2018 Investment Climate Statements: Sao Tome and Principe

Policies Toward Foreign Direct Investment

Sao Tome and Principe is taking steps toward sustainable economic growth. Its economic prospects likely depend on the government’s ability to attract sustained FDI. Therefore, the government is anxious to improve the country’s investment climate to make it a more attractive destination for foreign investors. Under Article 14 of the Investment Code, the State guarantees equal and non-discriminatory treatment to both foreign and domestic investors operating in the country. The Trade and Investment Promotion Agency (APCI), housed under the Ministry of Finance, Commerce and Blue Economy, promotes and facilitates investment through multi-sectoral coordination.

Limits on Foreign Control and Right to Private Ownership and Establishment

According to Article 4 of the Investment Code, both domestic and foreign investors are free to establish and own business enterprises, as well as engage in all forms of business activity in STP, except in the sectors defined by law as reserved for the state, specifically military and paramilitary activities and Central Bank operations. STP is gradually moving toward open competition in all sectors of the economy, and competitive equality is the official standard applied to private enterprises in competition with public enterprises with respect to access to markets, credit, and other business operations. The government has eliminated former public monopolies in farming, banking, insurance, airline services, telecommunications, and trade (export and import).

There are no limits on foreign ownership or control except for activities customarily reserved for the state. The form of public participation, namely the percentage of government ownership in joint ventures, varies with each agreement. Based on Article 8 of the Regulation of the Investment Code, all inbound investment proposals must be screened and approved by the applicable ministry for the economic sector in coordination with APCI. According to Article 14, an investment proposal can be rejected if it threatens national security, public health, or ecological equilibrium and if the proposal has a negative effect or insufficient contribution to country’s economy. However, these mechanisms do not go beyond the law’s mandate and are not considered barriers to investment.

Other Investment Policy Reviews

The government has not conducted any investment policy reviews through the Organization for Economic Cooperation and Development (OECD). Neither the World Trade Organization (WTO) nor United National Conference on Trade and Development (UNCTAD) has conducted a review. STP is not currently a member of WTO but has observer status, and it is a member of UNCTAD.

Business Facilitation

STP has taken steps to facilitate investment and improve the business environment in recent years. The Millennium Challenge Corporation (MCC) worked with STP from 2007 to 2011 on a Threshold Country Program to improve investment opportunities, including creating a “one-stop shop” to help encourage new investments by making it easier and cheaper to import and export goods, reducing the time required to start a new business and improving STP’s tax and customs clearance administration. Currently a business can be registered within one to five days. In 2013, with the support of the International Trade Center, APCI was created. These business facilitation services, including the “one-stop-shop” for business registration, offer equal treatment for women and underrepresented minorities in the economy; however, there is no special assistance provided to these groups. The Single Window website  (http://gue-stp.net/spip.php?article24 ; Portuguese language only) provides information on creating and registering companies in STP.

Outward Investment

While STP’s government does not actively promote outward investment, it does not restrict domestic investors from investing abroad.

STP and Portugal signed a bilateral investment treaty (BIT) and a Double Tax Agreement in 1995 and 2015 respectively. Both documents are still pending ratification. Beginning in January 2019, the STP government will implement a value-added tax (VAT) system. STP has not signed either a BIT or bilateral taxation treaty with the United States. There were no ongoing systemic tax disputes between the government and foreign investors or any taxation issues concerning U.S. investors.

Transparency of the Regulatory System

The laws and regulations that affect direct investment, including environmental, health, and safety rules and regulations, apply equally to foreign and domestic firms. STP tax laws reward citizens who return to the home country to invest, while also containing provisions for attracting foreigners to invest in STP. The STP legal code is based on Portuguese law, and laws and regulations are applied at the national level. Rule-making and regulatory authority exists at the national level and regulations are developed at the ministerial level, approved by the National Assembly and promulgated by the president. The ministry concerned is responsible for any regulatory enforcement mechanisms. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations.

Rarely, drafted bills or regulations are made available for public comment. Copies of most regulations can be purchased online at http://www.legis-palop.org/bd  or directly at the Ministry of Justice and Human Rights in the format of the Official Gazette.

