Policies Towards Foreign Direct Investment

Kenya has enjoyed a steadily improving environment for foreign direct investment (FDI).  Foreign investors seeking to establish a presence in Kenya generally receive the same treatment as local investors, and multinational companies make up a large percentage of Kenya’s industrial sector.  The government’s export promotion programs do not distinguish between goods produced by local or foreign-owned firms. The major regulations governing FDI are found in the Investment Promotion Act (2004).  Other important documents that provide the legal framework for FDI include the 2010 Constitution of Kenya, the Companies Ordinance, the Private Public Partnership Act (2013), the Foreign Investment Protection Act (1990), and the Companies Act (2015).  GOK membership in the World Bank’s Multilateral Investment Guarantee Agency (MIGA) provides an opportunity to insure FDI against non-commercial risk.

The government does not have a policy to steer investment to specific geographic locations, but encourages investments in sectors that create employment, generate foreign exchange, and create forward and backward linkages with rural areas.  The Central Bank has successfully maintained macroeconomic stability with relatively low inflation and stable exchange rates. The National Treasury is increasingly attentive to ensuring prudent debt management. Kenya puts significant effort into assuring the health and growth of its tourism industry.  To strengthen Kenya’s manufacturing capacity, the government offers incentives for the production of goods for export.

Investment Promotion Agency

KenInvest, the country’s official investment promotion agency, is viewed favorably by international investors (http://www.investmentkenya.com  ).  KenInvest’s mandate is to promote and facilitate investment by assisting investors in obtaining the licenses necessary to invest and by providing other assistance and incentives to facilitate smoother operations.  To help investors navigate local regulations, KenInvest has developed an online database known as eRegulations, designed to provide investors and entrepreneurs with full transparency on Kenya’s investment-related regulations and procedures (http://kenya.eregulations.org/?l=en  ).

The GOK prioritizes investment retention and maintains an ongoing dialogue with investors.  All proposed legislation must pass through a period of public consultation in which investors have an opportunity to offer feedback.  Private sector representatives can serve as board members on Kenya’s state-owned enterprises. Since 2013, the Kenya Private Sector Alliance (KEPSA), the apex private sector business association, has had bi-annual round table meetings with President Kenyatta and his cabinet.  Investors’ concerns are considered by a Cabinet committee on the ease of doing business, chaired by President Kenyatta. The American Chamber of Commerce has also taken an increasingly active role in engaging the GOK on Kenya’s business environment, often providing a forum for dialogue.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

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

Other Investment Policy Reviews

Kenya had no investment policy reviews though multilateral organizations in the last three years.

Business Facilitation

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

The Movable Property Security Rights Bill (2017) enhanced the ability of individuals to secure financing through movable assets, including using intellectual property rights as collateral.  The Nairobi International Financial Centre Act (2017) seeks to provide a legal framework to facilitate and support the development of an efficient and competitive financial services sector in Kenya.  The act created the Nairobi Financial Centre Authority to establish and maintain an efficient operating framework to attract and retain firms. The Kenya Trade Remedies Act (2017) provides the legal and institutional framework for Kenya’s application of trade remedies consistent with World Trade Organization (WTO) law, which requires a domestic institution to both receive complaints and undertake investigations in line with the WTO Agreements.  To date, however, Kenya has implemented only 7.1 percent of its commitments under the WTO Trade Facilitation Agreement, which it ratified in 2015. The Kenya Trade Remedies Act provides for the establishment of the Kenya Trade Remedies Agency for the investigation and imposition of anti-dumping, countervailing duty, and trade safeguards measures, and enables the GOK to take necessary measures to protect domestic industries from unfair trade practices.

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

The Business Registration Services (BRS) Act (2015) established a state corporation known as the Business Registration Service to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships, and firms.  The BRS also devolves to the counties business registration services such as registration of business names and promoting local business ideas/legal entities, thus reducing costs of registration. The Companies Act (2015) covers the registration and management of both public and private corporations.

In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country.  The unit focuses on reducing the bureaucratic steps related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a website (http://www.businesslicense.or.ke/  ) offering online business registration and providing information on how to access detailed information on additional relevant business licenses and permits, including requirements, costs, application forms, and contact details for the relevant regulatory agency.  In 2013, the GOK initiated the Access to Government Procurement Opportunities program, requiring all public procurement entities to set aside a minimum of 30 percent of their annual procurement spending facilitate the participation of youth, women, and persons with disabilities (https://agpo.go.ke/).

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

Outward Investment

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

Transparency of the Regulatory System

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

The 2010 Kenyan Constitution requires government to incorporate public participation before officials and agencies make certain decisions.  The draft Public Participation Bill (2018) would provide the general framework for such public participation. The Ministry of Devolution has produced a guide for counties on how to carry out public participation; many counties have enacted their own laws on public participation.  The Environmental Management and Coordination Act (1999) incorporates the principles of sustainable development, including public participation in environmental management. The Public Finance Management Act mandates public participation in the budget cycle. The Land Act, Water Act, and Fair Administrative Action Act (2015) also include provisions providing for public participation in agency actions.

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

International Regulatory Considerations

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

According to the Africa Regional Integration Index Report 2016, Kenya is a leader in regional integration policies within these regional blocs, with strong performance on regional infrastructure, productive integration, free movement of people, and financial and macro-economic integration.  The GOK maintains a Department of East African Community Integration within the Ministry of East Africa and Northern Corridor. Kenya generally adheres to international regulatory standards. The country is a member of the WTO and provides notification of draft technical regulations to the Committee on Technical Barriers to Trade (TBT).  Kenya maintains a TBT National Enquiry Point at http://notifyke.kebs.org  .  Additional information on Kenya’s WTO participation can be found at https://www.wto.org/english/thewto_e/countries_e/kenya_e.htm  .

Accounting, legal, and regulatory procedures are transparent and consistent with international norms.  Publicly listed companies adhere to International Financial Reporting Standards (IFRS) that have been developed and issued in the public interest by the International Accounting Standards Board.  The board is an independent, private sector, not-for-profit organization that is the standard-setting body of the IFRS Foundation. Kenya is a member of UNCTAD’s international network of transparent investment procedures.

Legal System and Judicial Independence

The legal system is based on English Common Law, and the 2010 constitution establishes an independent judiciary with a Supreme Court, Court of Appeal, Constitutional Court, and High Court.  Subordinate courts include: Magistrates, Khadis (Muslim succession and inheritance), Courts Martial, the Employment and Labor Relations Court (formerly the Industrial Court), and the Milimani Commercial Courts – the latter two of which both have jurisdiction over economic and commercial matters.  In 2016, Kenya’s judiciary instituted specialized courts focused on corruption and economic crimes. There is no systematic executive or other interference in the court system that affects foreign investors, however, the courts face allegations of corruption, political manipulation, and long delays in rendering judgments.

Laws and Regulations on Foreign Direct Investment

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

The 2010 constitution guarantees protection from expropriation, except in cases of eminent domain or security concerns, and all cases are subject to the payment of prompt and fair compensation.  The Land Acquisition Act (2010) governs due process and compensation in land acquisition, although land rights remain contentious and can cause significant project delays.

Dispute Settlement

ICSID Convention and New York Convention

Kenya is a member of the International Centre for Settlement of Investment Disputes, also known as the ICSID Convention or the Washington Convention, and the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards.  Regarding the arbitration of property issues, the Foreign Investments Protection Act (2014) cites Article 75 of the Kenyan Constitution, which provides that “[e]very person having an interest or right in or over property which is compulsorily taken possession of or whose interest in or right over any property is compulsorily acquired shall have a right of direct access to the High Court.”

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

The government does accept binding international arbitration of investment disputes with foreign investors.  The Kenyan Arbitration Act (1995) as amended in 2010 is anchored entirely on the United Nations Commission on International Trade Law (UNCITRAL) Model Law.  Legislation introduced in 2013 established the Nairobi Centre for International Arbitration (NCIA), which seeks to serve as an independent, not-for-profit international organization for commercial arbitration, and may offer a quicker alternative to the court system.  In 2014, the Kenya Revenue Authority launched an Alternative Dispute Resolution (ADR) mechanism aiming to provide taxpayers with an alternative, fast-track avenue for resolving tax disputes.

Bankruptcy Regulations

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

Creditors’ rights are comparable to those in other common law countries, and monetary judgments typically are made in Kenyan shillings.  The Insolvency Act (2015) increased the rights of borrowers and prioritizes the revival of distressed firms. The law states that a debtor will automatically be discharged from debt after three years.  Bankruptcy is not criminalized in Kenya. Kenya moved up 38 ranks in the World Bank Group’s Doing Business 2019 report, moving to 57 of 190 countries in the “resolving insolvency” category.

Investment Incentives

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

The government allows all locally-financed materials and equipment for use in construction or refurbishment of tourist hotels to be zero-rated for purposes of VAT calculation – excluding motor vehicles and goods for regular repair and maintenance.  The National Treasury principal secretary, however, must approve such purchases. In a measure to boost the tourism industry, one-week employee vacations paid by employers are a tax-deductible expense. The 2015 amendments to Kenya’s VAT rules clarified some items that are VAT exempt.  In 2018, the Kenya Revenue Authority (KRA) exempted from VAT certain facilities and machinery used in the manufacturing of goods under Section 84 of the East African Community Common External Tariff Handbook. VAT refund claims must be submitted within 12 months of purchase.

The government’s Manufacturing Under Bond (MUB) program encourages manufacturing for export.  The program provides a 100 percent tax deduction on plant machinery and equipment and raw materials imported for production of goods for export.  The program is also open to Kenyan companies producing goods that can be imported duty-free or goods for supply to the armed forces or to an approved aid-funded project.  Investors in metal manufacturing and products and the hospitality services sectors are able to deduct from their taxes a large portion of the cost of buildings and capital machinery.

The Finance Act (2014) amended the Income Tax Act (1974) to reintroduce capital gains tax on transfer of property located in Kenya.  Under this provision, gains derived on the sale or transfer of property by an individual or company are subject to tax at rates of at least five percent.  Sales and transfer of property related to the oil and gas industry are taxed up to 37.5 percent. The Finance Act (2014) also reintroduced the withholding VAT system by government ministries, departments and agencies.  The system excludes the Railway Development Levy (RDL) imports for persons, goods, and projects; the implementation of an official aid-funded project; diplomatic missions and institutions or organizations gazetted under the Privileges and Immunities Act (2014); and the United Nations or its agencies.

Foreign Trade Zones/Free Ports/Trade Facilitation

Kenya’s Export Processing Zones (EPZ) and Special Economic Zones (SEZ) offer special incentives for firms operating within their boundaries.  By the end of 2016, Kenya had 65 designated EPZs, with 91 companies and 52,019 workers contributing KSH 63.1 billion (about USD 622 million) to the Kenyan economy.  Companies operating within an EPZ benefit from the following tax benefits: a 10-year corporate-tax holiday and a 25 percent tax thereafter; a 10-year withholding tax holiday; stamp duty exemption; 100 percent tax deduction on initial investment applied over 20 years; and VAT exemption on industrial inputs.

