Policies Towards Foreign Direct Investment

The Algerian economy is both challenging and potentially highly rewarding. While the Algerian government publicly welcomes FDI, a difficult business climate, an inconsistent regulatory environment, and sometimes contradictory government policies complicate foreign investment. There are business opportunities in nearly every sector, including agribusiness, consumer goods, energy, healthcare, mining, pharmaceuticals, power, recycling, telecommunications, and transportation.

The urgency for Algeria to diversify its economy away from reliance on hydrocarbons has increased amid low and fluctuating oil prices since mid-2014, a youth population bulge, and increased domestic consumption of energy resources. The government reiterated its intention to diversify in its August 2020 plan to recover from the COVID-19 crisis. The government has sought to reduce the country’s persistent trade deficit through import substitution policies, currency depreciation, and import tariffs as it attempts to preserve rapidly diminishing foreign exchange reserves. On January 29, 2019, the government implemented tariffs between 30-200 percent on over one-thousand goods it assessed were destined for direct sale to consumers. Companies that set up local manufacturing operations can receive permission to import materials the government would not otherwise approve for import if the importer can show materials will be used in local production. Certain regulations explicitly favor local firms at the expense of foreign competitors, most prominently in the pharmaceutical sector, where an import ban the government implemented in 2009 remains in place on more than 360 medicines and medical devices. Frequent, unpredictable changes to business regulations have added to the uncertainty in the market.

Algeria eliminated state enterprises’ “right of first refusal” on most transfers of foreign holdings to foreign shareholders, with the exception of identified “strategic” sectors. Though the 2020 Complementary Finance Law eliminated the 51/49 domestic ownership requirement with the exception of “strategic sectors,” the 2021 Finance Law restored the requirement for importers of products for domestic resale, and regulations governing the auto industry released in September 2020 required automobile importers to be wholly domestically owned.

There are two main agencies responsible for attracting foreign investment, the National Agency of Investment Development (ANDI) and the National Agency for the Valorization of Hydrocarbons (ALNAFT).

ANDI is the primary Algerian government agency tasked with recruiting and retaining foreign investment. ANDI runs branches in Algeria’s 58 states (wilayas) which are tasked with facilitating business registration, tax payments, and other administrative procedures for both domestic and foreign investors. U.S. companies report that the agency is understaffed and ineffective. Its “one-stop shops” only operate out of physical offices and do not maintain dialogue with investors after they have initiated an investment. The agency’s effectiveness is undercut by its lack of decision-making authority, particularly for industrial projects, which is exercised by the Ministry of Industry, the Minister of Industry themself, and in many cases the Prime Minister.

ALNAFT is charged with attracting foreign investment to Algeria’s upstream oil and gas sector. In addition to organizing events marketing upstream opportunities to potential investors, the agency maintains a paid-access digital database with extensive technical information about Algeria’s hydrocarbons resources.

Limits on Foreign Control and Right to Private Ownership and Establishment

Establishing a presence in Algeria can take any of three basic forms: 1) a liaison office with no local partner requirement and no authority to perform commercial operations, 2) a branch office to execute a specific contract, with no obligation to have a local partner, allowing the parent company to conduct commercial activity (considered a resident Algerian entity without full legal authority), or 3) a local company with 51 percent of capital held by a local company or shareholders. A business can be incorporated as a joint stock company (JSC), a limited liability company (LLC), a limited partnership (LP), a limited partnership with shares (LPS), or an undeclared partnership. Groups and consortia are also used by foreign companies when partnering with other foreign companies or with local firms.

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. However, the 51/49 rule requires majority Algerian ownership in all projects involving foreign investments in the “strategic sectors” of energy, mining, defense, transportation infrastructure, and pharmaceuticals (with the exception of innovative products), as well as for importers of goods for resale in Algeria.

The 51/49 investment rule poses challenges for various types of investors. For example, the requirement hampers market access for foreign small and medium-sized enterprises (SMEs), as they often do not have the human resources or financial capital to navigate complex legal and regulatory requirements. Large companies can find creative ways to work within the law, sometimes with the cooperation of local authorities who are more flexible with large investments that promise significant job creation and technology and equipment transfers. SMEs usually do not receive this same consideration. There are also allegations that Algerian partners sometimes refuse to invest the required funds in the company’s business, require non-contract funds to win contracts, and send unqualified workers to job sites. Manufacturers are also concerned about intellectual property rights (IPR), as foreign companies do not want to surrender control of their designs and patents. Several U.S. companies have reported they have policies that preclude them from investing overseas without maintaining a majority share, out of concerns for both IPR and financial control of the local venture, which thus prevent them from establishing businesses in Algeria.

Algerian government officials defended the 51/49 requirement as necessary to prevent capital flight, protect Algerian businesses, and provide foreign businesses with local expertise. For sectors where the requirement remains, officials contend a range of tailored measures can mitigate the effect of the 51/49 rule and allow the minority foreign shareholder to exercise other means of control. Some foreign investors use multiple local partners in the same venture, effectively reducing ownership of each individual local partner to enable the foreign partner to own the largest share.

The Algerian government does not officially screen FDI, though Algerian state enterprises have a “right of first refusal” on transfers of foreign holdings to foreign shareholders in identified strategic industries. Companies must notify the Council for State Participation (CPE) of these transfers. In addition, initial foreign investments remain subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Health, Pharmaceutical Industry, Energy, Telecommunications and Post, Industry, and Mines. U.S. companies have reported that certain high-profile industrial proposals, such as for automotive assembly, are subject to informal approval by the Prime Minister. In 2017, the government instituted an Investments Review Council chaired by the Prime Minister for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals are subject to additional government scrutiny. According to the 2016 Investment Law, projects registered through the ANDI deemed to have special interest for the national economy or high employment generating potential may be eligible for extensive investment advantages. For any project over 5 billion dinars (approximately USD 38 million) to benefit from these advantages, it must be approved by the Prime Minister-chaired National Investments Council (CNI). The CNI previously met regularly, though it is not clear how the agenda of projects considered at each meeting is determined. Critics allege the CNI is a non-transparent mechanism which could be subject to capture by vested interests. In 2020 the operations of the CNI and the CPE were temporarily suspended pending review by the former Ministry of Industry, but a final decision as to their status has not been made.

Other Investment Policy Reviews

Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD) or the World Trade Organization (WTO). The last investment policy review by a third party was conducted by the United Nations Conference on Trade and Development (UNCTAD) in 2003 and published in 2004.