International Regulatory Considerations

STP is a member of the Economic Community of Central African States (ECCAS). ECCAS’s fundamental goal is to promote exchange and collaboration among the member countries and give an institutional and legal framework to their cooperation. ECCAS is the largest economic community in Central Africa, including Central African Economic and Monetary Community (CEMAC) member states (Gabon, Cameroon, the Central African Republic, Chad, Republic of Congo, and Equatorial Guinea), as well as Burundi, the Democratic Republic of Congo, Angola, Rwanda, and Sao Tome and Principe. Covering an area of 6,640,600 square kilometers, ECCAS has a total population of approximately 130 million. STP is not a member of the WTO, but has observer status. STP is among the forty-four African Nations that signed the agreement of the African Continental Free Trade Area (AfCFTA) in March, 2018 in Kigali, Rwanda.

Legal System and Judicial Independence

Disputes are generally solved through dialogue or negotiations between parties without litigation, and there are few known instances of disagreements involving foreign investors reaching international courts. There is a complicated and lengthy investment dispute that has gathered much attention between an Angolan investor and a STP businessman, which is still working its way through STP courts. Angola is a major traditional investor in STP and a pause in that investment may actually create some opportunities for U.S. investors. Post is not aware of any other recent disagreements involving foreign investors. The country has a written commercial law but does not have specialized courts.

Overall, the legal system is perceived to act independently. The judicial process is procedurally fair but is subject to manipulation on occasion. All regulations or enforcement actions are appealable to the Supreme Court.

Laws and Regulations on Foreign Direct Investment

On December 2017, the Regulation of the Investment Code entered into force. In addition, the new Monetary Law, the Expropriation Code, and the Consumer Protection Law entered into force. The new Code of Industrial Proprieties Rights and Code of Copyrights and Related Rights entered into force in February 2017.

Due to the establishment of “one-stop-shop” for starting a new business, supported by the MCC program, the cost and waiting period to start a new business are substantially less. Now, a new business can obtain expedited registration within 24 hours for approximately USD 490.00 or between three to five days for around USD 250.00. Although no online business registration process exists, companies can easily register their businesses. The WB Ease of Doing Business report 2018 ranked STP as 148 out of 190 in terms of starting a business, compared to the 2017 report (35 out of 190 economies).

The following is a general description of how a foreign company can establish a local office:

1. Provide full company documentation, translated into Portuguese.
2. Check the uniqueness of the proposed company name and reserve a name.
3. Notarize the company statutes with the registration office at the Ministry of Justice.
4. File a company declaration with the Tax Administration Office at the Ministry of Finance, Commerce, and Blue Economy.
5. Register with the Social Security Office at the Ministry of Labor and Social Affairs.
6. Publish the incorporation notice in the official government gazette (Diario da Republica).
7. Publish the incorporation notice in a national newspaper.
8. Register the company with the Commercial Registry Office at the Ministry of Finance, Commerce, and Blue Economy.
9. Apply for a commercial operations permit (also known as an “alvara”).
10. Apply for a taxpayer identification number with the Office of Tax Administration at the Ministry of Finance, Commerce, and Blue Economy.
11. Register employees with the Social Security Office.

Other required documents include: 1) copies of the by-laws of the parent company and of the minutes of the meeting of the board of directors in which the opening of the STP branch is approved; 2) a certificate of appointment of the general manager for the STP office; 3) a copy of any agreement signed with a Sao Tomean company or with the STP government; 4) two copies of permits from the Court authorization to operate; and, 5) two photographs and a copy of the passport of the General Manager.

In addition, the Single Window website  (http://www.gue-stp.net/spip.php?article24 ; Portuguese language only) provides information on creating and registering companies in STP.

Beyond the new “one-stop shop” to help encourage new business, there are no agencies or brokers that provide services to further simplify the procedures for establishing an office in STP. Some companies hire a legal office for assistance.