About 54 percent of EPZ products are exported to the United States under AGOA.  The majority of the exports are textiles – Kenya’s third largest export behind tea and horticulture – and more recently handicrafts.  Eighty percent of Kenya’s textiles and apparel originate from EPZ-based firms. Approximately 50 percent of all firms in the zones are fully-owned by foreigners – mainly from India – while the rest are locally owned or joint ventures with foreigners.

While EPZs are focused on encouraging production for export, SEZs are designed to boost local economies by offering benefits for goods that are consumed both internally and externally.  SEZs will allow for a wider range of commercial ventures, including primary activities such as farming, fishing, and forestry. The 2016 Special Economic Zones Regulations state that the Special Economic Zone Authority (SEZA) must maintain an open investment environment to facilitate and encourage business by the establishment of simple, flexible, and transparent procedures for investor registration.  The rules also empower county governments to set aside public land for establishment of industrial zones.

Companies operating in the SEZs will receive the following benefits:  all SEZ supplies of goods and services to companies and developers will be exempted from VAT; the corporate tax rate for enterprises, developers, and operators will be reduced from 30 percent to 10 percent for the first 10 years and 15 percent for the next 10 years; exemption from taxes and duties payable under the Customs and Excise Act (2014), the Income Tax Act (1974), the EAC Customs Management Act (2004), and stamp duty; and exemption from county-level advertisement and license fees.  There are currently SEZs in Mombasa (2,000 sq. km), Lamu (700 sq. km), and Kisumu (700 sq. km). The Third Medium Term Plan of Kenya’s Vision 2030 economic development agenda calls for a study for an SEZ at Dongo Kundu, and an SEZ was also under consideration at a location near the Olkaria geothermal power plant.

Performance and Data Localization Requirements

The GOK mandates local employment in the category of unskilled labor.  The Kenyan government regularly issues permits for key senior managers and personnel with special skills not available locally.  For other skilled labor, any enterprise whether local or foreign may recruit from outside if the skills are not available in Kenya.  Firms seeking to hire expatriates must demonstrate that the requisite skills are not available locally through an exhaustive search. The Ministry of EAC and Northern Corridor, however, has noted plans to replace this requirement with an official inventory of skills that are not available in Kenya.  A work permit can cost up to KSH 400,000 (approximately USD 4,000).

The Public Procurement and Asset Disposal Act (2015) offers preferences to firms owned by Kenyan citizens and to products manufactured or mined in Kenya.  Tenders funded entirely by the government with a value of less than KSH 50 million (approximately USD 500,000), are reserved for Kenyan firms and goods. If the procuring entity seeks to contract with non-Kenyan firms or procure foreign goods, the act requires a report detailing evidence of an inability to procure locally.  The act also calls for at least 30 percent of government procurement contracts to go to firms owned by women, youth, and persons with disabilities. The act further reserves 20 percent of county procurement tenders to residents of that county.

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

The GOK does not currently have any laws requiring data localization, though the draft Data Protection Bill (2018) would impose restrictions on the transfer of data in and out of Kenya, functionally requiring data localization.  The draft bill is similar to the European General Data Protection Regulation requirements on data processing. The GOK’s 2016 draft ICT Policy stated a preference for legislated data localization, but was never implemented.

Capital Markets and Portfolio Investment

Though relatively small by Western standards, Kenya’s capital markets are the deepest and most sophisticated in East Africa.  The Kenyan capital market has grown rapidly in recent years and has also exhibited strong capital raising capacity. The bond market is underdeveloped and dominated by trading in government debt securities.  The government domestic debt market, however, is deep and liquid. Long-term corporate bond issuances are uncommon, leading to a lack of long-term investment capital.

Foreign investors can obtain credit on the local market; however, the number of available credit instruments is relatively small and the government’s interest rate cap since 2016 continues to constrain the availability of credit.  Legal, regulatory, and accounting systems are generally aligned with international norms. The Kenyan National Treasury has launched its mobile money platform government bond to retail investors locally. The name of the product is M-Akiba, through which local Kenyans are able to purchase bonds as small as USD 30 on their mobile phones.  The product was enthusiastically received and generated 400,000 new accounts in the first two weeks of its issuance. The GOK expects to issue USD 10 million over this platform in 2019 in an effort to deepen financial inclusion and financial literacy.

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

Money and Banking System

The Kenyan banking sector in 2018 included 47 commercial banks, one mortgage finance company, 14 microfinance banks, eight representative offices of foreign banks, 74 foreign exchange bureaus, 18 money remittance providers, and three credit reference bureaus.  Kenya also has 12 deposit-taking microfinance institutions. Of Kenya’s 47 banking institutions, 28 are locally owned and 13 are foreign owned. Major international banks operating in Kenya include Citibank, Barclays, Bank of India, Standard Bank (South Africa), and Standard Chartered.

In March, 2017, CBK lifted its moratorium on licensing new banks, issued in November 2015 following the collapse of Imperial Bank and Dubai Bank.  The CBK’s decision to restart licensing signaled a return of stability in the Kenyan banking sector. JPMorgan Chase has expressed interest in setting up a representative office in Nairobi and Qatari National Bank (QNB) is interested in arranging a Sukuk (sovereign bond) for Kenya. In 2018, Societé Generale (France) also set up a representative office in Nairobi.

In August 2016, President Kenyatta signed into law the Banking Act (2016), which caps the maximum interest rate banks can charge on loans at four percent above the CBK’s benchmark lending rate.  It further provides a floor for the deposit rate held in interest earning accounts to at least 70 percent of the CBK benchmark rate. The cap has hurt the GOK’s ability to raise funds in the local debt market.  The cap also has slowed the consumer and small and medium business credit market. The International Monetary Fund and other observers have warned that the restrictions will result in a continuing contraction in the availability of credit.  In March 2019, the Supreme Court found the interest rate cap to be unconstitutional, but suspended its ruling for 12 months to provide Parliament an opportunity to review the cap.

In the ongoing land registry digitization process, the Kenyan Government is working on a database, known as the single source of truth (SSOT), to eliminate fake title deeds in the Ministry of Lands.  The SSOT database development plan is premised on blockchain technology – distributed ledger technology – as the primary reference for all land transactions. The SSOT database would help the land transaction process to be efficient, open, and transparent.

The percentage of Kenya’s total population with access to financial services through conventional or mobile banking platforms is approximately 80 percent.  According to the World Bank, M-Pesa, Kenya’s largest mobile banking platform, processes more transactions within Kenya each year than Western Union does globally.  In September 2018, 30 million Kenyans were using mobile phone platforms to transfer money, according to the Communication Authority of Kenya. The 2017 National ICT Masterplan envisages the sector contributing at least 10 percent of GDP, up from 4.7 percent in 2015.  Several mobile money platform have achieved international interoperability, allowing the Kenyan diaspora to conduct financial transactions in Kenya from abroad.

Foreign Exchange and Remittances

Foreign Exchange Policies

Kenya has no restrictions on converting or transferring funds associated with investment.  Kenyan law requires the declaration to customs of amounts greater than KSH 1,000,000 (approximately USD 10,000) or the equivalent in foreign currencies for non-residents as a formal check against money laundering.  Kenya is an open economy with a liberalized capital account and a floating exchange rate. The CBK engages in volatility controls aimed exclusively at smoothing temporary market fluctuations. Between June 2015 and June 2016, the Kenyan shilling declined 3.5 percent after a sharp decline of 15 percent during the same period in 2014/2015.  In 2018, foreign exchange reserves remained relatively steady. The average inflation rate was between 3.7-5.7 percent in 2018 and the average rate on 91-day treasury bills had fallen to 7.75 percent in 2018. According to CBK figures, the average exchange rate was KSH 101.3to USD 1.00 in 2018.

Remittance Policies

Kenya’s Foreign Investment Protection Act (FIPA) guarantees capital repatriation and remittance of dividends and interest to foreign investors, who are free to convert and repatriate profits including un-capitalized retained profits (proceeds of an investment after payment of the relevant taxes and the principal and interest associated with any loan).

Foreign currency is readily available from commercial banks and foreign exchange bureaus and can be freely bought and sold by local and foreign investors.  The Central Bank of Kenya Act (2014), however, states that all foreign exchange dealers are required to obtain and retain appropriate documents for all transactions above the equivalent of KSH 1,000,000 (approximately USD 10,000).  As of March 2018, the CBK has licensed 18 money remittance providers following the operationalization of the Money Remittance Regulations in April 2013.

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

Sovereign Wealth Funds

Kenya is in the process of establishing a sovereign wealth fund under the Kenya National Sovereign Wealth Fund Bill (2014).  The fund would receive income from any future privatization proceeds, dividends from state corporations, oil and gas, and minerals revenues due to the national government, revenue from other natural resources, and funds from any other source.  The bill remains under internal review and stakeholder consultations.

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

In 2013, the Presidential Task Force on Parastatal Reforms (PTFPR) published a list of all state-owned enterprises (SOEs) and recommended proposals to reduce the number of State Corporations from 262 to 187 to eliminate redundant functions between parastatals; close or dispose of non-performing organizations; consolidate functions wherever possible; and reduce the workforce — however, progress is slow.  The taskforce’s report can be found at http://www.cofek.co.ke/Report percent20of percent20The percent20Presidential percent20Task percent20force percent20on percent20Parastatal percent20Reforms.pdf .  In general, competitive equality is the standard applied to private enterprises in competition with public enterprises.  Certain parastatals, however, have enjoyed preferential access to markets. Examples include Kenya Reinsurance, which enjoys a guaranteed market share; Kenya Seed Company, which has fewer marketing barriers than its foreign competitors; and the National Oil Corporation of Kenya (NOCK), which benefits from retail market outlets developed with government funds.  Some state corporations have also benefited from easier access to government guarantees, subsidies, or credit at favorable interest rates. In addition, “partial listings” on the Nairobi Securities Exchange offer parastatals the benefit of financing through equity and GOK loans (or guarantees) without being completely privatized.

SOE procurement from the private sector is guided by the Public Procurement (Preference and Reservations) (Amendment) Regulations (2013).  The amendment reserves 30 percent government supply contracts for youth, women, and small and medium enterprises. Kenya is neither party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) nor an Observer Government.

Privatization Program

Kenya is not currently pursuing privatization.

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

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

Many businesses deem corruption to be pervasive and entrenched in Kenya.  Transparency International’s (TI) 2018 Global Corruption Perception Index ranks Kenya 144 out of 180 countries, one place lower than in 2017 and Kenya’s score of 27 remains below the sub-Saharan Africa average of 32.  Historical lack of political will, little progress in prosecuting past corruption cases, and the slow pace of reform in key sectors were reasons cited for Kenya’s chronic low ranking. Corruption has been reported to be an impediment to FDI, with local media reporting allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts.  There are many reports that corruption often influences the outcomes of government tenders, and U.S. firms have had limited success bidding on public procurements. In 2018, President Kenyatta began a public campaign against corruption and Kenya’s anticorruption agencies now appear to be coordinating more effectively, including bringing cases against senior officials in an effort to secure high-level convictions.