Business Facilitation

Algeria’s online information portal dedicated to business creation www.jecreemonentreprise.dz and the business registration website www.cnrc.org.dz are under maintenance and have been so for more than a year. The Ministry of Commerce is currently developing a new electronic portal at https://cnrcinfo.cnrc.dz/qui-somme-nous/ . The websites provide information about several business registration steps applicable for registering certain kinds of businesses. Entrepreneurs report that additional information about requirements or regulation updates for business registration are available only in person at the various offices involved in the creation and registration process. The Ministry of Foreign Affairs also recently established an Information Bureau for the Promotion of Investments and Exports (BIPIE) to support Algerian diplomats working on economic issues abroad, as well as provide local points of contact for Algerian companies operating overseas.

In the World Bank’s 2020 Doing Business report, Algeria’s ranking for starting a business was unchanged at 157 out of 190 countries ( http://www.doingbusiness.org/en/data/exploreeconomies/algeria ).

This year’s improvements were modest and concerned only three of the ten indicator categories. The World Bank report lists 12 procedures that cumulatively take an average of 18 days to complete to register a new business. New business owners seeking to establish their enterprises have sometimes reported the process takes longer, noting that the most updated version of regulations and required forms are only available in person at multiple offices, therefore requiring multiple visits.

Outward Investment

Algeria does not restrict domestic investors from investing overseas, provided they can access foreign currency for such investments. The exchange of Algerian dinars outside of Algerian territory is illegal, as is the carrying abroad of more than 10,000 dinars in cash at a time (approximately USD 76; see section 7 for more details on currency exchange restrictions).

Algeria’s National Agency to Promote External Trade (ALGEX), housed in the Ministry of Commerce, is the agency responsible for supporting Algerian businesses outside the hydrocarbons sector that want to export abroad. ALGEX controls a special promotion fund to promote exports, but the funds can only be accessed for limited purposes. For example, funds might be provided to pay for construction of a booth at a trade fair, but travel costs associated with getting to the fair – which can be expensive for overseas shows – would not be covered. The Algerian Company of Insurance and Guarantees to Exporters (CAGEX), also housed under the Ministry of Commerce, provides insurance to exporters. In 2003, Algeria established a National Consultative Council for Promotion of Exports (CCNCPE) that is supposed to meet annually. Algerian exporters claim difficulties working with ALGEX including long delays in obtaining support funds, and the lack of ALGEX offices overseas despite a 2003 law for their creation. The Bank of Algeria’s 2002 Money and Credit law allows Algerians to request the conversion of dinars to foreign currency in order to finance their export activities, but exporters must repatriate an equivalent amount to any funds spent abroad, for example money spent on marketing or other business costs incurred.

Capital Markets and Portfolio Investment

The Algiers Stock Exchange has five stocks listed – each at no more than 35 percent equity. There is a small and medium enterprise exchange with one listed company. The exchange has a total market capitalization representing less than 0.1 percent of Algeria’s GDP. Daily trading volume on the exchange averages around USD 2,000. Despite its small size, the market is regulated by an independent oversight commission that enforces compliance requirements on listed companies and traders.

Government officials have expressed their desire to reach a capitalization of USD 7.8 billion and enlist up to 50 new companies. Attempts to list additional companies have been stymied by a lack both of public awareness and appetite for portfolio investment, as well as by private and public companies’ unpreparedness to satisfy due diligence requirements that would attract investors. Proposed privatizations of state-owned companies have also been opposed by the public. Algerian society generally prefers material investment vehicles for savings, namely cash. Public banks, which dominate the banking sector (see below), are required to purchase government securities when offered, meaning they have little leftover liquidity to make other investments. Foreign portfolio investment is prohibited – the purchase of any investment product in Algeria, whether a government or corporate bond or equity stock, is limited to Algerian residents only.

Money and Banking System

The banking sector is roughly 85 percent public and 15 percent private as measured by value of assets held and is regulated by an independent central bank. Publicly available data from private institutions and U.S. Federal Reserve Economic Data show estimated total assets in the commercial banking sector in 2017 were roughly 13.9 trillion dinars (USD 116.7 billion) against 9.2 trillion dinars (USD 77.2 billion) in liabilities. The central bank had mandated a 12 percent reserve requirement until mid-2016, when in response to a drop in liquidity the bank lowered the threshold to eight percent. In August 2017, the ratio was further reduced to 4 percent in an effort to inject further liquidity into the banking system. The decrease in liquidity was a result of all public banks buying government bonds in the first public bond issuance in more than 10 years; buying at least five percent of the offered bonds is required for banks to participate as primary dealers in the government securities market. The bond issuance essentially returned funds to the state that it had deposited at local banks during years of high hydrocarbons profits. In January 2018, the bank increased the retention ratio from 4 percent to 8 percent, followed by a further increase in February 2019 to a 12 percent ratio in anticipation of a rise in bank liquidity due to the government’s non-conventional financing policy, which allows the Treasury to borrow directly from the central bank to pay state debts. In response to liquidity concerns caused by the oil price decline and COVID-19 crisis, the bank progressively decreased the reserve requirement from 12 percent to 3 percent between March and September 2020.

The IMF and Bank of Algeria have noted moderate growth in non-performing assets since 2015, currently estimated between 12 and 13 percent of total assets. The quality of service in public banks is generally considered low as generations of public banking executives and workers trained to operate in a statist economy lack familiarity with modern banking practices. Most transactions are materialized (non-electronic). Many areas of the country suffer from a dearth of branches, leaving large amounts of the population without access to banking services. ATMs are not widespread, especially outside the major cities, and few accept foreign bankcards. Outside of major hotels with international clientele, hardly any retail establishments accept credit cards. Algerian banks do issue debit cards, but the system is distinct from any international payment system. The Minister of Commerce announced a plan to require businesses to use electronic payments for all commercial and service transactions, though a government deadline for all stores to deploy electronic payment terminals was delayed for the third time to the end of 2021. In addition, approximately 6.1 trillion dinars (USD 46 billion), or one-third, of the money supply is estimated to circulate in the informal economy.

Foreigners can open foreign currency accounts without restriction, but proof of a work permit or residency is required to open an account in Algerian dinars. Foreign banks are permitted to establish operations in the country, but they must be legally distinct entities from their overseas home offices.

In 2015, the Financial Action Task Force (FATF) removed Algeria from its Public Statement, and in 2016 it removed Algeria from the “gray list.” The FATF recognized Algeria’s significant progress and the improvement in its anti-money laundering/counter terrorist financing (AML/CFT) regime. The FATF also indicated Algeria has substantially addressed its action plan since strategic deficiencies were identified in 2011.

Foreign Exchange and Remittances

Foreign Exchange

There are few statutory restrictions on foreign investors converting, transferring, or repatriating funds, according to banking executives. Monies cannot be expatriated to pay royalties or to pay for services provided by resident foreign companies. The difficultly with conversions and transfers results mostly from the procedures of the transfers rather than the statutory limitations: the process is bureaucratic and requires almost 30 different steps from start to finish. Missteps at any stage can slow down or completely halt the process. Transfers should take roughly one month to complete, but often take three to six months. Also, the Algerian government has been known to delay the process as leverage in commercial and financial disputes with foreign companies.