Competition and Anti-Trust Laws

AGER (General Regulation Authority of the Democratic Republic of Sao Tome and Principe) was created to promote competition, as well as to prevent operator abuses in the water, electricity, and telecommunications sectors and the postal service. AGER was established in 2005 and is housed under the Ministry of Infrastructure, Natural Resources, and Environment. AGER supervision does not go beyond its mandate. For other economic sectors, STP does not have specific agencies that review transactions for competition-related concerns.

Expropriation and Compensation

The government maintains strong protections over all types of ownership of private property. The STP Constitution and the Expropriation Code allow only the central government to expropriate private property. The law permits expropriation of private property only if it is deemed to be in the national public interest and only with adequate compensation. There is no evidence to suggest that the government would undertake expropriation in a discriminatory manner or in violation of established principles of international law and standards.

Aside from a massive land expropriation from colonial farmers in 1976 – later recognized by the government as detrimental to STP’s economy – there have not been any documented cases of expropriation of foreign-owned properties. The government has reportedly considered expropriating land to expand the runway at the international airport, but thus far has been reluctant to do so out of concern that any expropriation will be a deterrent to new investment.

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

STP does not have a Bilateral Investment Treaty with the United States. There are no reports of investor-state disputes that have involved a U.S. person or other foreign investors in the past 10 years. STP courts recognize and enforce foreign arbitral awards issued against the government. There are no reports or history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

STP does not have any conflict mediation system but the country has a Voluntary Arbitration Law (LAV). The LAV is largely based on the Portuguese Arbitration Act of 1986. Nevertheless, many of the principles of the UNCITRAL Model Law are incorporated into the LAV. The Arbitration Center, which was housed under the Chamber of Commerce, never fully played its role and has ceased its activities.

The STP legal system recognizes international arbitration, and local courts recognize foreign arbitral awards, though enforcement may be difficult. No state-owned enterprise (SOE) is currently involved in an investment dispute.

Bankruptcy Regulations

STP has a bankruptcy law, but it is not well developed. In the World Bank’s 2018 Doing Business Report, STP ranks 168 out of 190 economies on the ease of resolving insolvency.

Investment Incentives

According to the 2016 Investment Code, all investments above 50,000 Euros are eligible for guarantees and benefits, including fiscal incentives stated in the Fiscal Benefits and Incentives Code of November 2017. Examples of such incentives include tax deductions for corporation tax, stamp tax, taxes on baking operations, and withholding tax. Other incentives include reduction or exemption of import and re-export tariffs. The government also provides incentives for human resources training, as well other exceptional and complementary benefits and incentives. Based on Article 31 of the Fiscal Benefits and Incentives Code, the incentives are granted through the Private Investment Registration Certificate (CRIP) issued by the Trade and Investment Promotion Agency on approval of the investment project. However, contrary to the 2008 Investment Code, the 2016 Code does not provide access to State-owned land and facilities as incentive to investments.

Foreign Trade Zones/Free Ports/Trade Facilitation

STP currently has no free trade zones or free ports. In 1995, STP passed a regulation creating the Free Zone Authority (AZF) which included one free zone in Sao Tome (Sao Tome Airport Free Zone) and another in Principe (Agulhas Bay Free Zone) – as well an Offshore Business Center (for offshore financial transactions and other activities). Due to a lack of activities and interest, the AZF was shuttered in 2011 by government order.

Under Article 33 of the Fiscal Benefits and Incentives Code, the government defines the districts of Cantagalo, Lemba, Lobata and Caue, as well as Principe, as Special Development Zones. Therefore, any new investment established in these areas under the Investment Code can qualify for special incentives. According to Article 14 of the Investment Code, the state assures fair, non-discriminatory, and equal treatment of all investment in the national territory. Companies that qualify may benefit from reductions or exemptions of taxes under the conditions set forth in the Code of Free and Offshore Activities.