Kenyan law provides for criminal penalties for official corruption, but no high-level officials were successfully prosecuted and convicted for corruption in 2018.  Relevant legislation and regulations include the Anti-Corruption and Economic Crimes Act (2003), the Public Officers Ethics Act (2003), the Code of Ethics Act for Public Servants (2004), the Public Procurement and Disposal Act (2010), the Leadership and Integrity Act (2012), and the Bribery Act (2016).  The Access to Information Act (2016) also provides mechanisms through which private citizens can obtain information on government activities; implementation of this act is ongoing. The Ethics and Anti-Corruption Commission (EACC) monitors and enforces compliance with the above legislation.

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

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

On August 31, 2016, the president signed into law the Access to Information Act (2016).  The law allows citizens to request government information and requires government entities and private entities doing business with the government proactively to disclose certain information, such as government contracts.  The act also provides a mechanism to request a review of the government’s failure to disclose requested information, along with penalties for failures to disclose. The act exempts certain information from disclosure on grounds of national security.

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

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

Resources to Report Corruption

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

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

Report corruption online: http://www.eacc.go.ke/default.asp?pageid=62 

Contact at “watchdog” organization:

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

Report corruption online: https://www.tikenya.org/ 

Political tensions over the protracted and contentious 2017 election cycle spilled well into 2018.  In March 2018, however, President Kenyatta and opposition National Super Alliance (NASA) leader Raila Odinga publicly shook hands and pledged to work together to heal the political, social, and economic divides revealed by the election.  The 2017 electoral period had been marred by violence that claimed the lives of nearly 100 Kenyans, a contentious political atmosphere pitting the ruling Jubilee Party against NASA, and political interference and attacks by both sides on key institutions.  In November 2017, the Kenyan Supreme Court unanimously upheld the October 2017 repeat presidential election results and President Uhuru Kenyatta’s win in an election boycotted by NASA leader Odinga. The court’s ruling brought a close to Kenya’s protracted 2017 election cycle, a period that included the Supreme Court’s historic September 2017 annulment of the August 2017 presidential election and the unprecedented repeat election.

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

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

Kenya has one of the highest literacy rates in the region at 90 percent.  Investors have access to a large pool of highly-qualified professionals in diverse sectors from a working population of over 47.5 percent out of a population of 45 million people.  Expatriates are allowed to work in Kenya provided they have a work (entry) permit issued under the Kenya Citizenship and Immigration Act. Any enterprise, whether local or foreign, may recruit expatriates for any category of skilled labor if Kenyans are not available.  Work permits are usually granted to foreign enterprises approved to operate in Kenya as long as the applicants are key personnel. In 2015, the Directorate of Immigration Services made additions to the list of requirements for work permits and special pass applications.  Issuance of a work permit now requires an assured income of at least USD 24,000 annually. Exemptions are available, however, for firms in agriculture, mining, manufacturing, or consulting sectors with a special permit. International companies have complained that the visa and work permit approval process is slow and bribes are sometimes solicited to speed the process.  A tightening of work permit issuances and enforcement begun in 2018 is now one of the largest complaints of multinational companies doing business in Kenya.

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

While the Kenya National Bureau of Statistics (KNBS) reports formal unemployment of 7.4 percent, KNBS statistics exclude Kenya’s huge “inactive” worker population, currently estimated at 23 percent (5.6 million) of Kenya’s total working-age population of 25 million; including this group raises total unemployment to about 30 percent.  Employment in Kenya’s formal sector was 2.7 million in 2016, an increase of 3.3 percent from 2015. Average wages for the formal sector are KSH 642,731 (approximately USD 6,240) annually. The government is the largest employer in the formal sector, with an estimated 737,100 government workers in 2016. Agriculture, forestry, and fishing employ 337,000 workers, and manufacturing employs 301,000 workers.  Kenya’s large informal sector, however, makes accurate labor reporting difficult.

In 2017, the GOK launched a website linking job seekers to employment and internship opportunities across the country (http://www.mygov.go.ke/category/jobs/  ). The Kenya Labour Market Information System (KLMIS) portal (https://www.labourmarket.go.ke/) run by the Ministry of Labour and Social Protection in collaboration with the labor stakeholders, is a one-stop shop for labor information in the country.  The site seeks to help address the challenge of inadequate supply of crucial employment statistics in Kenya by providing an interactive platform for prospective employers and job seekers.

There are no known material compliance gaps in either law or practice with international labor standards that would be expected to pose a reputational risk to investors.  The International Labor Organization has not identified any material gaps in Kenya’s labor law or practice with international labor standards. Kenya’s labor laws comply, for the most part, with internationally recognized standards and conventions, and the Ministry of Labor and Social Protection is currently reviewing and ensuring that Kenya’s labor laws are consistent with the 2010 constitution.  The Labor Relations Act (2007) provides that workers, including those in export processing zones, are free to form and join unions of their choice.

Collective bargaining is common in the formal sector but there is no data on the percentage of the economy covered by collective bargaining agreements.  The law permits workers in collective bargaining disputes to strike, but requires the exhaustion of formal conciliation procedures and seven days’ notice to both the government and the employer.  Anti-union discrimination is prohibited, and the government does not have a history of retaliating against striking workers. The law provides for equal pay for equal work. Regulation of wages is part of the Labor Institutions Act (2014), and the government has established basic minimum wages by occupation and location.

The GOK has a growing trade relationship with the United States under the AGOA framework which requires labor standards to be upheld.  In 2018, the government continued to implement a range of programs for the elimination of child labor with dozens of partner agencies, and has actively pursued the elimination of forced labor.  However, low salaries and the lack of vehicles, fuel, and other resources make it very difficult for labor inspectors to do their work. Employers in all sectors routinely bribe labor inspectors to prevent them from reporting infractions, especially in the area of child labor.

In 2016, the U.S. Overseas Private Investment Corporation (OPIC) established a regional office in Nairobi, but the office is not currently staffed.  The agency is engaged in funding programs in Kenya with an active in-country portfolio of approximately USD 700 million, including projects in power generation, internet infrastructure, light manufacturing, and education infrastructure.  OPIC currently has an active pipeline of new projects including transactions in the energy, education, and financial service sectors. On October 2018, President Trump signed the Better Utilization of Investments Leading to Development Act (BUILD), which will consolidate the Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority (DCA) and increase OPIC’s overall portfolio from USD 29 Billion to USD 60 Billion.

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

Table 3: Sources and Destination of FDI

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

Table 4: Sources of Portfolio Investment

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

Policies Towards Foreign Direct Investment

Over the past decade, the GOR has undertaken a series of policy reforms intended to improve the investment climate, wean Rwanda’s economy off foreign assistance, and increase FDI levels.  Rwanda enjoys strong economic growth, averaging over 7 percent annually over the last decade, high rankings in the World Bank’s Doing Business report (29 out of 190 economies in 2019 (and second best in Africa) compared to 41 in 2018), and a reputation for low corruption.  The Rwandan economy grew more than 8 percent in 2018 as higher global prices for traditional exports, improved agricultural output, growth in transport and tourism, and a rebound in construction activities helped the country to recover from drought and a cyclical downturn in 2016.  The Rwandan economy will continue to be susceptible to the whims of climatic conditions and fluctuation in global commodity prices for coffee, tea, and minerals.  

Potential and current investors cite a number of hurdles and constraints to doing business in Rwanda, including its landlocked geography and resulting high freight transport costs; a small domestic market; limited access to affordable financing; payment delays with government contracts; and frequently inconsistent application of tax, investment, and immigration rules.  In order to support export growth, the GOR subsidizes transportation costs for agricultural products. Given Rwanda’s landlocked geopolitical situation, the country must rely on strong levels of economic diplomacy with countries that offer access to ports. Any serious breakdown in political relationships with Kenya, Tanzania, or Uganda, could impinge investors’ ability to obtain the necessary inputs required for sustained levels of commerce in Rwanda. 

RDB was established in 2006 to fast track investment projects by integrating all government agencies responsible for the entire investor experience under one roof.  This includes key agencies responsible for business registration, investment promotion, environmental compliance clearances, export promotion and other necessary approvals.  New investors can register online at the RDB’s website and receive a certificate in as fast as six hours, and the agency’s “one-stop shop” helps investors secure required approvals, certificates, and work permits.  RDB took steps to enhance investor after-care in 2017, launching a weekly Investor Open House and quarterly investor dialogues, events where RDB senior management officials meet and engage with business leaders. RDB states its investment priorities are innovation and technology, particularly ICT and green innovation; tourism and real estate; agriculture and food security; energy and infrastructure; and mining.  

In 2018, the GOR implemented improvements designed to stimulate investments.  Examples of these reforms include reducing the time required to obtain construction permits and to clear exports through customs by exporters and enabling a more timely provision of electricity.  The GOR also introduced several online certification processes, including for certificate of origin and phytosanitary approvals. RRA started issuing electronic certificates of origin free of charge.  The National Agricultural Export Board issues certificates of origin for tea and coffee free of charge. Rwanda Energy Group (REG) reports that reforms, including a new online application process, have reduced the time for new connections to the electricity grid from an average of 34 days to 20.  REG claims that newly introduced automation systems will enable it to better monitor frequency and duration of outages, improving grid stability and uptime. According to RDB, certain construction projects will no longer require geotechnical studies. RDB also says that construction permit applications will no longer require a commencement date.  

Investors broadly express satisfaction with RDB’s investment facilitation efforts.  However, some foreign investors complain that implementation can be less smooth due to delays in government payments for services or goods delivered.  Other investors complain that they perceived there were GOR efforts to change contracts or memoranda of understanding after such items were negotiated.  Others have faced surprising tax assessments with little notice. Some investors have faced difficulty in obtaining or renewing work visas, perhaps a result of the GOR’s demonstrated preference for hiring local or East African Community (EAC) residents over other expatriates.  Rwanda’s Directorate General of Immigration and Emigration does not always honor the employment and immigration commitments of investment certificates and deals, according to some investors.  

A number of investors have said a top concern affecting their operations in Rwanda is that tax incentives included in deals signed by the RDB are not fully honored by the RRA.  Investors further cite the inconsistent application of tax incentives and import duties as a significant challenge to doing business in Rwanda. For example, a few investors have said that local customs officials have attempted to charge them duties based on their perception of the value of an import, regardless of the actual purchase price.  Under Rwandan law, foreign firms should receive equal treatment with regard to taxes, as well as access to licenses, approvals, and procurement. Foreign firms should receive VAT tax rebates within 15 days of receipt by the RRA, but firms complain that the process for reimbursement can take months, and occasionally years. RRA introduced new software in 2018 that should allow these refunds to be processed and delivered in a more timely manner.  VAT refunds may also be held up pending the results of RRA audits. RRA aggressively enforces tax requirements and imposes punitive fines for errors – deliberate or not – in tax payments, according to some investors.

Based on Article 15 of Law nº 76/2013 of 11/09/2013, the Office of the Ombudsman has the authority to request that the Supreme Court reconsider and review judgments rendered at the last instance by ordinary, commercial, and military courts, if there is any persistence of injustice.  More information on the review process can be found at https://ombudsman.gov.rw/en/?Court-Judgement-Review-Unit-1375  .  

