Transparency of the Regulatory System
The DRC still does not have a legal system to address the issue of competition. By joining OHADA and COMESA, the DRC plans to implement the standards and regulations of these structures in order to create a more transparent and effective policy to promote competition on a non-discriminatory basis.
There are no informal regulations that would discriminate against foreign or American investors in particular. Nevertheless, the new regulations in the mining code and the law on subcontracting are perceived as discriminatory and punitive by foreign investors.
The GDRC authority on business standards, the Congolese Office of Control (OCC), oversees foreign businesses engaged in the DRC.
There are no formal or informal provisions systematically employed by the GDRC to impede foreign investment, but neither are there provisions that are universally employed to attract such investment. Problems encountered within the GDRC tend largely to be administrative and/or bureaucratic in nature, as reforms and improved laws and regulations are often poorly or unevenly applied.
Proposed laws and regulations are rarely published in draft format for public discussion and comments; discussion is typically limited to the governmental entity that proposes the draft law and Parliament prior to enactment.
By implementing the OHADA, the GDRC strengthened its legal framework in the areas of contract, company, and bankruptcy law and set up an accounting system better aligned to international standards. For this purpose, a Coordination Committee was established internally in the GDRC to monitor OHADA implementation.
The Extractive Industries Transparency Initiative (EITI), a multi-stakeholder initiative to increase transparency in transactions between governments and companies in the extractive industries, declared in 2014 that DRC’s payment and receipt procedures conform to EITI requirements. In 2016, EITI awarded the DRC the first Initiative Award for Transparency in Extractive Industries for a pilot study DRC EITI conducted on establishing beneficial ownership, i.e. identifying the persons who actually control or benefit from a company.
The DRC adopted a Beneficial Ownership Roadmap in December 2016 outlining the steps to be taken to ensure the country complies with the more rigorous EITI Standard of 2016. The roadmap sought to achieve stakeholder consensus on a definition of beneficial ownership in the DRC context, and to draft legislation requiring certain categories of businesses to disclose their beneficial owners. No progress was made on the issue during 2016 however. As a result, stakeholders amended the roadmap and a revised version was published in December 2017.
The DRC’s validation process for compliance with the 2016 EITI Standard commenced in November 2018, with assessment due in 2020. The initial report published by the International EITI Secretariat in April 2019 stated that DRC EITI failed to adequately address 13 of the requirements of the EITI Standard, with two of these assessed as unmet with inadequate progress. The report also stressed the need to clarify the financial flows of state-owned enterprises (SOEs) in the DRC’s extractive sector.
International Regulatory Considerations
The DRC is a member of several regional economic blocks, including the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), the Economic Community of Central African States (ECCAS), and the Economic Community of the Great Lakes Countries (ECGLC).
According to the Congolese National Standardization Committee, the DRC has adopted 470 harmonized COMESA standards, almost achieving the objective set by the country in 2008.
In order to formalize the DRC’s integration into the COMESA Free Trade Area and to comply with its commitments, in December 2015, the DRC President promulgated, after its adoption by both chambers of Parliament, an act establishing a new scale of import duties and taxes pursuant. The act establishes a zero rate for goods originating in COMESA member countries following a three-year graduated scale of 40 percent, 30 percent and 30 percent reductions respectively. Still, the DRC is not on track to meet this goal, and significant tariff reductions have yet to take place. The DRC has signed several customs agreements in the region and sub-region to reduce import tariffs, but it has not yet implemented these agreements.
The DRC is a World Trade Organization (WTO) member and, as such, seeks to comply with Trade Related Investment Measures (TRIM) requirements. In October 2016, the WTO noted that there had been positive developments on various fronts in the DRC, including streamlining of the country’s tax system, introduction of a value added tax (VAT), and enactment of a new customs act, a new excise act, and a new procurement code. The WTO also noted that the business environment has improved as a result of the progressive establishment of single sites for conducting international trade (https://segucerdc.cd/) and setting up enterprises (www.guichetunique.cd). The WTO further commended the adoption of new sectoral policies that have opened several economic sectors, including insurance services and hydrocarbon trade, to competition. The GRDC has proposed a new Strategic National Development Plan which sets the goal of modernizing and industrializing the country by 2035.