Performance and Data Localization Requirements

The government encourages but does not mandate local employment. STP has no specific performance requirements as a condition for establishing, maintaining, or expanding investment. However, under the Code of Fiscal Benefits and Incentives, the government offers better incentives for those companies that choose to reinvest or expand their investment. There are no requirements for investors to buy local products, to export a certain percentage of output, or to invest in a specific geographical area. There is no blanket requirement that nationals own shares in foreign investments in STP. The visa application process is straightforward and transparent and visas or work permits are usually easy to obtain if companies meet all the requirements. Nevertheless, there are few Sao Tomean embassies worldwide to process visa applications. Under the Legal Regime of Foreign Citizens in STP, STP lifted visa requirements for citizens of the United States, EU, Canada, and the Community of Portuguese Language Countries. Also, any foreign citizen holding a valid passport with a valid Schengen or U.S. visa can enter and stay in the country up to 15 days. STP recently began accepting online visa applications. Information regarding procedures to submit an online visa application is available at http://www.smf.st/virtualvisa/ 

There is no known forced localization requirement and no known requirement for foreign IT providers to turn over source code.

Real Property

Based on Article 46 of the Constitution, private property rights are guaranteed by the state. According to Article 13 of the Expropriation Code, authorities must provide fair, adequate, and effective payment at market value in advance before expropriating any private property. The government owns the vast majority of land in the country, most of which is agricultural land granted by the Ministry of Agriculture and Rural Development through concession of land titles under the Land Reform Law. Less than 10 percent of land is held by private owners. Foreigners cannot purchase land, although they can purchase structures. U.S. companies have not raised property rights concerns with the Embassy.

Intellectual Property Rights

U.S. companies have not raised intellectual property rights concerns with the Embassy. TheCode of Copyright and Related Rights was updated and put into force in February 2017, along with the first Industrial Property Code. All copyright and industrial property rights proceedings are covered by the Directorate of Industry (Ministry of Finance, Trade and Blue Economy) in collaboration with National Directorate of Culture (Ministry of Education, Culture, Science and Communication).

STP is not listed in USTR’s Special 301 report and is not listed in the notorious market report. STP is a member of the World Intellectual Property Organization (WIPO). The Regulation on Industrial Property regulates the enforcement of IP, including geographical indications, patents, and trademarks. STP does not report on seizures of counterfeit goods. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Portfolio investment is undeveloped and unclear. The Central Bank of STP (BCSTP) issued Treasury bills (T-bills) for the first time on June 29, 2015 for 75 million Dobras (around USD 3.7 million) at the fixed interest rate of 6.2 percent, with a maturity of six months. The demand was 20 percent higher than the offer, resulting from the participation of three domestic banks. The most recent issuance occurred on March 15, 2018. STP does not have a stock market. Articles 13 and 14 of the Foreign Exchange Regulations facilitate the free flow of financial resources under the supervision of the Central Bank. Foreign investors are able to get credit on the local market; however, access to credit is difficult due to the limited variety of credit instruments, high interest rates, and the number of guarantees requested by the commercial banks. As a result, on the World Bank Doing Business Report 2018, STP ranked 159 out 190 economies regarding access to credit. There are currently few significant U.S. investors active in STP.

Money and Banking System

STP has four private commercial banks. Portuguese, Nigerian, Angolan, Cameroonian, Gabonese and Togolese interests (as well as those of STP) are represented in the ownership and management of the commercial banks. In early 2018, the Central Bank (BCSTP) declared commercial bank “Private Bank” insolvent and opened a public tender to liquidate its assets and liabilities. The Gabonese investment bank BGFI opened its Sao Tomean operation in March 2012. Banking services are available in the capital with a few smaller branches in cities in the north, south, and center of the country, as well as in Principe.

In addition to retail banking, commercial banks offer most corporate banking services, or can procure them from overseas. Local credit to the private sector is limited and expensive, but available to both foreign and local investors on equal terms. The country’s main economic actors finance themselves outside STP. Foreigners must establish residency to open a bank account.

Foreign Exchange and Remittances

Foreign Exchange Policies

The Central Bank supervises the national financial system and defines monetary and exchange rate policies in the country. Among other responsibilities, the Central Bank sells hard currency and establishes the reference rate. Access to foreign currency is currently difficult due to a shortage; however, there is no official norm restricting access.