Limits on Foreign Control and Right to Private Ownership and Establishment

Rwanda has neither statutory limits on foreign ownership or control nor any official economic or industrial strategy that discriminates against foreign investors.  Local and foreign investors have the right to own and establish business enterprises in all forms of remunerative activity.  The Rwandan constitution stipulates that every person has the right to private property, whether personal or in association with others.  The government cannot violate the right to private ownership except in the public interest, and only then after following procedures that are determined by law and subject to fair compensation. 

The law also allows private entities to acquire and dispose of interests in business enterprises.  Foreign nationals may hold shares in locally incorporated companies. The GOR has continued to privatize state holdings, although the government, ruling party, and military continue to play a dominant role in Rwanda’s private sector.  Foreign investors can acquire real estate but with a general limit on land ownership.  While local investors can acquire land through leasehold agreements that extend to a maximum of 99 years, foreign investors are usually restricted to leases up to 49 years with the possibility of renewal.  The government published a new Investment Code in 2015 aimed at providing tax breaks and other incentives to boost FDI.  The Investment Code includes equal treatment for foreigners and nationals with regard to certain operations, free transfer of funds, and compensation against expropriation. 

Other Investment Policy Reviews

In February 2019, The World Trade Organization (WTO) published a Trade Policy Review for the EAC covering Burundi, Kenya, Rwanda, Tanzania and Uganda.  The report is available at: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol= percent20wt/tpr/s/*) percent20and percent20(( percent20@Title= percent20rwanda percent20) percent20or percent20(@CountryConcerned= percent20rwanda))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#   

The Rwanda annex to the report is available at:  https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?Id=251521&filename=q/WT/TPR/S384-04.pdf  

Business Facilitation

The RDB offers one of the fastest business registration processes in Africa.  New investors can register online at the RDB’s website (http://org.rdb.rw/busregonline  ) or register in person at the RDB in Kigali.  Once a certificate of registration is generated, company tax identification and employer social security contribution numbers are also generated automatically.  The RDB “One Stop Center” assists firms in acquiring visas and work permits, connections to electricity and water, and support in conducting required environmental impact assessments.  

In 2018, RRA distributed a new electronic billing software and electronic billing machines that should improve efficiency and introduce additional flexibilities for customer-facing businesses.  This should also support all customers by allowing vendors to issue official VAT invoices from any computer with the new software. The system submits VAT refund claims directly through the RRA E-Tax Portal, which should reduce the time required to process VAT refunds. To reduce the number of cases subjected to audit, RRA is implementing an automated audit case selection process using a risk-based approach to select taxpayers subjected to audit based on compliance history.  The official announcement of these changes is available at: https://www.rra.gov.rw/index.php?id=286&tx_news_pi1 percent5Bnews percent5D=166&tx_news_pi1 percent5Bcontroller percent5D=News&tx_news_pi1 percent5Baction percent5D=detail&cHash=dfd263b497338982e0a9ebff74d52fdb  

The RDB is prioritizing additional reforms to improve the investment climate.  By 2020, it hopes to amend the land policy to merge issuance of free hold titles and occupancy permits; introduce online notarization of property transfers; implement small claims procedure to allow self-representation in court and reduce attorney costs; launch electronic auctioning to reduce time to enforce judgments, reducing court fees and allowing payments electronically; and establish a commercial division at the Court of Appeal to fast-track commercial dispute resolution. 

Rwanda promotes women and gender equality and has pioneered a number of projects to promote women entrepreneurs, including the creation of the Chamber of Women Entrepreneurs within the Rwanda Private Sector Federation (PSF).  Both men and women have equal access to investment facilitation and protections.     

Outward Investment

The government does not have a formal program to provide incentives for domestic firms seeking to invest abroad, but there are no restrictions in place limiting such investment.

Transparency of the Regulatory System

The GOR generally employs transparent policies and effective laws largely consistent with international norms.  Rwanda is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures.  The Rwanda eRegulations system is an online database designed to bring transparency to investment procedures in Rwanda.  Investors can find further information on administrative procedures at:  https://businessprocedures.rdb.rw/.  Rwandan laws and regulations are published in the Government Gazette and/or online at http://primature.gov.rw/index.php?id=97  .  Government institutions generally have clear rules and procedures, but implementation can sometimes be uneven.  Investors have cited examples of receiving conflicting information from different officials in one or more government departments.  Investors have also cited breach of contracts and incentive promises, and the short time given to comply with changes in government policies, as hurdles to comply with regulations. 

For example, the GOR submitted a 2019 draft law to Parliament banning single use plastic containers.  Investors in the beverage and agro-processing sectors expressed concern that the law would have a serious impact on their operations, that alternative packaging was not available in some cases, and that the GOR did not consult effectively with stakeholders before submitting it.  The law would build on a ban on the manufacture and use of polyethylene bags introduced in 2008.

There is no formal mechanism to publish draft laws for public comment, although civil society sometimes has the opportunity to review them.  There is no informal regulatory process managed by nongovernmental organizations. Regulations are usually developed rapidly in an effort to achieve policy goals and sometimes lack a basis in scientific or data-driven assessments.  Scientific studies, or quantitative analysis (if any) conducted on the impact of regulations, are not generally made publicly available for comment. Regulators do not publicize comments they receive. Public finances and debt obligations are generally made available to the public in reasonable time but only after budget enactment.  Finances for SOEs are not publicly available but may be requested by civil society organizations with a legitimate reason.  

There is no government effort to restrict foreign participation in industry standards-setting consortia or organizations.  Legal, regulatory, and accounting systems are generally transparent and consistent with international norms, but are not always enforced.  The Rwanda Utility Regulation Agency (RURA), the Office of the Auditor General (OAG), the Anticorruption Division of the RRA, the Rwanda Standards Board (RSB), the National Tender Board, and the Rwanda Environment Management Authority also enforce regulations.  In recent years, the OAG’s annual reports to parliament have prompted criminal investigations of alleged misconduct and corruption. Consumer protection associations exist but are largely ineffective. The business community has been able to lobby the government and provide feedback on some draft government policies through the PSF, a business association with strong ties to the government.  In some cases, the PSF has welcomed foreign investors which organized other investors to positively affect government policies. However, some investors have criticized the PSF for advocating to businesses about government policies rather than advocating business concerns to the government.  

International Regulatory Considerations

Rwanda is a member of the EAC Standards Technical Management Committee.  Approved EAC measures are generally incorporated into the Rwandan regulatory system within six months and are published in the National Gazette like other domestic laws and regulations.  Rwanda is also a member of the standards technical committees for the International Standardization Organization, the African Organization for Standardization, and the International Electrotechnical Commission.  Rwanda is a member of the International Organization for Legal Metrology and the International Metrology Confederation.  RSB represents Rwanda at the African Electrotechnical Commission. Rwanda notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade. 

Legal System and Judicial Independence

The Rwandan legal system was originally based on the Belgian civil law system.  However, since the renovation of the legal framework in 2002, the introduction of a new constitution in 2003, and the country’s entrance to the Commonwealth in 2009, there is now a mixture of civil law and common law (hybrid system).  Rwanda’s courts address commercial disputes and facilitate enforcement of property and contract rights.  Rwanda’s judicial system suffers from a lack of resources and capacity, including well-functioning courts, with some cases allegedly backlogged up to five years.  Investors occasionally cite what they perceive as the government’s casual approach to contract sanctity and say the GOR sometimes fails to enforce court judgments in a timely fashion.  In August 2018, the GOR created a Court of Appeal in an attempt to expedite the appeal process without going to the Supreme Court and to reduce backlogs. The new Court of Appeal arbitrates cases handled by the High Court, Commercial High Court, and Military High Court.  The Supreme Court continues to decide on cases of injustice filed from the Ombudsman Office and on constitutional interpretation. 

A Tax Court is yet to be established in Rwanda.  The RDB announced the government’s intent to create a commercial division at the Court of Appeal to fast-track resolution on commercial disputes. 

Laws and Regulations on Foreign Direct Investment

National laws governing commercial establishments, investments, privatization and public investments, land, and environmental protection are the primary directives governing investments in Rwanda.  Since 2011, the government reformed tax payment processes and enacted additional laws on insolvency and arbitration. The 2015 Investment Code establishes policies on FDI, including dispute resolution (Article 9).  The RDB keeps investment-related regulations and procedures at: http://businessprocedures.rdb.rw  .

According to a WTO policy review report dated January 2019, Rwanda is not a party to any countertrade and offsetting arrangements, or agreements limiting exports to Rwanda. 

A new property tax law was passed in August 2018.  The new law removes the provision that taxpayers must have freehold land titles to pay property taxes.  Small and medium enterprises (SMEs) will receive a two-year tax trading license exemption upon establishment.  Under the new law, the income threshold reserved for maintenance and upkeep of rented property has increased from 30 percent to 50 percent, and interest rates on loans are subtracted in the calculation of the taxable value.  For residential houses (in excess of the first family home), owners pay 0.25 percent in the first year, 0.5 percent in the second year, 0.75 percent in third year, and graduate to 1 percent from the fourth year onwards.  Commercial buildings are taxed 0.2 percent of the property market value in the first year, 0.3 percent in the second year, 0.4 percent in the third year, and 0.5 percent from the fourth year onwards.  For industry, the rate is maintained at a flat rate of 0.1 percent of their market value to support the “Made in Rwanda” campaign to promote local manufacturing. 

In April 2018, the GOR passed a new law to streamline income tax administration and to clarify the law.  A number of items were added to the list of activities giving rise to taxable income. For example, the sale, lease, and free transfer of immovable assets allocated to the business now constitute taxable income.  All payments made by a resident of Rwanda on services performed abroad, other than those consumed abroad, constitute taxable income. New articles were added to address transfer pricing rules, preconditions to participate in public tenders, and taxation rules for liberal professionals and consultants.  The new law can be accessed here: http://www.primature.gov.rw/media-publication/publication/latest-offical-gazettes.html?no_cache=1&tx_drblob_pi1 percent5BdownloadUid percent5D=464  . 

Competition and Anti-Trust Laws

Since 2010, a Competition and Consumer Protection Unit was created at the Ministry of Trade and Industry (MINICOM) to address competition and consumer protection issues.  Rwanda has legislation in place to regulate competition. The government is setting up the Rwanda Inspectorate and Competition Authority (RICA), a new independent body with the mandate to promote fair competition among producers.  The body will reportedly aim to ensure consumer protection and enforcement of standards. RICA will serve as a regulatory body to enforce technical regulations and laws related to trade, while the RSB will continue to set quality standards for goods.  To read more on competition laws in Rwanda, please visit: http://www.minicom.gov.rw/index.php?id=136 . 

Market forces determine most prices in Rwanda, but in some cases, the GOR intervenes to fix prices for items considered sensitive in Rwanda.  RURA, in consultation with relevant ministries, sets prices for petroleum products, water, electricity, and public transport. MINICOM and the Ministry of Agriculture have fixed farm gate prices, or the market value of a cultivated product minus the selling costs, for agricultural products like coffee, maize, and Irish potatoes  from time to time. On international tenders, a 10 percent price preference is available for local bidders, including those from regional economic integration bodies in which Rwanda is a member.

Some U.S. companies have expressed frustration that while authorities require them to operate as a formal enterprise that meets all Rwandan regulatory requirements, some local competitors are informal businesses that do not operate in full compliance with all regulatory requirements.  Other investors have claimed unfair treatment compared to ruling party-aligned or politically connected business competitors in securing public incentives and contracts.