Expatriated funds can be converted to any world currency. The IMF classifies the exchange rate regime as an “other managed arrangement,” with the central bank pegging the value of the Algerian dinar (DZD) to a “basket” composed of 64 percent of the value of the U.S. dollar and 36 percent of the value of the euro. The currency’s value is not controlled by any market mechanism and is set solely by the central bank. As the Central Bank controls the official exchange rate of the dinar, any change in its value could be considered currency manipulation. When dollar-denominated hydrocarbons profits fell starting in mid-2014, the central bank allowed a slow depreciation of the dinar against the dollar over 24 months, culminating in about a 30 percent fall in its value before stabilizing around 110 dinars to the U.S. dollar in late 2016. The 2020 Finance Law forecast a 10 percent depreciation of the dinar against the dollar over three years. However, the government allowed the dinar to depreciate eleven percent against the dollar in 2020 and has forecasted an 18 percent depreciation through 2023 in the 2021 Finance Law. Despite devaluation in the official rate, imbalances in foreign exchange supply and demand caused by the COVID-19 outbreak and travel restrictions beginning in March 2020 led to a steep decline in the value of the euro and dollar on the foreign exchange black market.

The 2021 Finance Law includes provisions to curb import activity, requiring importers of most products to make payment 30 days after the date of shipment of goods, with exceptions for strategic products, food items, or other items of “emergency character.”  As importers are required to request import approvals well in advance of the shipment of the goods, the new measure exposes importers to significant exchange rate uncertainty.

Remittance Policies

There have been no recent changes to remittance policies. Algerian exchange control law remains strict and complex. There are no specific time limitations, although the bureaucracy involved in remittances can often slow the process to as long as six months. Personal transfers of foreign currency into the country must be justified and declared as not for business purpose. There is no legal parallel market through which investors can remit; however, there is a substantial black market for foreign currency, where the dollar and euro trade at a significant premium above official rates, although economic disruptions related to the outbreak of COVID-19 in March 2020 led to interruptions in the functioning of the black market. With the more favorable informal rates, local sources report that most remittances occur via foreign currency hand-carried into the country. Under central bank regulations revised in September 2016, travelers to Algeria are permitted to enter the country with up to 1,000 euros or equivalent without declaring the funds to customs. However, any non-resident can only exchange dinars back to a foreign currency with proof of initial conversion from the foreign currency. The same regulations prohibit the transfer of more than 10,000 dinars (USD 75) outside Algeria.

Private citizens may convert up to 15,000 dinars (USD 118) per year for travel abroad, and must demonstrate proof of their intention to travel abroad through plane tickets or other official documents.

In April 2019, the Finance Ministry announced the creation of a vigilance committee to monitor and control financial transactions to foreign countries. It divided operations into three categories relating to 1) imports, 2) investments abroad, and 3) transfer abroad of profits.

Sovereign Wealth Funds

Algeria’s sovereign wealth fund (SWF) is the “Fonds de Regulation des Recettes (FRR).” The Finance Ministry’s website shows the fund decreased from 4408.2 billion dinars (USD 37.36 billion) in 2014 to 784.5 billion dinars (USD 6.65 billion) in 2016. The data has not been updated since 2016. Algerian media reported the FRR was spent down to zero as of February 2017. Algeria is not known to have participated in the IMF-hosted International Working Group on SWFs.

Policies Towards Foreign Direct Investment (FDI)

The GOI has publicly and repeatedly stated its desire to attract foreign investment as part of national plans to strengthen local industries and promote the “Made in Iraq” brand.  The GOI has yet to follow through on commitments made at the Kuwait International Conference for the Reconstruction of Iraq in February 2018 to reform processes and regulations that hinder investment.  Iraq has claimed that countries have not followed through on their financial pledges either.

Iraq operates under its National Investment Law (Investment Law), amended in December 2015.  The Investment Law outlines improved investment terms for foreign investors, the purchase of land in Iraq for certain projects, and an investment license process.  The purchase of land for commercial or residential development remains extremely difficult.  Since 2015, Iraq has been a party to the International Convention on the Settlement of Investment Disputes between States and Nations of Other States (ICSID).

Foreign investors continue to encounter bureaucratic challenges, corruption, and a weak banking sector, which make it difficult to successfully conclude investment deals.  State-owned banks in Iraq serve predominantly to settle the payroll of the country’s public sector.  Privately-owned banks, until recently, served almost entirely as currency exchange businesses, with the exception of a handful of mostly regionally owned commercial banks.  Some privately-owned banks have commercial lending programs, but Iraq’s lack of a credit monitoring system, insufficient legal guarantees for lenders, and limited connections to international banks hinder commercial lending.  The financial sector in the IKR is still recovering from years of financial instability, and the Central Bank of Iraq (CBI) levied sanctions against the IKR’s financial institutions immediately following the Kurdistan independence referendum in September 2017.

Recently, the GOI has been exploring multi-year financing options to pay for large-scale development projects rather than relying on its previous practice of funding investments entirely from current annual budget outlays.

According to Iraqi law, a foreign investor is entitled to make investments in Iraq on terms no less favorable than those applicable to an Iraqi investor, and the amount of foreign participation is not limited.  However, Iraq’s Investment Law limits foreign direct and indirect ownership of most natural resources, particularly the extraction and processing of natural resources.  It does allow foreign ownership of land to be used for residential projects and co-ownership of land to be used for industrial projects when an Iraqi partner is participating.

Despite this legal equity between foreign and domestic investment, the GOI reserves the right to screen FDI.  The screening process is vague, although it does not appear to have been used to block foreign investment.  Still, bureaucratic barriers to FDI, such as a requirement to place a significant portion of the capital investment in an Iraqi bank prior to receiving a license, remain significant.

The IKR operates under a 2006 investment law and its supporting regulations.  Under the law, foreign investors are entitled to incentives, including full property ownership, and capital repatriation and tax holidays for 10 years.  The KRG is generally open to public-private partnerships and long-term financing, as demonstrated by the KRG’s oil and gas sector contracts that increase production.  In 2020, the KRG Ministry of Planning (MOP) published a framework for creating public-private partnerships in the region but has not drafted legislation to codify it.  Legislation to amend the investment law to broaden its reach to potential investors remains pending in the Iraqi Kurdistan Parliament (IKP).

The GOI established the National Investment Commission (NIC) in 2007, along with its provincial counterparts Provincial Investment Commissions (PICs), as provided under Investment Law 13 (2006).  This cabinet-level organization provides policy recommendations to the Prime Minister and support to current and potential investors in Iraq.  The NIC’s “One Stop Shop” is intended to guide investors through the investment process, though investors have reported challenges using NIC services.

