceedings to expropriate white-owned farms after courts ruled the land had been seized from blacks during apartheid, the owners rejected the court-approved purchase prices. In most of these cases, the government and owners reached agreement on compensation prior to any final expropriation actions. The government has twice exercised its expropriation power, taking possession of farms in Northern Cape and Limpopo provinces in 2007 after negotiations with owners collapsed. The government paid the owners the fair market value for the land in both cases. A new draft expropriation law, intended to replace the Expropriation Act of 1975, was passed and is awaiting Presidential signature. Some analysts have raised concerns about aspects of the new legislation, including new clauses that would allow the government to expropriate property without first obtaining a court order.

In 2018, the government operationalized the 2014 Property Valuation Act that creates the office of Valuer-General charged with the valuation of property that has been identified for land reform or acquisition or disposal by a department. Among other things, the Act gives the government the option to expropriate property based on a formulation in the Constitution termed “just and equitable compensation.” This considers the market value of the property and applies discounts based on the current use of the property, the history of the acquisition, and the extent of direct state investment and subsidy in the acquisition and capital improvements to the property. Critics fear that this could lead to the government expropriating property at a price lower than fair market value. The Act also allows the government to expropriate property under a broad range of policy goals, including economic transformation and correcting historical grievances.

The Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), enacted in 2004, gave the state ownership of all of South Africa’s mineral and petroleum resources.  It replaced private ownership with a system of licenses controlled by the government of South Africa, and issued by the Department of Mineral Resources.  Under the MPRDA, investors who held pre-existing rights were granted the opportunity to apply for licenses, provided they met the licensing criteria, including the achievement of certain B-BBEE objectives.  Amendments to the MPRDA passed by Parliament in 2014, but were not signed by the President.  In August 2018, the Minister for the Department of Mineral Resources, Gwede Mantashe, called for the recall of the amendments so that oil and gas could be separated out into a new bill.  The Minister also announced the B-BBEE provisions in the new Mining Charter would not apply during exploration, but would start once commodities were found and mining commenced. On November 28, 2019, the newly merged Department of Mineral Resources and Energy (DMRE) published draft regulations to the MPRDA, giving a 30-day window for providing public comments. On December 24, 2019, the DMRE published the Draft Upstream Petroleum Resources Development Bill for public comment, with a February 20, 2020 deadline for the submission of public comments. Oil and gas exploration and production is currently regulated under the Mineral and Petroleum Resources Development Act, 2002 (MPRDA), but the new Bill will repeal and replace the relevant sections pertaining to upstream petroleum activities in the MPRDA.

Dispute Settlement

ICSID Convention and New York Convention

South Africa is a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards as implemented through the Recognition and Enforcement of Foreign Arbitral Awards Act, No. 40 of 1977 . South Africa is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, nor a member of the World Bank’s International Center for the Settlement of Investment Disputes.

Investor-State Dispute Settlement

The 2015 Promotion of Investment Act removes the option for investor state dispute settlement through international courts typically afforded through bilateral investment treaties (BITs). Instead, investors disputing an action taken by the South African government must request the Department of Trade and Industry to facilitate the resolution by appointing a mediator. A foreign investor may also approach any competent court, independent tribunal, or statutory body within South Africa for the resolution of the dispute.

Dispute resolution can be a time-intensive process in South Africa. If the matter is urgent, and the presiding judge agrees, an interim decision can be taken within days while the appeal process can take months or years. If the matter is a dispute of law and is not urgent, it may proceed by application or motion to be solved within months. Where there is a dispute of fact, the matter is referred to trial, which can take several years. The Alternative Dispute Resolution involves negotiation, mediation or arbitration, and may resolve the matter within a couple of months.

International Commercial Arbitration and Foreign Courts

Arbitration in South Africa follows the Arbitration Act of 1965, which does not distinguish between domestic and international arbitration and is not based on UNCITRAL model law. South African courts retain discretion to hear a dispute over a contract entered into under U.S. law and under U.S. jurisdiction; however, the South African court will interpret the contract with the law of the country or jurisdiction provided for in the contract.

South Africa recognizes the International Chamber of Commerce, which supervises the resolution of transnational commercial disputes. South Africa applies its commercial and bankruptcy laws with consistency and has an independent, objective court system for enforcing property and contractual rights.

Alternative Dispute Resolution is increasingly popular in South Africa for many reasons, including the confidentiality which can be imposed on the evidence, case documents, and the judgment. South Africa’s new Companies Act also provides a mechanism for Alternative Dispute Resolution.

Bankruptcy Regulations

South Africa has a strong bankruptcy law, which grants many rights to debtors, including rejection of overly burdensome contracts, avoiding preferential transactions, and the ability to obtain credit during insolvency proceedings. South Africa ranks 68 out of 190 countries for resolving insolvency according to the 2020 World Bank Doing Business report, a drop in its ranking from its 2018 rank of 55 and 2019 rank of 65.

Investment Incentives

The Public Investment Corporation SOC Limited (PIC) is an asset management firm wholly owned by the government of South Africa, represented by the Minister of Finance and is governed by the Public Investment Corporation Act, 2004 . PIC’s clients are mostly public sector entities, including the Government Employees Pension Fund (GEPF) and Unemployment Insurance Fund (UIF), among others. The PIC runs a diversified investment portfolio including listed equities, real estate, capital market, private equity and impact investing. The PIC has been known to jointly finance foreign direct investment if the project will create social returns, primarily in the form of new employment opportunities for South Africans.

South Africa offers various investment incentives targeted at specific sectors or types of business activities. The DTIC has a number of incentive programs ranging from tax allowances to support in the automotive sector and helping innovation and technology companies to film and television production:

• Tax Allowance: is designed to support new industrial projects that utilize only new and unused manufacturing assets and expansions or upgrades of existing industrial projects. The incentive offers support for both capital investment and training.
• Agro-Processing Support Scheme (APSS): aims to stimulate investment by South African agro-processing/beneficiation (agri-business) enterprises.
• Aquaculture Development and Enhancement Programme (ADEP): is available to South African registered entities engaged in primary, secondary, and ancillary aquaculture activities in both marine and freshwater classified under SIC 132 (fish hatcheries and fish farms) and SIC 301 and 3012 (production, processing and preserving of aquaculture fish).
• Automotive Investment Scheme (AIS): designed to grow and develop the automotive sector through investment in new and/ or replacement models and components that will increase plant production volumes, sustain employment and/ or strengthen the automotive value chain.
• Medium and Heavy Commercial Vehicles Automotive Investment Scheme (MHCV-AIS): is designed to grow and develop the automotive sector through investment in new and/or replacement models and components that will increase plant production volumes, sustain employment and/or strengthen the automotive value chain.
• People-carrier Automotive Investment Scheme (P-AIS): provides a non-taxable cash grant of between 20 percent and 35 percent of the value of qualifying investment in productive assets approved by the dtic.
• Black Industrialist Scheme (BIS): The BIS program is aimed at unlocking the industrial potential of black-owned and managed businesses that operate within South Africa through financial and non-financial interventions.
• Capital Projects Feasibility Programme (CPFP): is a cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for South African capital goods and services.
• Critical Infrastructure Programme (CIP): aims to leverage investment by supporting infrastructure that is deemed to be critical, thus lowering the cost of doing business.
• Clothing and Textile Competitiveness Improvement Programme (CTCIP): aims to build capacity among manufacturers and in other areas of the apparel value chain in South Africa, to enable them to effectively supply their customers and compete on a global scale.
• Export Marketing and Investment Assistance (EMIA): develops export markets for South African products and services and recruits new foreign direct investment into the country. The