More information on specific types of agreements, decisions and practices considered to be anti-competitive, or abuse of dominant position, in Rwanda can be found here: https://rura.rw/fileadmin/Documents/docs/ml08.pdf 

Expropriation and Compensation

The 2015 Investment Code forbids the expropriation of investors’ property in the public interest unless the investor is fairly compensated.  A new expropriation law came into force in 2015, which included more explicit protections for property owners.  Though Rwandan law is clear that private property will be expropriated only in the public interest and after appropriate compensation following market rates, property owners have complained about the definition of “public interest,” valuation procedures, payment levels, and timing of payments.  A number of property owners have protested expropriation of their property by the City of Kigali and claimed that the compensation offered was below market value and not in accordance with the expropriation law. 

A 2017 study by Rwanda Civil Society Platform argues that the government conducts expropriations on short notice and does not provide sufficient time or support to help landowners fairly negotiate compensation.  The report includes a survey that found only 27 percent of respondents received information about planned expropriation well in advance of action.  While mechanisms exist to challenge the government’s offer, the report notes that landowners are required to pay all expenses for the second valuation, a prohibitive cost for rural farmers or the urban poor.  Media have reported that wealthier landowners have the ability to challenge valuations and have received higher amounts. 

Political exiles and other embattled opposition figures have been involved in taxation lawsuits and “abandoned properties” that led to the auctioning of properties, allegedly at below market values. 

Dispute Settlement

ICSID Convention and New York Convention

Rwanda is signatory to the International Center for Settlement of Investment Disputes (ICSID) and the African Trade Insurance Agency (ATI).  ICSID seeks to remove impediments to private investment posed by non-commercial risks, while ATI covers risk against restrictions on import and export activities, inconvertibility, expropriation, war, and civil disturbances. 

Rwanda ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2008. 

Investor-State Dispute Settlement

Rwanda is a member of the East African Court of Justice for the settlement of disputes arising from or pertaining to the EAC.  Rwanda has also acceded to the 1958 New York Arbitration Convention and the Multilateral Investment Guarantee Agency convention.  Under the U.S.-Rwanda BIT, U.S. investors have the right to bring investment disputes before neutral, international arbitration panels.  Disputes between U.S. investors and the GOR in recent years have been resolved through international arbitration, court judgments, or out of court settlements.  Judgments by foreign courts and contract clauses that abide by foreign law are accepted and enforced by local courts, though they lack capacity and experience to adjudicate cases governed by non-Rwandan law.  There have been a number of private investment disputes in Rwanda, though the government has yet to stand as complainant, respondent, or third party in a WTO dispute settlement. Rwanda has been a party to two cases at ICSID since Rwanda became a member in 1963; one of these cases is an ongoing case brought by an American investor against Rwanda.  SOEs are also subject to domestic and international disputes. In 2018, SOEs party to a suit both won and lost several judgments by the Supreme Court, while other cases were settled under arbitration. 

International Commercial Arbitration and Foreign Courts

In 2012, the GOR launched the Kigali International Arbitration Center (KIAC).  According to press reports, the KIAC has reviewed 100 cases worth USD 50 million in claims involving petitions of 18 different nationalities since 2012.  Some businesses report being pressured to use the Rwanda-based KIAC for the seat of arbitration in contracts signed with the GOR. Because KIAC has a short track record and the location of its domicile, these companies would prefer arbitration take place in a third country, and some have reported difficulty in securing international financing due a KIAC provision in their contracts. 

Bankruptcy Regulations

Rwanda ranks 58 out of 190 economies for resolving insolvency in the World Bank’s 2019 Doing Business Report.  It takes an average of two and a half years to conclude bankruptcy proceedings in Rwanda. The recovery rate for creditors on insolvent firms was reported at 19 cents on the dollar, with judgments typically made in local currency. 

The 2009 Insolvency Law clarified standards for beginning insolvency proceedings, preventing the separation of the debtor’s assets during reorganization proceedings, setting clear time limits for the submission of a reorganization plan, implementing an automatic stay of creditors’ enforcement actions, introducing provisions on voidable transactions and the approval of reorganization plans, and establishing additional safeguards for creditors in reorganization proceedings.

In April 2018, the GOR instituted a new Insolvency and Bankruptcy Law.  One major changes is the introduction of an article on “pooling of assets” allowing creditors to pursue parent companies and other members of the group, in case a subsidiary is in liquidation.  Article 121 states that “On application of the liquidator, creditor or shareholder, the court may order that: 

1) any company that is or has been a related company of the company in liquidation must pay to the liquidator the whole or part of any or all of the claims made in the liquidation; 2) where two or more related companies are in liquidation, the liquidations in respect of each company must proceed together, as if they were one company, to the extent the court so orders and subject to such terms and conditions as the court may impose.”  

The new law can be accessed here:  http://org.rdb.rw/wp-content/uploads/2018/06/Insolvency-Law-OGNoSpecialbisdu29April2018.pdf  

Investment Incentives

The 2015 Investment Code offers a package of benefits and incentives to both domestic and foreign investors under certain conditions, including:

For an international company with its headquarters or regional office in Rwanda, a preferential corporate income tax rate of 0 percent; 

• For any investor, a preferential corporate income tax rate of 15 percent;
• Corporate income tax holiday of up to seven years;
• Exemption of customs tax for products used in Export Processing Zones (EPZ);
• Exemption of capital gains tax;
• VAT refund;
• Accelerated depreciation; and
• Immigration incentives.

Further details on benefits under the Investment Code can be accessed here:  http://businessprocedures.rdb.rw/media/Investiment_promotion_law.pdf .  

Poorly coordinated efforts between the RDB, RRA, MINICOM, and the Directorate of Immigration and Emigration can lead to inconsistent application of incentives, according to investors.  Investors reported that tax incentives included in deals signed by the RDB are not honored by the RRA in all cases or sometimes not in a timely manner. Additionally, investors continue to face challenges receiving payment for services rendered for GOR projects, VAT refund delays, and/or expatriation of profits.  In 2016, the GOR instituted a law governing public-private partnership (PPPs) as a step toward courting investments in key development projects.  The law provides a legal framework concerning establishment, implementation, and management of PPPs. Detailed guidelines for the law can be accessed here:  http://rdb.rw/wp-content/uploads/2018/08/PPP-Guidelines.pdf   

Foreign Trade Zones/Free Ports/Trade Facilitation

Rwanda has established the KSEZ, which was set up through the merger of former Kigali Free Trade Zone and the Kigali Industrial Park projects.  SEZs in Rwanda are regulated by the SEZ Authority of Rwanda (SEZAR), based at the RDB.  Land in KSEZ is acquired through Prime Economic Zone Secretariat, a private developer, under the regulations of SEZAR.  The price per square meter is USD 62, and the minimum size that can be acquired is one hectare.  Bonded warehouse facilities are now available both in and outside of Kigali for use by businesses importing duty-free materials.  The GOR has established a number of benefits for investors operating in the SEZs, including tax and land ownership advantages. A company basing itself in the SEZ can also opt to be a part of the Economic Processing Zone.  A number of criteria must be satisfied in order to qualify, such as extensive records on equipment, materials and goods, suitable offices, security provisions, and a number of property constraints. Holding an EPZ license will exempt a company from VAT, import duties, and corporate tax.  The company is then obliged to export a minimum of 80 percent of production. Even after considering savings due to these government incentives, a few investors reported that land in the SEZs was significantly more expensive than land outside the zones. The GOR has stated that there are no fiscal, immigration, or customs incentives beyond those provided in the 2015 Investment Code, though media has occasionally speculated that certain investors received additional incentives.  The negative list of goods prohibited under the EAC Customs Management Act applies in SEZs. In November 2018, the GOR approved the Bugesera Special Economic Zone (BSEZ), located 45 minutes from Kigali. 

Procedural information and cost involved in operating in SEZs can be accessed here: https://businessprocedures.rdb.rw/procedure/238/189?l=en   

The SEZ policy was revised in 2018.  The new policy introduces performance incentives to include indicators such as exports, full time jobs, local supply contracts, and domestic market recapture.  Under the new policy, foreigners and locals may only lease land (formerly, foreign investors were able to purchase land outright in SEZ). To read more on the new policy, please see:  http://www.minicom.gov.rw/fileadmin/minicom_publications/documents/SEZ_Policy_-_January_2018_v2.pdf  

Rwanda created the Export Growth Facility (EGF) in 2015, with an initial capital of RWF 500 million, administered by the Development Bank of Rwanda (BRD).  German KfW Development Bank injected €8.5 million in support of the fund.  The pilot program targets SMEs with export sales below USD 1 million.  Priority sectors include horticulture, agro-processing, and manufacturing.  The facility has three windows: an investment catalyst fund, a matching grant fund for market entry costs, and an export guarantee facility.  Investment catalyst funds support private sector investments in export-orientated production through a 6.5 percent subsidy on market interest rates (normally between 16-20 percent).  The matching grant fund provides grants (50 percent of the need) for expenditure on specific market entry costs (export strategy elaboration, export promotion, compliance with standards, etc.).  The export guarantee fund provides short-term guarantees to commercial banks financing exporters’ pre- and post-shipment operations. The export guarantee component is not yet operational. The facility supports both locally and foreign-owned companies in Rwanda; at least one American company has already received a loan. 

Rwanda created the Business Development Fund (BDF) in 2011 to provide support to SMEs in credit guarantees, matching grants, asset leasing, and advisory services.  BDF works with banks to provide guarantees between 50-75 percent of required collaterals. The maximum guarantee is RWF 500 million for agriculture projects and RWF 300 million for other sectors, for a maturity period of up to 10 years. 

The GOR also manages the Rwanda Green Fund (FONERWA) to spur investment in green innovation.  The UK Aid Department for International Development, KFW, and other donors have invested in the fund.  FONERWA claims projects it supports have created more than 137,000 green jobs to date.

Performance and Data Localization Requirements

There is no legal obligation for nationals to own shares in foreign investments or requirement that shares of foreign equity be reduced over time.  However, the government strongly encourages local participation in foreign investments. 

There is no requirement for private companies to store their data in Rwanda.  Under the National Information and Telecommunication Infrastructure plan, Rwanda is pushing to become a regional ICT hub and has constructed a National Data Center.  The facility acts as the country’s central data storage facility and houses applications used by government institutions. There is no requirement for foreign IT providers to turn over source code and/or provide access to encryption technology.  IT companies dealing with government data cannot store it outside Rwanda or transfer it without GOR approval. 

Some investors have cited the GOR’s reluctance to support visas for expatriate staff as a significant limitation on doing business in Rwanda.  There is no formal requirement that a certain number of senior officials or board members be citizens of Rwanda. Under the 2015 Investment Code, the government allows registered those who invest a minimum of USD 250,000 to hire up to three expatriate employees, without the need to conduct a labor market test in Rwanda.  Investors who wish to hire more than three expatriate employees must conduct a labor market test, unless the available position is listed on Rwanda’s “Occupations in Demand” list. The Directorate General of Immigration and Emigration does not always honor the employment and immigration commitments of investment certificates and deals, according to a number of investors.  Investors should be aware that applicants from other EAC countries are given hiring preference over other expatriates.