Limits on Foreign Control and Right to Private Ownership and Establishment

Iraqi law stipulates that 50% of a project’s workers must be Iraqi nationals in order to obtain an investment license (National Investment Regulation No. 2, 2009).  Investors must prioritize Iraqi citizens before hiring non-Iraqi workers.  The GOI pressures foreign companies to hire more local employees and has encouraged foreign companies to partner with local industries and purchase Iraqi-made products.  The KRG permits full foreign ownership under its 2006 investment law.

The GOI generally favors State Owned Enterprises (SOE) and state-controlled banks in competitions for government tenders and investment.  This preference discriminates against both local and foreign investors.

Other Investment Policy Reviews

In the past three years, the GOI did not conduct any investment policy reviews through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or the UN Conference on Trade and Development (UNCTAD).

Business Facilitation

Foreign investors interested in establishing an office in Iraq or bidding on a public tender are required to register as a foreign business with the Ministry of Trade’s (MOT) Companies Registration Department.  The procedure costs and time to obtain a business license can be found at https://baghdad.eregulations.org/procedure/108?l=en. Many international companies use a local agent to assist in this process due to its complexity.  The GOI is working with UNCTAD to streamline the business registration process and make it available online, as per procedures of obtain investment licenses from NIC according to the amount of capital can be found at:

https://baghdad.eregulations.org/procedure/60?l=en and https://baghdad.eregulations.org/procedure/51/step/230?l=en&reg=0.

The KRG offers business registration for companies seeking business only in the IKR; however, companies that seek business in both the IKR and greater Iraq must register with both the GOI MOT and the KRG MOT.

Iraqi laws give the NIC and PICs authority to provide information, sign contracts, and facilitate registration for new foreign and domestic investors.  The NIC offers investor facilitation services on transactions including work permit applications, visa approval letters, customs procedures, and business registration.  Investors can request these services through the NIC website: http://investpromo.gov.iq/.  The NIC does not exclude businesses from taking advantage of its services based on the number of employees or the size of the investment project.  The NIC can also connect investors with the appropriate provincial investment council.

These official investment commissions do struggle to operate amid unclear lines of authority, budget constraints, and the absence of regulations and standard operating procedures. Importantly, the investment commissions lack the authority to resolve investors’ bureaucratic obstacles with other Iraqi ministries.

The Kurdistan Board of Investment (KBOI) manages an investment licensing process in the IKR that can take from three to six months and may involve more than one KRG ministry or entity, depending on the sector of investment.  Due to oversaturated commercial and residential real estate markets, the KBOI has moved away from approving licenses in these sectors but may still grant them on a case-by-case basis.  The KBOI has prioritized industrial and agricultural projects.  Businesses reported some difficulties establishing local connections, obtaining qualified staff, and meeting import regulations.  Some businesses have reported that the KRG has not provided all of the promised support infrastructure such as water, electricity, or wastewater services, as required under the investment law framework.  Additional information is available at the KBOI’s website:  http://www.kurdistaninvestment.org/.

Outward Investment

Iraq does not restrict domestic investors from investing abroad.

Capital Markets and Portfolio Investment

Iraq remains one of the most under-banked countries in the Middle East.  The Iraqi banking system includes around 68 private banks and seven state-owned banks.  As of early 2021, 20 foreign banks have licensed branches in Iraq and several others have strategic investments in Iraqi banks.  The three largest banks in Iraq are Rafidain Bank, Rasheed Bank, and the Trade Bank of Iraq (TBI), which account for roughly 85 percent of Iraq’s banking sector assets.  Iraq’s economy remains primarily cash based, with many banks acting as little more than ATMs.  Rafidain and Rasheed offer standard banking products but primarily provide pension and government salary payments to individual Iraqis.

Credit is difficult to obtain and expensive.  Iraq ranks 186 out of 190 in terms of ease of getting credit in the World Bank’s 2020 Doing Business Report.  Although the volume of lending by privately-owned banks is growing, most privately-owned banks do more wire transfers and other fee-based exchange services than lending.  Businesses are largely self-financed or between individuals in private transactions.  State-owned banks mainly make financial transfers from the government to provincial authorities or individuals, rather than business loans.

The CBI introduced a small and medium enterprise lending program in 2015, in which 35 private banks have reportedly participated.  In early 2020, the CBI launched a real estate lending initiative and an Islamic finance consolidation program.

The main purpose of TBI is to provide financial and related services to facilitate trade, particularly through letters of credit.  Although CBI granted private banks permission to issue letters of credit below $50 million, TBI continues to process nearly all government letters of credit.

Money and Banking System

Although banking sector reform was a priority of Iraq’s IMF Stand-By Arrangement, the GOI has had only incremental success reforming its two largest state-owned banks, Rafidain and Rasheed.  Private banks are mostly active in currency exchanges and wire transfers.  CBI is headquartered in Baghdad, with branches in Basrah and Erbil.  CBI’s Erbil branch, and the IKR’s state-owned banking system, are now electronically linked to the CBI system.  The CBI now has full supervisory authority over the financial sector in the IKR, including the banks and non-bank financial institutions.

Foreign Exchange and Remittances

Foreign Exchange

The currency of Iraq is the dinar (IQD).  Iraqi authorities confirm that in practice, there are no restrictions on current and capital transactions involving currency exchange as long as valid documentation supports underlying transactions.  The Investment Law allows investors to repatriate capital brought into Iraq, along with proceeds.  Funds can be associated with any form of investment and freely converted into any world currency.  The Investment Law also allows investors to maintain accounts at banks licensed to operate in Iraq and transfer capital inside or outside of the country.

The GOI’s monetary policy since 2003 has focused on ensuring price stability primarily by maintaining a de facto peg between the IQD and the U.S. dollar, while seeking exchange rate predictability by supplying U.S. dollars to the Iraqi market.  In December 2020, the GOI announced that it would officially devalue the dinar’s peg to the U.S. dollar by 22 percent.  Banks may engage in spot transactions in any currency; however, they are not allowed to engage in forward transactions in Iraqi dinars for speculative purposes through auction but can do so through wire transfer.  There are no taxes or subsidies on purchases or sales of foreign exchange.

Remittance Policies

There are no recent changes to Iraq’s remittance policies.  Foreign nationals are allowed to remit their earnings, including U.S. dollars, in compliance with Iraqi law.  Iraq does not engage in currency manipulation.

Sovereign Wealth Funds

Iraq does not have a sovereign wealth fund.