Legal System and Judicial Independence
The DRC is a civil law country, and the main provisions of its private law can be traced to the Napoleonic Civil Code. As a result of colonialism, the general characteristics of the Congolese legal system are similar to those of the Belgian legal system. Customary or tribal law is another aspect of the legal system. Various local customary laws regulate both personal status laws and property rights, especially the inheritance and land tenure systems in traditional communities throughout the country. The Congolese legal system is divided into three branches: public law, private law and economic law. Public law regulates legal relationships involving the state or state authority; private law regulates relationships between private persons; and economic law regulates interactions in areas such as labor, trade, mining and investment.
As of early 2018, the DRC had established thirteen commercial courts located in DRC’s main business cities, including Kinshasa, Lubumbashi, Matadi, Boma, Kisangani, and Mbuji-Mayi, though only the Kikwit and Boma courts appear to be functioning reasonably well. These courts are designed to be led by professional judges specializing in commercial matters and exist in parallel to an otherwise inadequate judicial system. A lack of qualified personnel and a reluctance by some DRC jurisdictions to fully recognize OHADA law and institutions have hindered commercial courts. In 2013, the European Union began funding the construction or rehabilitation of commercial courts in Boma, Butembo, Kolwezi and Kananga, and the World Bank later supported the rehabilitation of the courts in Kinshasa, Kisangani, and Mbuji-Mayi. Infrastructure, quality issues, and delays in execution have hampered these projects.
The current judicial process is not procedurally reliable, as its rulings are not always respected. The national court system provides an appeals mechanism, and the OHADA provides regulations and a legal framework to appeal verdicts. Legal documents in the DRC can be found at: http://www.leganet.cd/index.htm.
Laws and Regulations on Foreign Direct Investment
Most Foreign Direct Investment (FDI) is governed by the 2002 Investment Code. Mining, hydrocarbons, finance, and other sectors are also governed by sector-specific investment laws. The GDRC deregulated the electricity and insurance sectors in 2015, and in 2016 Parliament passed a bill to reform the hydrocarbons sector and revised the labor law. Lawmakers have also authored legislation to address consumer protection, e-commerce, liberalization of prices, competition regulation, account auditing, agriculture regulation, entrepreneurship, and free trade areas. With the exception of the bill on e-commerce, all of these bills were adopted and promulgated in 2018.
ANAPI is the DRC agency with the mandate to simplify the investment process, make procedures more transparent, assist new foreign investors, and improve the image of the country as an investment destination (investindrc.cd). There is also a Steering Committee for the Improvement of the Business and Investment Climate (CPCAI), which has the overall goal of improving the DRC’s ranking in the World Bank’s “Doing Business” indicators by reducing administrative delays, red tape, and the overall cost of establishing a business. Since its inception, CPCAI has eliminated 46 of 117 taxes applied to cross-border trade. The GDRC also instituted a “Guichet Unique,” in 2013, which is a one-stop shop to simplify business creation, cutting processing time from five months to three days, and reducing incorporation fees from USD 3,000 to USD 120. (www.guichetunique.cd). A “one-stop-shop” also exists for import-export business, covering, among other things, the collection of taxes and transshipment operations. (https://segucerdc.cd/).
Competition and Anti-Trust Laws
There is no existing national agency that reviews transactions for competition or antitrust-related concerns, however, as a member of COMESA, the DRC falls under the organization’s competition regime, which is made up of the COMESA Competition Regulations and rules. Under the COMESA Treaty, the regulations are binding on all member states. Since the DRC does not have a dedicated domestic competition law regime, the regional competition law regime is effectively the only competition law available.