While the government does not impose conditions on the transfer of technology, it does encourage foreign investors, without legal obligation, to transfer technology and expertise to local staff to help develop Rwanda’s human capital.  There is no legal requirement that investors must purchase from local sources or export a certain percentage of their output, though the government offers tax incentives for the latter. Unless stipulated in a contract or memorandum of understanding characterizing the purchase of privatized enterprises, performance requirements are not imposed as a condition for establishing, maintaining, or expanding other investments.  Such requirements are imposed chiefly as a condition to tax and investment incentives. The GOR is not involved in assessing the type and source of raw materials for performance, but the RSB determines quality standards for some product categories. 

Rwanda requires that all U.S. citizens possess a visa to enter Rwanda.  A 30-day tourist visa can be purchased for USD 30 upon arrival at Kigali International Airport or at a land border.  Accepted forms of payment include cash (Rwandan francs or U.S. dollars printed in 2006 or later) and credit cards (Visa or MasterCard).  Rwanda requires proof of yellow fever vaccination for travelers coming from a country where yellow fever is endemic or where there is an outbreak of yellow fever.  U.S. citizens planning to remain in Rwanda for more than 30 days must apply for a permit within 15 days of arrival. Departures after the visa ending date are fined on a daily basis.  The government generally processes visa applications for U.S. citizen investors in a timely manner. However, some investors have complained that the application process for work permits and extended stay visas (over 60 days) has become onerous.  Immigration authorities frequently request extra documentation detailing applicants’ qualifications and, at times, have taken several months to adjudicate work permit cases. Applicants for work permits may facilitate the process by ensuring that they travel with a) original police background checks, preferably notarized, b) educational documents on original letterhead, and c) a certified copy of diplomas if the original is not carried.

Capital Markets and Portfolio Investment

Rwanda’s capital markets are relatively immature and lack complexity.   Many U.S. investors express concern that local access to affordable credit is a serious challenge in Rwanda.  Interest rates are high for the region, banks offer predominantly short-term loans, collateral requirements can be higher than 100 percent of the value of the loan, and Rwandan commercial banks rarely issue significant loan values.  The prime interest rate is 16-18 percent. Large international transfers are subject to authorization. Investors who seek to borrow more than USD 1 million must often engage in multi-party loan transactions, usually leveraging support from larger regional banks.  Credit terms generally reflect market rates, and foreign investors are able to negotiate credit facilities from local lending institutions if they have collateral and “bankable” projects. In some cases, preferred financing options may be available through specialized funds including the Export Growth Fund, BRD, or FONERWA.

Only eight companies have publicly listed and traded equities in Rwanda.  Rwanda Capital Market Authority was established in 2017 to regulate the capital market, commodity exchange and related contracts, collective investment schemes, and warehouse receipts.  Most capital market transactions are domestic. While offers can attract some international interests, they are rare. Rwanda is one of a few sub-Saharan African countries to have issued sovereign bonds.  Four new local currency bonds for USD 61.8 million in total were issued in 2018, with an average annual yield of 12.1 percent. BNR has implemented reforms in recent years that are helping to create a secondary market for Rwandan treasury bonds.  In November 2018, the IMF completed its tenth review of Rwanda’s economic performance under the Policy Support Instrument, which can be found here: https://www.imf.org/en/Publications/CR/Issues/2018/11/30/Rwanda-Tenth-Review-Under-the-Policy-Support-Instrument-Press-Release-Staff-Report-and-46407

Money and Banking System

Rwanda’s financial sector remains highly concentrated.  Around 76 percent of all bank assets are held by five of the largest commercial banks (Bank of Kigali, BPR Atlas Mara, I&M Bank, COGEBANQUE, and Equity Bank).  The largest, partially state-owned Bank of Kigali (BoK), holds more than 30 percent of all assets. The banking sector holds around 65 percent of total financial sector assets in Rwanda.  Non-performing loans constitute 6.9 percent of all banking sector assets as of June 2018. Foreign banks are permitted to establish operations in Rwanda, with several Kenyan-based banks in the country.  Atlas Mara Limited acquired a majority equity stake in Banque Populaire du Rwanda (BPR) in 2016. BPR/Atlas Mara has the largest number of branch locations and is Rwanda’s second largest bank after BoK. In total, Rwanda’s banks have assets of USD 3 billion, according to the BNR, the country’s Central Bank.  The IMF gives the BNR high marks for its effective monetary policy. BNR introduced a new monetary policy framework in 2019, which shift its tools toward inflation-targeting monetary framework in place of a quantity-of-money framework.

The private sector has limited access to credit instruments.  Prospective account holders are expected to provide proof of residency.  Most Rwandan banks are conservative and risk-averse, trading in a limited range of commercial products, though additional products are becoming available as the industry matures and competition increases.  Rwanda has not lost any correspondent banking relationships in the past three years, and all banks are expected to conform to Basel prudential principles. Most financial services in Rwanda are VAT-exempt. 

BNR reported that commercial banks made a total net profit of USD 26 million in 2018, but their liquidity ratio was 49 percent (compared to BNR’s required minimum of 20 percent), suggesting reluctance toward making loans.  Local banks often generate significant revenue from holding government debt and from charging a variety of fees to banking customers. Credit cards are becoming more common in major cities, especially at locations frequented by foreigners, but are not used in rural areas.  Rwandans primarily rely on cash or mobile money to conduct transactions.  

In 2018, the capital adequacy ratio grew to 21.4 percent from 20.8 percent over the year, well above the minimum of 15 percent, suggesting the Rwanda banking sector continues to be generally risk averse. The number of debit cards in the country grew 8 percent year over year to 945,000 (only 18 percent of Rwandans have bank accounts), and the number of mobile banking customers grew 22 percent to 1,266,000. 

Foreign Exchange and Remittances

Foreign Exchange

In 1995, the government abandoned a dollar peg and established a floating exchange rate regime, under which all lending and deposit interest rates were liberalized.  BNR publishes an official exchange rate on a daily basis, which is typically within a 2 percent range of rates seen in the local market. Some investors report occasional difficulty in obtaining foreign exchange.  Rwanda generally runs a large trade deficit, estimated at 10 percent of GDP in 2018. The Rwandan franc depreciated against the U.S. dollar by 8.9 percent in the fiscal year ending June 2017, and 3.5 percent in the fiscal year ending June 2018, according to BNR.

Transacting locally in foreign currency is prohibited in Rwanda.  Regulations set a ceiling on the foreign currency that can leave the country per day.  In addition, regulations specify limits for sending money outside the country; BNR must approve any transaction that exceed these limits.  

Most local loans are in local currency.  In December 2018, BNR issued a new directive on lending in foreign currency which requires the borrow to have a turnover of at least RWF 50 million or equivalent in foreign currency, have a known income stream in foreign currency not below 150 percent of the total installment repayments, and the repayments must be in foreign currency.  The collateral pledged by non-resident borrowers must be valued at 150 percent of the value of the loan. In addition, BNR requires banks to report regularly on loans granted in foreign currency.  

Full guidance can be accessed here: https://www.bnr.rw/fileadmin/AllDepartment/FinancialStability/lawsandregulations/DIRECTIVE_No_09-2018.pdf  

Remittance Policies

Investors can remit payments from Rwanda only through authorized commercial banks.  There is no limit on the inflow of funds, although local banks are required to notify BNR of all transfers over USD 10,000 to mitigate the risk of potential money laundering.  A withholding tax of 15 percent to repatriate profits is considered high by a number of investors given that a 30 percent tax is already charged on profits, making the whole tax burden 45 percent.  Additionally, there are some restrictions on the outflow of export earnings. Companies generally must repatriate export earnings within three months after the goods cross the border. Tea exporters must deposit sales proceeds shortly after auction in Mombasa, Kenya.  Repatriated export earnings deposited in commercial banks must match the exact declaration the exporter used crossing the border. Rwandans working overseas can make remittances to their home country without impediment. It usually takes up to three days to transfer money using SWIFT financial services.  The concentrated nature of the Rwandan banking sector limits choice, and some U.S. investors have expressed frustration with the high fees charged for exchanging francs to dollars.

Sovereign Wealth Funds

In 2012, the Rwandan government launched the Agaciro Development Fund (ADF), a sovereign wealth fund that includes investments from Rwandan citizens and the international diaspora.  In November 2018, the fund was worth USD 58.8 million.  The ADF operates under the custodianship of BNR and reports quarterly and annually to the Ministry of Finance and Economic Planning, its supervisory authority.  ADF is a member of the International Forum of Sovereign Wealth Funds and is committed to the Santiago Principles.  ADF only operates in Rwanda.  In addition to returns on investments, citizens and private sector voluntary contributions, and other donations, ADF receives RWF 5 billion every year from tax revenues and 5 percent of proceeds from every public asset that is privatized.  The fund also gets 5 percent of royalties from minerals and other natural resources each year.  The government has transferred a number of its shares in private enterprises to the management of ADF including those in the BoK, Broadband Systems Corporation (BSC), Gasabo 3D Ltd, Africa Olleh Services (AoS), Korea Telecom Rwanda Networks (KTRN), and the Dubai World Nyungwe Lodge.  ADF invests mainly in Rwanda. While the fund can invest in foreign non-fixed income investments, such as publicly listed equity, private equity, and joint ventures, the AGDF Corporate Trust Ltd (the fund’s investment arm) held no financial assets and liabilities in foreign currency, according to the 2017 annual report.

Rwandan law allows private enterprises to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations.  Since 2006, the GOR has made efforts to privatize SOEs; reduce the government’s non-controlling shares in private enterprises; and attract FDI, especially in the ICT, tourism, banking, and agriculture sectors, but progress has been slow.  Current SOEs include water and electricity utilities, as well as companies in construction, ICT, aviation, mining, insurance, agriculture, finance, and other investments. The government continues to own significant and sometimes controlling interests of companies in mining, construction, banking, hotels, food production, and other sectors.  Some investors complain about competition from state-owned and ruling party-aligned businesses. SOEs and utilities appear in the national budget, but the financial performance of most SOEs is only detailed in an annex that is not publicly available. The most recent budget report of the OAG also covers SOEs and has sections criticizing the management of some of the organizations.  That public report can be found here: (http://oag.gov.rw/documents/reports-to-parliament/performance-audit-reports/  ).  SOEs are governed by boards with most members having other government positions.  Each public company is under a government line ministry. 

The GOR supports some public enterprises directly from the national budget through net lending estimated at about 2 percent of the GDP in 2018.  About 1 percent of GDP is a subsidy to RwandAir for its operational and capital expansion, and the rest of lending includes support to export promotion activities and debt-servicing costs for other public enterprises.

State-owned non-financial corporations include Ngali Holdings, Horizon Group Ltd, Rwanda Civil Aviation Authority, REG, Water and Sanitation Corporation, RwandAir, National Post Office, Rwanda Printery Company Ltd, King Faisal Hospital, Muhabura Multichoice Ltd, Prime Holdings, Rwanda Grain and Cereals Corporation, Kinazi Cassava Plant, and the Rwanda Inter-Link Transport Company.  State-owned financial corporations include the NBR, Development Bank of Rwanda, Special Guarantee Fund, Rwanda National Investment Trust Ltd, ADF, BDF and the Rwanda Social Security Board.