Policies Towards Foreign Direct Investment

The GOT is working to improve the business climate and attract FDI. The GOT prioritizes attracting and retaining investment, particularly in the underdeveloped interior regions, and reducing unemployment. More than 3,650 foreign companies currently operate in Tunisia, and the government has historically encouraged export-oriented FDI in key sectors such as call centers, electronics, aerospace and aeronautics, automotive parts, textile and apparel, leather and shoes, agro-food, and other light manufacturing. In 2020, the sectors that attracted the most FDI were energy (33.8 percent), the electrical and electronic industry (22.4 percent), agro-food products (10.6 percent), services (9.2 percent), and the mechanical industry (9 percent). Inadequate infrastructure in the interior regions results in the concentration of foreign investment in the capital city of Tunis and its suburbs (46 percent), the northern coastal region (23 percent), the northwest region (14.4 percent), and the eastern coastal region (12 percent). Internal western and southern regions attracted only 4.6 percent of foreign investment despite special tax incentives for those regions.

The Tunisian Parliament passed an Investment Law (#2016-71) in September 2016 that went into effect April 1, 2017 to encourage the responsible regulation of investments. The law provided for the creation of three major institutions:

• The High Investment Council, whose mission is to implement legislative reforms set out in the investment law and decide on incentives for projects of national importance (defined as investment projects of more than 50 million dinars and 500 jobs).
• The Tunisian Investment Authority, whose mission is to manage investment projects of more than 15 million dinars and up to 50 million dinars. Investment projects of less than 15 million dinars are managed by the Agency for Promotion of Industry and Innovation (APII).
• The Tunisian Investment Fund, which funds foreign investment incentive packages.

These institutions were all launched in 2017. However, the Foreign Investment Promotion Agency (FIPA) continues to be Tunisia’s principal agency to promote foreign investment. FIPA is a one-stop shop for foreign investors. It provides information on investment opportunities, advice on the appropriate conditions for success, assistance and support during the creation and implementation of the project, and contact facilitation and advocacy with other government authorities.

Under the 2016 Investment Law (article 7), foreign investors have the same rights and obligations as Tunisian investors. Tunisia encourages dialogue with investors through FIPA offices throughout the country.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment is classified into two categories: “Offshore” investment is defined as commercial entities in which foreign capital accounts for at least 66 percent of equity, and at least 70 percent of the production is destined for the export market. However, investments in some sectors can be classified as “offshore” with lower foreign equity shares. Foreign equity in the agricultural sector, for example, cannot exceed 66 percent and foreign investors cannot directly own agricultural land, but agricultural investments can still be classified as “offshore” if they meet the export threshold.

• “Offshore” investment is defined as commercial entities in which foreign capital accounts for at least 66 percent of equity, and at least 70 percent of the production is destined for the export market. However, investments in some sectors can be classified as “offshore” with lower foreign equity shares. Foreign equity in the agricultural sector, for example, cannot exceed 66 percent and foreign investors cannot directly own agricultural land, but agricultural investments can still be classified as “offshore” if they meet the export threshold.
• “Onshore” investment caps foreign equity participation at a maximum of 49 percent in most non-industrial projects. “Onshore” industrial investment may have 100 percent foreign equity, subject to government approval.

Pursuant to the 2016 Investment Law (article 4), a list of sectors outlining which investment categories are subject to government authorization (the “negative list”) was set by decree no. 417 of May 11, 2018. The sectors include natural resources; construction materials; land, sea and air transport; banking, finance, and insurance; hazardous and polluting industries; health; education; and telecommunications. The decree specified the deadline to respond to authorization requests for most government agencies and fixed a deadline of 60 days for all other government decision-making bodies not specifically mentioned in the decree.

The decree went into effect on July 1, 2018.

Other Investment Policy Reviews

The WTO completed a Trade Policy Review for Tunisia in July 2016. The report is available here: https://www.wto.org/english/tratop_e/tpr_e/tp441_e.htm .

The OECD completed an Investment Policy Review for Tunisia in November 2012. The report is available here: http://www.oecd.org/daf/inv/investment-policy/tunisia-investmentpolicyreview-oecd.htm .

Business Facilitation

In May 2019, the Tunisian Parliament adopted law 2019-47, a cross-cutting law that impacts legislation across all sectors. The law is designed to improve the country’s business climate and further improve its ranking in the World Bank’s Doing Business Report. The law simplified the process of creating a business, permitted new methods of finance, improved regulations for corporate governance, and provided the private sector the right to operate a project under the framework of a public-private partnership (PPP).

This legislation and previous investment laws are all referenced on the United Nations Conference on Trade and Development (UNCTAD) website: https://investmentpolicy.unctad.org/country-navigator/221/tunisia .

The World Bank Doing Business 2020 report ranks Tunisia 19 in terms of ease of starting a business. In the Middle East and North Africa, Tunisia ranked second after the UAE, and first in North Africa ahead of Morocco, Egypt, Algeria, and Libya: https://www.doingbusiness.org/en/data/exploreeconomies/tunisia#DB_sb .

The Agency for Promotion of Industry and Innovation (APII) and the Tunisia Investment Authority (TIA) are the focal point for business registration. Online project declaration for industry or service sector projects for both domestic and foreign investment is available at: www.tunisieindustrie.nat.tn/en/doc.asp?mcat=16&mrub=122 .

The new online TIA platform allows potential investors to electronically declare the creation, extension, and renewal of all types of investment projects. The platform also allows investors to incorporate new businesses, request special permits, and apply for investment and tax incentives. https://www.tia.gov.tn/ .

APII has attempted to simplify the business registration process by creating a one-stop shop that offers registration of legal papers with the tax office, court clerk, official Tunisian gazette, and customs. This one-stop shop also houses consultants from the Investment Promotion Agency, Ministry of Employment, National Social Security Authority (CNSS), postal service, Ministry of Interior, and the Ministry of Trade and Export Development. Registration may face delays as some agencies may have longer internal processes. Prior to registration, a business must first initiate an online declaration of intent, to which APII provides a notification of receipt within 24 hours.

The World Bank’s Doing Business 2020 report indicates that business registration takes an average of nine days and costs about USD 90 (253 Tunisian dinars): http://www.doingbusiness.org/en/data/exploreeconomies/tunisia#DB_sb .

For agriculture and fisheries, business registration information can be found at: www.apia.com.tn .

In the tourism industry, companies must register with the National Office for Tourism at: http://www.tourisme.gov.tn/en/investing/administrative-services.html .

The central points of contact for established foreign investors and companies are the Tunisian Investment Authority (TIA): https://www.tia.gov.tn/en  and the Foreign Investment Promotion Agency (FIPA): http://www.investintunisia.tn .

Outward Investment

The GOT does not incentivize outward investment, and capital transfer abroad is tightly controlled by the Central Bank.