The Dobra, currently denoted by the acronym “nDb” (it will be “Db” from July 1, 2018), is the country’s national currency. In July 2009, STP and Portugal signed an economic cooperation agreement to peg the Dobra to the Euro rather than a weighted basket of currencies. As a result, since 2010, the nDb has been pegged to the Euro. Based on the new Monetary Law from December 12, 2017, the Central Bank introduced the new currency in order to modernize and strengthen the country’s financial system. With the introduction of the new Dobra January 1, 2018, the exchange rate is currently 1 Euro is equal to 24.5 nDb. This anchorage offers credible parity, minimizes monetary instability costs, and provides better credibility for the exchange rate and monetary policy. As of April 2018, USD 1 was equivalent to about nDb 17.9.

Remittance Policies

Repatriation of capital is possible with prior authorization. According to both the Foreign Exchange Law and the Investment Code, transfer of profits outside the country is also allowed after the deductions for legal and statutory reserves and the payment of existing taxes owed. The government encourages reinvestments with associated reductions in income taxes.

Sovereign Wealth Funds

STP does not have a traditional sovereign wealth fund. It does have a small National Oil Account (NOA). The NOA was previously funded by signing bonuses paid by energy and oil companies to gain rights to conduct exploration and production activities. According to officials from the budget department, the government is allowed by law to withdraw up to 20 percent of the balance of the NOA every year as calculated on June 30 of the previous year. Details are available on the state budget and under NOA online.

When STP’s cocoa plantations were shut down in the late 1980s, most SOEs also closed. EMAE (Water and Power Supply Company), ENAPORT (Port Authority Company), ENASA (National Company for Airports and Air Safety), and Empresa dos Correios (Post Office) are 100 percent state-owned enterprises but with some financial autonomy. Under joint venture, the government holds 49 percent of CST (Santomean Telecommunication Company) while the largest Brazilian telecommunication company, OI, owns 51 percent. The government has a 48 percent stake in BISTP (International Bank of STP), while the Portuguese Caixa Geral de Depositos holds 27 percent, and the African Investment Bank holds 25 percent. All four fully-owned state enterprises are unprofitable and are annually and biannually audited by the Ministry of Finance and Audit Court respectively. They have financial autonomy, but largely depend on funds from the state budget.

Privatization Program

STP does not have an active privatization program.

There are no rules or legislation pertaining to responsible business conduct (RBC) in STP. Companies generally act in accordance with labor, environment, flora and fauna protection, consumer protection, taxation, and other related laws. There is limited awareness of expectations of or standards for responsible business conduct. STP participates in the Extractive Industries Transparency Initiative (EITI).

Despite a 2-point drop on Transparency International’s Corruption Perception Index (currently ranking 64 out of 176 countries), STP has an overall positive trajectory in combatting corruption due to reforms the government has undertaken in recent years. The government approved a new anti-corruption law in 2012. To reduce corruption by civil servants and to track the flow of money, authorities put in place a new requirement that all payments to government entities over USD 5 be made directly at the Central Bank and all salary payments to civil servants be paid directly to the employees’ accounts at the commercial banks. A widely-praised oil revenue management law was enacted in 2004 to manage any future oil revenues responsibly. The government has also taken steps to review and update existing contracts with some foreign companies to support liberalization and free market competition. The government has denounced corruption and pledged to take necessary steps to prevent and combat it.

Although corruption in customs was historically an issue for foreign investors, a MCC Threshold Program resulted in a modern customs code and related decrees. The MCC program introduced modern customs tracking software and eliminated manual procedures, removing the link between the customs officials and cash payments. Customs agents now handle payments on behalf of the importer. As a result, customs revenues have increased significantly while incidents of corruption have reportedly declined. This modernization effort represents a fundamental legislative change from colonial-era customs laws and processes to internationally recognized and transparent best practices and principles.