The GOR has interests in the BoK, Rwanda Convention Bureau, BSC, CIMERWA, Gasabo 3D Ltd, AoS, KTRN, Dubai World Nyungwe Lodge, and Akagera Management Company, among others.  

Ruling Party (Rwandan Patriotic Front) investment arm Crystal Ventures has subsidiaries such as Inyange Industries, NPD Ltd., Bourbon Coffee, ISCO Security, Ruliba Clays, Real Contractors, East African Granite Industries, Nexus, and Stone Craft. 

Privatization Program

Rwanda continues to carry out a privatization program that has attracted foreign investors in strategic areas ranging from telecommunications and banking to tea production and tourism.  Since the program started in 1995, 56 companies have been fully privatized, seven were liquidated, and 20 more were in the process of privatization by 2017 (latest data available).  The RDB’s Strategic Investment Department is responsible for implementing and monitoring the privatization program. 

Some observers have questioned the transparency of certain transactions, as a number of transactions were undertaken through mutual agreements directly between the government and the private investor, some of whom have personal relationships with senior government officials, rather than public offerings.  In February-March 2017, the government sold its 19.8 percent stake in I&M Bank to help finance its equity stake in the Bugesera Airport, currently under construction.  

In 2016, the OAG produced a report criticizing RDB’s management of the privatization program. The report can be accessed here: http://www.oag.gov.rw/fileadmin/user_upload/Performance_Reports/
STRATEGIC_MANAGEMENT_OF_PRIVATIZATION_ACTIVITIES.pdf 

There is a growing awareness of corporate social responsibility (CSR) within Rwanda, and several foreign-owned companies operating locally implement CSR programs.  Rwanda implements the OECD’s Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.  Rwanda also implements the International Tin Supply Chain Initiative tracing scheme.  In 2016, the Better Sourcing Program began an alternative mineral tracing scheme in Rwanda. Rwanda also has guidelines on corporate governance by publically listed companies. 

In recognition of the firm’s strong commitment to CSR, the U.S. Department of State awarded Sorwathe, a U.S.-owned tea producer in Kinihira, Rwanda, the Secretary of State’s 2012 Award for Corporate Excellence for Small and Medium Enterprises.  In 2015, U.S. firm Gigawatt Global was also a finalist for the Secretary of State’s Award for Corporate Excellence in the environmental sustainability category.

Rwanda is ranked among the least corrupt countries in Africa, with Transparency International’s 2018 Corruption Perception Index putting the country among Africa’s four least corrupt nations and 48th in the world.  The government maintains a high-profile anti-corruption effort, and senior leaders articulate a consistent message emphasizing that combating corruption is a key national goal. The government investigates corruption allegations and generally punishes those found guilty.  High-ranking officials accused of corruption often resign during the investigation period, and many have been prosecuted. Rwanda has ratified the UN Anticorruption Convention. It is a signatory to the OECD Convention on Combating Bribery. It is also a signatory to the African Union Anticorruption Convention.  Giving and accepting a bribe is a criminal act, and penalties depend on circumstances surrounding the specific case. U.S. firms have identified the perceived lack of government corruption in Rwanda as a key incentive for investing in the country. 

Some firms have reported occurrences of petty corruption in the customs clearing process, but there are few or no reports of corruption in transfers, dispute settlement, regulatory system, taxation, or investment performance requirements.  A local company cannot deduct a bribe to a foreign official from taxes. A bribe by a local company to a foreign official is a crime in Rwanda. The OAG has pursued many corruption cases in recent years, most of which involved misuse of public funds.  The Rwanda Governance Board monitored governance more broadly and promoted mechanisms to control corruption. The RRA’s Anticorruption Unit has a code of conduct and an active mechanism for internal discipline. The Office of the Ombudsman, the National Tender Board, RURA, and the NSB also enforced regulations regarding corruption. 

A new corruption law was passed in September 2018, extending definitions of corruption and embezzlement and removing the statute of limitations on such crimes.  It also removes criminal liability for a person who gives or receives an illegal benefit and informs the justice organs before the commencement of criminal investigation by providing information and evidence.

The new law can be accessed here: http://www.rlrc.gov.rw/fileadmin/user_upload/Laws2/ percent5BHOME percent5DMOST percent20RECENT percent20LAWS/New percent20law percent20fighting percent20against percent20Corruption percent20 percent282018 percent29.pdf  

There are no local industry or non-profit groups offering services for vetting potential local investment partners, but the Ministry of Justice keeps judgments online, making it a source of information on companies and individuals in Rwanda at www.judiciary.gov.rw/home/  .  The Rwanda National Public Prosecution Authority issues criminal records on demand to applicants at www.nppa.gov.rw  . 

Resources to Report Corruption

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

Mr. Anastase Murekezi
Chief Ombudsman
Ombudsman (Umuvunyi)
P.O Box 6269, Kigali, Rwanda
Telephone: +250 252587308
omb1@ombudsman.gov.rw / sec.permanent@ombudsman.gov.rw

Mr. Felicien Mwumvaneza
Commissioner for Quality Assurance Department (Anti-Corruption Unit)
Rwanda Revenue Authority
Avenue du Lac Muhazi, P.O. Box 3987, Kigali, Rwanda
Telephone: +250 252595504 or +250 788309563
felicien.mwumvaneza@rra.gov.rw / commissioner.quality@rra.gov.rw 

Mr. Obadiah Biraro
Auditor General
Office of the Auditor General
Avenue du Lac Muhazi, P.O. Box 1020, Kigali, Rwanda
Telephone: +250 78818980
oag@oag.gov.rw

Contact at “watchdog” organization

Mr. Apollinaire Mupiganyi
Executive Director
Transparency International Rwanda
P.O: Box 6252 Kigali, Rwanda
Telephone: +250 788309563
amupiganyi@transparencyrwanda.org / mupiganyi@yahoo.fr

Rwanda is a stable country with relatively little violence.  According to a 2017 report by the World Economic Forum, Rwanda is the ninth safest country in the world.  Investors have cited the conducive political and security environment as an important driver of investments.  A strong police and military provide a security umbrella that minimizes potential criminal activity. 

The U.S. Department of State recommends that U.S. citizens exercise caution when traveling near the Rwanda-Democratic Republic of the Congo (DRC) border, given the possibility of fighting and cross-border attacks involving the Democratic Forces for the Liberation of Rwanda (FDLR) and other armed groups in the region. The FDLR includes former soldiers and supporters of the regime that orchestrated the 1994 Genocide against the Tutsi.  Relations between Burundi and Rwanda are tense. There is a risk of cross-border incursions and armed clashes, and accusations in both directions contend that the countries harbor their neighbor’s rebel forces.  In 2018, there were a few incidents of sporadic fighting in Nyaruguru district and Nyungwe National Park. 

Grenade attacks aimed at the local populace occurred on a recurring basis between 2008 and 2014 in Rwanda.  There have been several cross-border attacks in Western Rwanda on Rwandan police and military posts reportedly since 2016.  Despite occasional violence along the Rwanda-DRC border and the ongoing political crisis in neighboring Burundi, there have been no incidents involving politically motivated damage to investment projects or installations since the late 1990s.  Relations with Uganda are also increasingly tense, but leaders continue to emphasize they are seeking a political solution.

Please see the following link for State Department Country Specific Information: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Rwanda.html 

General labor is available, but Rwanda suffers from a shortage of skilled labor, including accountants, lawyers, engineers, tradespeople, and technicians.  Higher institutes of technology, private universities, and vocational institutes are improving and producing more and better-trained graduates each year. In 2017 and 2018, the Ministry of Education (MINEDUC) closed several colleges due to sub-standard practice allegations.  The Rwanda Workforce Development Authority sponsors programs to support both short and long-term professional trainings targeting key industries in Rwanda. Carnegie Mellon University opened a campus in Kigali in 2012–its first in sub-Saharan Africa–and currently offers a Master of Science in Electrical and Computer Engineering  and Master of Science in Information Technology.  In 2013, the nonprofit university program, Kepler, was established for students to work toward a U.S.-accredited degree through online learning and in-person seminars.  Oklahoma Christian University offers an online Master of Business Administration program with on-site support in Kigali. In 2012, the government extended basic compulsory education from nine to 12 years.  In 2009, the government designated English, rather than French, as the language of instruction for students from grade four onwards. 

Investors are strongly encouraged to hire Rwandan nationals whenever possible.  According to the Investment Code, a registered investor who invests an equivalent of at least USD 250,000 may recruit three foreign employees.  However, a number of foreign investors reported difficulties importing qualified staff in accordance with the Investment Code due to Rwandan immigration rules and practices.  In some cases, these problems occurred even though investors had signed agreements with the government regarding the number of foreign employees.  

Companies find skill deficits in many sectors when hiring.  The Rwandan education system continues to struggle with a shortage of resources and capacity, including due to a shortage of teachers qualified to teach in English after the 2009 transition away from French.  A study of dropout and repetition rates conducted in collaboration with MINEDUC and UNICEF published in 2016 found that only 38 percent of those enrolled complete primary education and even a smaller percentage successfully complete secondary education (16 percent complete lower secondary and 10 percent higher secondary level).  The official 2018 literacy rate for individuals aged 15 and above is 69.5 percent for women and 77.6 percent for men, according to the GOR. Functional literacy rates are lower according to independent evaluations, particularly in rural areas.  

Rwanda has ratified all of the International Labor Organization’s eight core conventions.  Policies to protect workers in special labor conditions exist, but enforcement remains inconsistent.  The government encourages, but does not require, on-the-job training and technology transfer to local employees.  The law restricts voluntary collective bargaining by requiring prior authorization or approval by authorities and requiring binding arbitration in cases of non-conciliation.  The law provides some workers the right to conduct strikes, subject to numerous restrictions, but strikes are very rare.  There is no unemployment insurance or other social safety net programs for workers laid off for economic reasons.  The legal framework for employment rights for disabled persons is not as strong as in the United States, but the government and some employers are making efforts to offer reasonable accommodations. 

In 2000, the government revised the national labor code to eliminate gender discrimination, restrictions on the mobility of labor, and wage controls.  NISR’s 2016/2017 Fifth Integrated Household Living Conditions Survey, released in December 2018, found that approximately 10.4 percent of children in Rwanda ages 6-17 are engaged in economic activities, particularly in agriculture and in domestic service.  Tea has been included on the U.S. government’s List of Goods Produced by Child Labor or Forced Labor since 2010, with an estimated 13,000 children involved in the sector, primarily on small, family-owned farms that sell harvests to larger cooperatives. The U.S. Department of State have no evidence that children are employed by either tea producers or tea cooperatives in Rwanda.  The U.S. Department of Labor-financed “REACH-T” project successfully removed approximately 5,000 children engaged in, or at risk of, child labor in the country’s 12 tea-producing districts between 2013 and 2017. Private firms are responsible for their local employees’ income tax payments and Rwanda Social Security Board pension contributions. For full-time workers, these payments amount to more than 30 percent of take-home pay, which can be a disadvantage if competing firms are in the informal economy and not compliant with these requirements. 