Capital Markets and Portfolio Investment

Tunisia’s financial system is dominated by its banking sector, with banks accounting for roughly 85 percent of financing in Tunisia. Overreliance on bank financing impedes economic growth and stronger job creation. Equity capitalization is relatively small; Tunisia’s stock market provided 9.1 percent of corporate financing in 2019 according to the Financial Market Council annual report. Other mechanisms, such as bonds and microfinance, contribute marginally to the overall economy.

Created in 1969, the Bourse de Tunis (Tunis stock exchange) listed 80 companies as of December 2020. The total market capitalization of these companies was USD 8.41 billion, equivalent to 23.1% of the GDP. During the last five years, the exchange’s regulatory and accounting systems have been brought more in line with international standards, including compliance and investor protections. The exchange is supervised and regulated by the state-run Capital Market Board. Most major global accounting firms are represented in Tunisia. Firms listed on the stock exchange must publish semiannual corporate reports audited by a certified public accountant. Accompanying accounting requirements exceed what many Tunisian firms can, or are willing to, undertake. GOT tax incentives attempt to encourage companies to list on the stock exchange. Newly listed companies that offer a 30 percent capital share to the public receive a five-year tax reduction on profits. In addition, individual investors receive tax deductions for equity investment in the market. Capital gains are tax-free when held by the investor for two years.

Foreign investors are permitted to purchase shares in resident (onshore) firms only through authorized Tunisian brokers or through established mutual funds. To trade, non-resident (offshore) brokers require a Tunisian intermediary and may only service non-Tunisian customers. Tunisian brokerage firms may have foreign participation, as long as that participation is less than 50 percent. Foreign investment of up to 50 percent of a listed firm’s capital does not require authorization.

Money and Banking System

According to the Central Bank of Tunisia (CBT) annual report on banking supervision published in March 2021, Tunisia hosts 30 banks, of which 23 are onshore and seven are offshore. Onshore banks include three Islamic banks, two microcredit and SME financing banks, and 18 commercial universal banks.

Domestic credit to the private sector provided by banks stood at 64 percent of GDP in 2019. According to the World Bank, this level is higher than the MENA region average of 56.7 percent. In the World Bank’s Doing Business 2020 survey, Tunisia’s ranking in terms of ease of access to credit fell from 99 in 2019 to 104 in 2020. Tunisia’s banking system penetration has grown by five percent annually for the past five years. 87 percent of banks are located in the coastal regions, with about 41 percent in the greater Tunis area alone.

Tunisia’s banking system activity is mainly within the 23 onshore banks, which accounted for 92.3 percent of assets, 93.8 percent of loans, and 97 percent of deposits in 2019. The onshore banks offer identical services targeting Tunisia’s larger corporations. Meanwhile, SMEs and individuals often have difficulty accessing bank capital due to high collateral requirements.

The CBT report noted that tighter monetary policy resulted in a slowdown in credit activity in 2019, affecting both loans to professionals (which only grew by 4.8% compared to an increase of 10.2% in 2018) and loans to individuals (0.4% compared to 5.5% in 2018).

Foreign banks are permitted to open branches and establish operations in Tunisia under the offshore regime and are subject to the supervision of the Central Bank.

Government regulations control lending rates. This prevents banks from pricing their loan portfolios appropriately and incentivizes bankers to restrict the provision of credit. Competition among Tunisia’s many banks has the effect of lowering observed interest rates; however, banks often place conditions on loans that impose far higher costs on borrowers than interest rates alone. These non-interest costs may include collateral requirements that come in the form of liens on real estate. Often, collateral must equal or exceed the value of the loan principal. Collateral requirements are high because banks face regulatory difficulties in collecting collateral, thereby adding to costs. According to the CBT banking supervision report, nonperforming loans (NPLs) were at 13.4 percent of all bank loans in 2019, mostly in the agriculture (27.1 percent) and tourism (47 percent) sectors.

Beyond the banks and stock exchange, few effective financing mechanisms are available in the Tunisian economy. A true bond market does not exist, and government debt sold to financial institutions is not re-traded on a formal, transparent secondary market. Private equity remains a niche element in the Tunisian financial system. Firms experience difficulty raising sufficient capital, sourcing their transactions, and selling their stakes in successful investments once they mature. The microfinance market remains underexploited, with non-governmental organization Enda Inter-Arabe the dominant lender in the field.

The GOT recognizes two categories of financial service activity: banking (e.g., deposits, loans, payments and exchange operations, and acquisition of operating capital) and investment services (reception, transmission, order execution, and portfolio management). Non-resident financial service providers must present initial minimum capital (fully paid up at subscription) of 25 million Tunisian dinars (USD 8.9 million) for a bank, 10 million dinars (USD 3.5 million) for a non-bank financial institution, 7.5 million dinars (USD 2.6 million) for an investment company, and 250,000 dinars (USD 89,000) for a portfolio management company.

Foreign Exchange and Remittances

Foreign Exchange

The Tunisian Dinar can only be traded within Tunisia, and it is illegal to move dinars out of the country.  The dinar is convertible for current account transactions (export-import operations, remittances of investment capital, earnings, loan or lease payments, royalties, etc.).  Central Bank authorization is required for some foreign exchange operations.  For imports, Tunisian law prohibits the release of hard currency from Tunisia as payment prior to the presentation of documents establishing that the merchandise has been shipped to Tunisia. In 2020, the dinar appreciated 4 percent against the dollar and 2 percent against the Euro.

Non-residents are exempt from most exchange regulations.  Under foreign currency regulations, non-resident companies are defined as having:

• Non-resident individuals who own at least 66 percent of the company’s capital, and
• Capital fully financed by imported foreign currency.

Foreign investors may transfer funds at any time and without prior authorization.  This applies to principal as well as dividends or interest capital.  The procedures for repatriation are complex, however, and within the discretion of the Central Bank.  The difficulty in the repatriation of capital and dividends is one of the most frequent complaints of foreign investors in Tunisia.

There are no limits to the amount of foreign currency that visitors can bring to Tunisia to exchange into local currency.  However, amounts exceeding the equivalent of 25,000 dinars (USD 8,900) must be declared to customs at the port of entry.  Non-residents must also report foreign currency imports if they wish to re-export or deposit more than 5,000 dinars (USD 1,780).  Tunisian customs authorities may require currency exchange receipts on exit from the country.

Remittance Policies

Tunisia’s 2016 Investment Law enshrines the right of foreign investors to transfer abroad funds in foreign currency with minimal interference from the Central Bank.  Ministerial decree no. 417 of May 2018 states that the Central Bank of Tunisia must decide on foreign currency remittance requests within 90 days. In case of no response, the investor may contact the Higher Investment Authority, which will give final approval within 30 days.