In 2013, the parliament adopted a fully amended and restated anti-money laundering/counter-terrorist financing (AML/CFT) law which complies with international standards. Of note, the law includes a clear description of the crimes involving money laundering and terrorism financing activities, specifies the persons and entities that authorities can hold criminally responsible, describes the sanctions that authorities can impose and the assets they can confiscate in connection with the criminal activities, and sets forth STP’s regulatory structure. The law designates the Financial Information Unit (Unidade de Informaçao Financeira) as the central agency in STP with responsibility for investigating suspect transactions. After appearing on previous versions, STP was removed from the Financial Action Task Force’s (FATF) October 18, 2013 list of countries that have strategic deficiencies in their AML/CFT standards and that have not made sufficient progress in addressing the deficiencies. STP is a member of the Inter-Governmental Action Group against Money Laundering in West Africa, a FATF-style regional body.

According to the Investment Code, all investment proposals must be submitted to the APCI, which is responsible to carry out all legal inter-institutional coordination with different sectors involved in the analysis and approval of the investment project under the Investment Code. The new law limits contacts between investment proponents and officials involved in the investment approval process. On the other hand, the new law defines precise time for each investment approval procedure; therefore, it is a positive instrument in fighting corruption and briberies.

STP signed and ratified the UN Anticorruption Convention; however, it is not party to the Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

STP does not have a designated agency responsible for combatting corruption.

Resources to Report Corruption

“Watchdog” organization:

Deodato Capela
President
Centro de Integridade Pública de Sao Tome e Principe (STP Public Integrity Center) – Anticorruption, Transparency and Integrity -NGO
P.C: 330, Almeirim-Sao Tome; Sao Tome e Principe
+ 239 991 1116
cipstp.org@gmail.com
http://cipstp.st/ 

STP is a vibrant democracy with a history of the peaceful transfer of power. STP is relatively stable, has no ethnic tensions, and has a relaxed lifestyle which locals refer to in local dialect as leve-leve (“take it easy”). Political violence is rare due to a traditional emphasis on consensus in decision making. Protests in early 2018 over the creation of the Constitutional Court highlighted the lack of consensus in that decision. Free and fair legislative and municipal elections held in October 2014 led to a peaceful transition of power to a new government led by the Independent Democratic Action party (ADI). The July 2016 Presidential election also took place without incident.

STP has a generally good human rights record and demonstrates a respect for citizens’ and workers’ rights. Strikes are not the primary means to settle labor disputes and labor strikes have been sporadic in recent times.

Since independence in 1975, there have been no incidents of politically motivated attacks on projects or installations. There is no anti-American sentiment and instances of civil disorder are rare. There is a maritime piracy and terrorism threat in the Gulf of Guinea, but the impact on STP and its territorial waters has been limited. STP has sought to be an active partner in regional maritime security efforts, although its capacity and resources are minimal due to budget constraints. Violent crime is low.

A significant portion of STP’s workforce is young, relatively well-educated, and multilingual (Portuguese and French). Further training of the workforce is needed, however, for the economy to continue developing. The percentage of foreign/migrant workers is low and also covered by the Labor Code. The government does not officially require but does encourage companies to hire nationals. For the first time in 2016, the government set the national minimum wage for private and public sectors. The basic salary varies by the size of the enterprise and will increase over time. For micro enterprises or family businesses, the minimum wage is around USD 37 per month, small business USD 48, medium enterprise USD 63 and large enterprise USD 77. The basic salary for the public sector is approximately USD 50. Minimum wage, workday, overtime, paid annual vacations, and holidays are established in labor laws. Women are entitled to state-funded maternity leave for a period of 30 days before and 30 days after childbirth. The law recognizes the right of workers to form and join independent unions, conduct legal strikes, and bargain collectively. While the law provides for the right to strike, including by government employees and other essential workers, the law strictly regulates this right. The law does not prohibit anti-union discrimination or retaliation against strikers. Labor laws, including occupational health and safety standards, are poorly enforced due to a lack of resources. Workers’ collective bargaining agreements remain relatively weak due to the government’s role as the principal employer and key interlocutor in labor matters, including wages.

While the Overseas Private Investment Corporation (OPIC) is authorized to do business in STP, there are no currently active programs in the country, nor have there been in the past.

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

Diana Costa
Political/Economic Officer
U.S. Embassy Libreville
+241 0145 7000
CostaDL@state.gov