Expropriation and Compensation
Technically, the GDRC may only proceed with an expropriation when it benefits the public interest, and the person or entity subject to an expropriation should receive fair compensation. The U.S. Embassy is unaware of any new expropriation activities by the GDRC against U.S. citizens in 2017 and 2018, but there are a number of existing and some long standing claims made against the GDRC. Some claims have been taken to arbitration, though many arbitral judgments against the GDRC are not paid in a timely manner, if at all. The U.S. – DRC BIT also contains provisions on expropriation.
ICSID Convention and New York Convention
The DRC is a member of the International Center for Settlement of Investment Disputes (ICSID) Convention and has been a Contracting State to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) since February 2015. Although the DRC has not made any notifications or reservations in accordance with the New York Convention, the internal legislation facilitating the DRC’s accession to the New York Convention contains reservations regarding reciprocity (the DRC will only enforce awards made in the territory of other Contracting States); commerciality (only awards on matters which are considered commercial under DRC law will be recognized and enforced under the New York Convention); non-retroactivity (the New York Convention will only apply to awards made after February 3, 2015); and finally, that the New York Convention will not apply to disputes related to immovable property (i.e. real estate, industrial plants, etc.) or to rights related to immovable property.
In the case of an investment dispute, the U.S.-DRC BIT provides for reconciliation of national or international arbitration. In the case of a dispute between a U.S. investor and the GDRC, the U.S. investor is subject to the Congolese civil code and legal system. If the parties cannot reach agreement under the terms of the U.S.-DRC BIT the dispute is taken to ICSID or the Paris-based International Chamber of Commerce (ICC). Commercial parties may also seek redress under the Organization for the Harmonization of African Business Law (OHADA).
The DRC’s accession to the New York Convention is important to international investors seeking to develop activities in the DRC because it facilitates the enforcement of international arbitral awards. Nevertheless, the reservation related to immovable property effectively excludes disputes relating to mining rights, which, under Congolese law, are considered immovable property.
Although there are instances of ongoing corruption at every level of the DRC judicial system, several disputes between foreign investors and State Owned Enterprises (SOE) have been resolved in favor of the foreign investor.
International Commercial Arbitration and Foreign Courts
As a signatory to the OHADA, the DRC also adopted the OHADA Uniform Act on Arbitration (the UAA). The UAA sets out the basic rules applicable to any arbitration where the seat of arbitration is located in an OHADA member state. Because DRC is a member of the New York Convention, the requirements set out under Article 5 of the New York Convention for the recognition and enforcement of foreign awards will apply where the seat of any arbitration is outside an OHADA member state, or where the parties chose arbitral rules outside the UAA.
OHADA‘s UAA offers an alternative dispute resolution mechanism for settling disputes between two parties. The two main consequences of the DRC’s September 2012 accession to OHADA with respect to dispute resolution are:
- The mandatory application of the UAA, which sets out arbitration procedures applicable to any arbitration arising in a Member State of OHADA where the place of arbitration is situated in a Member State.
- Disputes must be submitted to the Common Court of the Justice and Arbitration (CCJA) (based in Abidjan, Cote d’Ivoire) in accordance with the provisions of the OHADA Treaty and the OHADA Arbitration Rules.
The UAA, while not directly based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, is similar in that it provides for the recognition and enforcement of arbitration agreements and arbitral awards and supersedes the national laws on arbitration to the extent that any conflict arises. Arbitral awards with a connection to an OHADA member state are given final and binding status in all OHADA member states, on a par with a judgment of a national court. Support is provided by the CCJA which can rule on the application and interpretation of the UAA.
Arbitral awards rendered in any OHADA Member State are enforceable in any other OHADA member state, subject to obtaining an exequatur (a legal document issued by a sovereign authority allowing a right to be enforced in the authority’s domain of competence) of the competent court of the State in which the award is to be made. Exequaturs shall, in principle, be granted unless the award clearly affects public order in that State. Decisions granting or refusing the granting of an exequatur may be appealed to the CCJA.
The OHADA Uniform Act on Insolvency Proceedings provides a comprehensive framework not only for companies encountering financial difficulties and seeking relief from the pressing demands of creditors, but also for creditors to file their claims. The GDRC judiciary system has agreed to enforce the OHADA Insolvency Act.