Sovereign Wealth Funds

By decree no. 85-2011, the GOT established a sovereign wealth fund, “Caisse des Depots et des Consignations” (CDC), to boost private sector investment and promote small and medium enterprise (SME) development. It is a state-owned investment entity responsible for independently managing a portion of the state’s financial assets. The CDC was set up with support from the French CDC and the Moroccan CDG (Caisse de Depots et de Gestion) and became operational in early 2012. The original impetus for the creation of the CDC was to manage assets confiscated from the former ruling family as independently as possible to serve the public interest. More information is available about the CDC at www.cdc.tn . As of December 2019, CDC had 8.2 billion dinars (USD 2.8 billion) in assets and 348 million dinars (USD 118 million) in capital.

All CDC investments are made locally, with the objective of boosting investments in the interior regions and promoting SME development.

The CDC is governed by a supervisory committee composed of representatives from different ministries and chaired by the Minister of Finance.

Policies Towards Foreign Direct Investment  

Turkey acknowledges that it needs to attract significant new foreign direct investment (FDI) to meet its ambitious development goals.  As a result, Turkey has one of the most liberal legal regimes for FDI among Organization for Economic Cooperation and Development (OECD) members.  According to the Central Bank of Turkey’s balance of payments data, Turkey attracted a total of USD 5.67 billion of FDI in 2020, almost USD 200 million down from USD 5.87 billion in 2019.  This figure is the lowest FDI figure for Turkey in the last 16 years, and likely reflects a need to improve enforcement of international trade rules, ensure the transparency and timely execution of judicial awards, increase engagement with foreign investors on policy issues, and to implement consistent monetary and fiscal economic policies to promote strong, sustainable, and balanced growth.  Turkey also needs to take other political measures to increase stability and predictability for investors.  A stable banking sector, tight fiscal controls, efforts to reduce the size of the informal economy, increased labor market flexibility, improved labor skills, and continued privatization of state-owned enterprises would, if pursued, have the potential to improve the investment environment in Turkey.

Most sectors open to Turkish private investment are also open to foreign participation and investment.  All investors, regardless of nationality, face similar challenges:  excessive bureaucracy, a slow judicial system, relatively high and inconsistently applied taxes, and frequent changes in the legal and regulatory environment.  Structural reforms that would create a more transparent, equal, fair, and modern investment and business environment remain stalled.  Venture capital and angel investing are still relatively new in Turkey.

Turkey does not screen, review, or approve FDI specifically.  However, the government has established regulatory and supervisory authorities to regulate different types of markets.  Important regulators in Turkey include the Competition Authority; Energy Market Regulation Authority; Banking Regulation and Supervision Authority; Information and Communication Technologies Authority; Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board; Privatization Administration; Public Procurement Authority; Radio and Television Supreme Council; and Public Oversight, Accounting and Auditing Standards Authority.  Some of the aforementioned authorities screen as needed without discrimination, primarily for tax audits.  Screening mechanisms are executed to maintain fair competition and for other economic benefits.  If an investment fails a review, possible outcomes can vary from a notice to remedy, which allows for a specific period of time to correct the problem, to penalty fees.  The Turkish judicial system allows for appeals of any administrative decision, including tax courts that deal with tax disputes.

Limits on Foreign Control and Right to Private Ownership and Establishment  

There are no general limits on foreign ownership or control.  However, there is increasing pressure in some sectors for foreign investors to partner with local companies and transfer technology, and some discriminatory barriers to foreign entrants, on the basis of “anti-competitive practices,” especially in the information and communication technology (ICT) sector or pharmaceuticals.  In many areas Turkey’s regulatory environment is business-friendly.  Investors can establish a business in Turkey irrespective of nationality or place of residence.  There are no sector-specific restrictions that discriminate against foreign investor access, which are prohibited by World Trade Organization (WTO) Regulations.

Other Investment Policy Reviews 

The OECD published an Environmental Performance Review for Turkey in February 2019, noting the country was the fastest growing among OECD members.  Turkey’s most recent investment policy review through the World Trade Organization (WTO) was conducted in March 2016.  Turkey has cooperated with the World Bank to produce several reports on the general investment climate that can be found at: http://www.worldbank.org/en/country/turkey/research. 

Business Facilitation  

The Presidency of the Republic of Turkey Investment Office is the official organization for promoting Turkey’s investment opportunities to the global business community and assisting investors before, during, and after their entry into Turkey.  Its website is clear and easy to use, with information about legislation and company establishment. (http://www.invest.gov.tr/en-US/investmentguide/investorsguide/Pages/EstablishingABusinessInTR.aspx).  The website is also where foreigners can register their businesses.

The conditions for foreign investors setting up a business and transferring shares are the same as those applied to local investors.  International investors may establish any form of company set out in the Turkish Commercial Code (TCC), which offers a corporate governance approach that meets international standards, fosters private equity and public offering activities, creates transparency in managing operations, and aligns the Turkish business environment with EU legislation as well as with the EU accession process.

Turkey defines micro, small, and medium-sized enterprises according to Decision No. 2018/11828 of the Official Gazette dated June 2, 2018:

• Micro-sized enterprises: fewer than 10 employees and less than or equal to 3 million Turkish lira in net annual sales or financial statement.
• Small-sized enterprises: fewer than 50 employees and less than or equal to 25 million Turkish lira in net annual sales or financial statement.
• Medium-sized enterprises: fewer than 250 employees and less than or equal to 125 million Turkish lira in net annual sales or financial statement.

Outward Investment

The government promotes outward investment via investment promotion agencies and other platforms.  It does not restrict domestic investors from investing abroad.

Capital Markets and Portfolio Investment

The Turkish Government encourages and offers an effective regulatory system to facilitate portfolio investment.  Since the start of 2020, a currency crisis that has been exacerbated by the COVID-19 pandemic, and high levels of dollarization have raised liquidity concerns among some commentators.  Existing policies facilitate the free flow of financial resources into product and factor markets.  The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.  Credit is generally allocated on market terms, though the GOT has increased low- and no-interest loans for certain parties, and pressured state-owned, and even private banks to increase their lending, especially for stimulating economic growth and public projects.  Foreign investors are able to get credit on the local market.  The private sector has access to a variety of credit instruments.

The Turkish banking sector, a central bank system, remains relatively healthy.  The estimated total assets of the country’s largest banks were as follows at the end of 2020:  Ziraat Bankasi A.S. – USD 127.09 billion, Turkiye Vakiflar Bankasi – USD 93.04 billion,  Halk Bankasi – USD 91.64 billion, Is Bankasi – USD 79.92 billion, Garanti Bankasi– USD  66.31 billion, Yapi ve Kredi Bankasi – USD 61.86 billion, Akbank – USD 60.11 billion. (Conversion rate: 7.42 TL/1 USD).  According to the Turkish Banking Regulation and Supervision Agency (BDDK), the share of non-performing loans in the sector was approximately 4.08 percent at the end of 2020.  The only requirements for a foreigner to open a bank account in Turkey are a passport copy and either an identification number from the Ministry of Foreign Affairs or a Turkish Tax identification number.

The Turkish Government adopted a framework Capital Markets Law in 2012, aimed at bringing greater corporate accountability, protection of minority-shareholders, and financial statement transparency.  Turkish capital markets in 2020 drew growing interest from domestic investors, according to data from the Central Registry Agency (MKK).  In 2020, the number of local real investors reached 2 million, up an average of 65,200 per month, with the total portfolio value reaching USD 28.31 billion.

The BDDK monitors and supervises Turkey’s banks.  The BDDK is headed by a board whose seven members are appointed for six-year terms.  Bank deposits are protected by an independent deposit insurance agency, the Savings Deposit Insurance Fund (TMSF).  Because of historically high local borrowing costs and short repayment periods, foreign and local firms frequently seek credit from international markets to finance their activities.  Foreign banks are allowed to establish operations in the country.

Foreign Exchange and Remittances

Foreign Exchange

Turkish law guarantees the free transfer of profits, fees, and royalties, and repatriation of capital.  This guarantee is reflected in Turkey’s 1990 Bilateral Investment Treaty (BIT) with the United States, which mandates unrestricted and prompt transfer in a freely-usable currency at a legal market-clearing rate for all investment-related funds.  There is little difficulty in obtaining foreign exchange in Turkey, and there are no foreign-exchange restrictions, though in 2019, the GOT continued to encourage businesses to conduct trade in lira.  An amendment to the Decision on the Protection of the Value of the Turkish Currency was made with Presidential Decree No. 85 in September 2018 wherein the GOT tightened restrictions on Turkey-based businesses  conducting numerous types of transactions using foreign currencies or indexed to foreign currencies.  The Turkish Ministry of Treasury and Finance may grant exceptions, however.  Funds associated with any form of investment can be freely converted into any world currency.  The exchange rate is heavily managed by the Central Bank of the Republic of Turkey.  Turkish banking regulations and informal government instructions to Turkish banks limit the supply of Turkish lira to the London overnight swaps market.  Turkey took a variety of measures to prop up the lira in 2020, including the imposition of withdrawal limits and time delays, mostly for private individuals owning FX deposit accounts.  In March 2020, the bank insurance and transaction tax introduced in 2019 was increased from 0.2 percent to 1 percent for purchases of FX and gold.  Running down its FX reserves and freezing international banks out of its FX market provided short-term relief during June and July, but reduced these reserves to dangerously low levels.  The BDDK raised the limits for swap, forward, option and other derivative transactions that Turkish lenders can execute with nonresidents.  Previously, swap limits with foreigners were lowered to levels of 1 percent, 2 percent, and 10 percent for weekly, monthly and annual terms, respectively.  Then the limits were raised from 2 percent to 5 percent of bank equity for trades with seven days to maturity; from 5 percent to 10 percent  for those with 30 days to maturity; and from 20 percent to 30 percent for one-year to maturity transactions.

There is no limit on the amount of foreign currency that may be brought into Turkey, but not more than 25,000 Turkish lira or €10,000 worth of foreign currency may be taken out without declaration. Although the Turkish Lira (TL) is fully convertible, most international transactions are denominated in U.S. dollars or Euros due to their universal acceptance.  Banks deal in foreign exchange and do borrow and lend in foreign currencies.  While for the most part, foreign exchange is freely traded and widely available, a May 2019 government decree imposed a settlement delay for FX purchases by individuals of more than USD 100,000, while as mentioned above there is also a 0.2 percent tax on FX purchases.  Foreign investors are free to convert and repatriate their Turkish Lira profits.

The exchange rate was heavily managed by the Central Bank of the Republic of Turkey (CBRT) with a “dirty float” regime until November 2020, when a new central bank governor assumed responsibility.  After several months of increased policy rates, tight monetary policy, and a more stable Turkish Lira, the governor was fired, as a result of which the lira quickly depreciated by 10 percent.  It is still too early to predict the medium to long-term effects of the recent changes to the CBRT on currency and macroeconomic stability.

The BDDK announced on April 12, 2020 new limits to FX transactions.  The agency cut the limit for Turkish banks’ FX swap, spot and forward transactions with foreign entities to 1 percent of a bank’s equity, a move that effectively aims to curtail transactions that could raise hard currency prices.  The limit had already been halved to 25 percent in August 2018, when the currency crisis hit.  These moves to shield the lira have meant a de facto departure from Turkey’s official policy of a floating exchange rate regime over the past year.

Remittance Policies

In Turkey, there have been no recent changes or plans to change investment remittance policies, and indeed the GOT in 2018 actively encouraged the repatriation of funds.  The GOT announced “Assets Peace” in May 2018 which incentivized citizens to bring assets to Turkey in the form of money, gold, or foreign currency by eliminating any tax burden on the repatriated assets.  The Assets Peace has been extended until June 30, 2021.  There are also no time limitations on remittances.  Waiting periods for dividends, return on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees do not exceed 60 days.   There are no limitations on the inflow or outflow of funds for remittances of profits or revenue.

According to the Presidential Decree No. 1948 published in the Official Gazette No. 30994 dated December 30, 2019, the above-mentioned notification and declaration periods for activities related to the “Asset Peace Incentive” defined in Paragraphs 1, 3 and 6 of Temporary Article 90 of Income Tax Code have been extended for six more months following the previous expiration dates.

Sovereign Wealth Funds

The GOT announced the creation of a sovereign wealth fund (called the Turkey Wealth Fund, or TVF) in August 2016.  Unlike traditional sovereign wealth funds, the controversial fund consists of shares of state-owned enterprises (SOEs) and is designed to serve as collateral for raising foreign financing.  However, the TVF has not launched any major projects since its inception.  In September 2018, the President became the Chair of the TVF.  Several leading SOEs, such as natural gas distributor BOTAS, Turkish Airlines, and Ziraat Bank have been transferred to the TVF, which in 2020 became the largest shareholder in domestic telecommunications firm Turkcell.  Critics worry management of the fund is opaque and politicized.  The fund’s consolidated financial statements are available on its website (https://www.tvf.com.tr/en/investor-relations/reports), although independent audits are not made publicly available.    Firms within the fund’s portfolio appear to have increased their debt loads substantially since 2016.  International ratings agencies consider the fund a quasi-sovereign.  The fund was already exempt from many provisions of domestic commercial law and new legislation adopted April 16 granted it further exemptions from the Capital Markets Law and Turkish Commercial Code, while also allowing it to take ownership of distressed firms in strategic sectors.  As part of its response to the COVID-19 pandemic, in 2020 Turkey allowed the TVF to take equity positions in private companies in distress.