Labor laws are not waived in order to attract or retain investment.  There are no labor law provisions in SEZs or industrial parks, which differ from national labor laws.  Collective bargaining is not common in Rwanda. Few professional associations fix minimum salaries for their members and some investors have expressed concern that labor law enforcement is uneven or opaque.

In 2018, a new labor law was passed.  The law states the Ministry of Labor may establish a minimum wage by ministerial order but does not specify an amount.  Among changes in the new law, an employer can now suspend an employee in writing for a period not exceeding 30 days without pay, but the salary will be repaid if the employee proves innocence after the administrative investigation.  The minimum working age remains 16, with an exception for 13-15 year olds to perform light work only in the context of an apprenticeship. Damages paid for an employee victim of unfair dismissal cannot go below three months of salary nor exceed six months of salary.  For employees with more than ten years of experience with the same employer, damages cannot exceed nine months of net salary. The new law imposes a requirement that both parties consent to any amendment to an employment contract, if the amendment results in changes in salary or other benefits.  The probation period has been reduced from six months to three. An employee dismissed for economic or technical reasons and whose dismissal does not last more than six months is entitled to be reinstated without competition when he or she meets the profile required for the position to which the employer seeks to fill. 

More information on major changes can be at the Rwanda Law Reform Commission website here: http://www.rlrc.gov.rw/index.php?id=82&tx_news_pi1 percent5Bnews percent5D=61&tx_news_pi1 percent5Bcontroller percent5D=News&tx_news_pi1 percent5Baction percent5D=detail&cHash=b69f6019dcb0ff868f7ef72b5b034de1  

Full the new labor law, see: https://www.mifotra.gov.rw/fileadmin/news_import/New_Labour_Law_2018.pdf  

The Overseas Private Investment Corporation (OPIC) has provided financing and political risk insurance to more than a dozen U.S. projects in Rwanda since 1975.  OPIC officials have expressed interest in expanding the corporation’s portfolio in Rwanda and are currently evaluating potential projects. The Export-Import Bank continues its program to insure short-term export credit transactions involving various payment terms, including open accounts that cover the exports of consumer goods, services, commodities, and certain capital goods.  The 1965 U.S.-Rwanda Investment Incentive Agreement remains in force; Rwanda and the United States are discussing potential updates to this agreement. 

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

Table 3: Sources and Destination of FDI

Inward Direct Investment according to IMF’s Coordinated Direct Investment Survey (http://data.imf.org/CDIS  ).  Data on Rwandan outward FDI is not available.

Table 4: Sources of Portfolio Investment

Data not available; data on Rwanda equity security holdings by nationality is not available.  According to a 2017 BNR report, portfolio investment remains the lowest component of foreign investment in Rwanda mainly due to the low level of financial market development.  Portfolio investment stock increased to USD 100.5 million in 2016, a 3 percent increase from 2015 levels. In 2016, Rwanda recorded foreign portfolio inflows of USD 3 million compared to USD 2.5 million in 2015.  There is no more recent data available for portfolio investment.

Policies Towards Foreign Direct Investment

The United Republic of Tanzania, according to Government officials, welcomes foreign direct investment (FDI) as it pursues its industrialization and development agenda.  However, in practice, government policies and actions do not effectively keep and attract investment. The 2018 World Investment Report indicates that FDI flows to Tanzania shrank by 14 percent in 2017 to USD 1.18 billion, a 24 percent decline from 2015.  Some concerns noted by stakeholders included difficulty in hiring foreign workers, reduced profits caused by unfriendly and opaque tax policies, increased local content requirements, regulatory/policy instability, lack of trust between the GoT and the private sector, and mandatory initial public offerings (IPOs) in mining and communication industries.

The United Republic of Tanzania does have framework agreements on investment, and offers various incentives and the services of investment promotion agencies.  Investment is mainly a non-Union matter, thus there are different laws, policies, and practices for the mainland and Zanzibar. However, international agreements on investment are covered as Union matters and therefore apply to both regions. 

The Tanzania Investment Center (TIC) is intended to be a one-stop center for investors, providing services to investors such as permits, licenses, visas, and land.  The Zanzibar Investment Promotion Authority (ZIPA) provides the same function in Zanzibar. In January 2019, the President moved the TIC from the Ministry of Industry, Trade, and Investment (MITI) to the Prime Minister’s Office (PMO) and appointed a Minister of State for Investment in the Prime Minister’s Office.  The move, part of Tanzania’s “2019: The Year of Investment” campaign, aims to improve the business climate by enabling better coordination and reduced bureaucracy. (See Chapter 4 for more information on TIC).

The Government of Tanzania has an ongoing dialogue with the private sector via the Tanzania National Business Council (TNBC), created in 2001.  TNBC meetings are chaired by the President of the United Republic of Tanzania and co-chaired by the head of the Tanzania Private Sector Foundation (TPSF).  Unfortunately, the TNBC has only met twice in the past four years. There is also a Zanzibar Business Council (ZBC) launched in 2005, and Regional Business Councils (RBCs) and District Business Councils (DBCs).  In April 2019, the new Minister of State for Investment announced she was launching a new series of forums with foreign investors, including U.S. investors. 

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally receive treatment equivalent to domestic investors but limits still persist in a number of sectors.  Tanzania conforms to best practice in several cases. There are no geographical restrictions on location for private establishments with foreign participation or ownership, no limitations on number of foreign entities that can operate in a given sector, and no sectors in which foreign investment approval is required for greenfield FDI and not for domestic companies. 

However, Tanzania discourages foreign investment by imposing limitations on foreign equity ownership or activity in several sectors, including aerospace, agribusiness (fishing), construction, and heavy equipment, travel and tourism, energy and environmental industries, information and communication, and publishing, media, and entertainment.  For example,

• Foreign companies may not provide tourism services like mountain guides, tour guides, car rental, or travel agency services, per the Tourism Act, 2008.
• Per the Merchant Shipping Act of 2003, only citizen-owned ships are authorized to engage in local trade (waiver by ministerial discretion), and the Shipping Agency Act states that only Tanzanians may be licensed as shipping agents.  Port services licenses are solely for citizen-owned Tanzania companies.
• The Fisheries (Amendment) Regulations, 2009 implies onerous conditions for foreigners to fish and export fishery products, and fishing licenses cost three times more for foreigners than locals, and foreigners can only deal with certain fish and fish products.
• Foreign construction contractors can only obtain temporary licenses, per the Contractors Registration Act of 1997, and contractors must commit in writing to leave Tanzania upon completion of the set project.  The Contractors Registration (Amendment) By- Laws, 2004 limit foreign contractors to specified, more complex classes of work.
• Foreign capital participation in the telecommunications sector is limited to a maximum of 75 percent. 
• All insurers require one-third controlling interest by Tanzania citizens, per the Insurance Act.
• The Electronic and Postal Communications (Licensing) Regulations 2011 limits foreign ownership of Tanzanian TV stations to 49 percent, and prohibits foreign capital participation in national newspapers. 
• Mining projects must be at least partially owned by the GoT and “indigenous” companies and hire, or at least favor, local suppliers, service providers, and employees.  (See Chapter 4: Laws and Regulations on FDI for details.). Gemstone mining is limited to Tanzanian citizens with a possible waiver by ministerial discretion. In February 2019, responding to low growth and investment in the sector, the government revised the 2018 Mining (Local Content) Regulations 2018 by reducing the local shareholder requirement from 51 percent to 20 percent.  

Currently, foreigners can invest in stock traded on the Dar es Salaam Stock Exchange (DSE), but only East African residents can invest in government bonds.  East Africans, excluding Tanzanian residents, however, are not allowed to sell government bonds bought in the primary market for at least one year following purchase.

Other Investment Policy Reviews

There have not been any third-party investment policy reviews (IPRs) on Tanzania in the past three years, the most recent OECD report is for 2013.  The World Trade Organization (WTO) published a Trade Policy Review in 2019 on all the East African Community states, including Tanzania. 

WTO – Trade Policy Review: East African Community (2019)
https://www.wto.org/english/tratop_e/tpr_e/tp484_e.htm

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

WTO – Secretariat Report of Tanzania
https://www.wto.org/english/tratop_e/tpr_e/s384-04_e.pdf

UNCTAD – Trade and Gender Implications (2018)
https://unctad.org/en/PublicationsLibrary/ditc2017d2_en.pdf

Business Facilitation

The World Bank’s Doing Business 2019 Indicators rank Tanzania 144 out of 190 overall for ease of doing business, and 163rd for ease of starting a business.  There are 10 procedures to open a business, higher than the sub-Saharan average of 7.4. The Business Registration and Licensing Agency (BRELA) issues certificates of compliance for foreign companies, certificates of incorporation for private and public companies, and business name registration for sole proprietor and corporate bodies.  After registering with BRELA, the company must: obtain the taxpayer identification number (TIN) certificate, apply for a business license, apply for the VAT certificate, register for workmen’s compensation insurance, register with the Occupational Safety and Health Authority (OSHA), receive inspection from the Occupational Safety and Health Authority (OSHA), and obtain a Social Security registration number. 

The TIC provides simultaneous registration with BRELA, TRA, and social security (http://tiw.tic.co.tz/  ) for enterprises whose minimum capital investment is not less than USD 500,000 if foreign owned or USD 100,000 if locally owned. 

In May 2018, the government adopted the Blueprint for Regulatory Reforms to improve the business environment and attract more investors.  The reforms, which were developed as a collaborative effort between the Ministry of Industry, Trade and Investment and the private sector, seek to improve the country’s ease of doing business through regulatory reforms and to increase efficiency in dealing with the government and its regulatory authorities.  The Blueprint is largely pending implementation. 

Outward Investment

Tanzania does not promote or incentivize outward investment, and in fact, generally discourages capital flight.  There are restrictions on Tanzanian residents’ participation in foreign capital markets and ability to purchase foreign securities.  Under the Foreign Exchange (Amendment) Regulations 2014 (FEAR), however, there are circumstances where Tanzanian residents may trade securities within the East African Community (EAC).  In addition, FEAR provides some opportunities for residents to engage in foreign direct investment and acquire real assets outside of the EAC.

Transparency of the Regulatory System

Tanzania has formal processes for drafting and implementing rules and regulations.  Generally, after an Act is passed by Parliament, the creation of regulations is delegated to a designated ministry.  In theory, stakeholders are legally entitled to comment on regulations before they are implemented. However, ministries and regulatory agencies do publish a list of anticipated regulatory changes or proposals intended to be adopted/implemented.  There is not a period of time set by law for the text of the proposed regulations to be publicly available. Thus, stakeholders often report that they are either not consulted or given too little time to provide useful comment. Ministries or regulatory agencies do not have the legal obligation to publish the text of proposed regulations before their enactment.  Moreover, the government has increasingly used presidential decree powers to bypass regulatory and legal structures.

In 2016, the President signed the Access to Information Act into law.  In theory, the Act gives citizens more rights to information; however, some claim that the Act gives too much discretion to the GoT to withhold disclosure.  Although information, including rules and regulations, is available on the GoT’s “Government Portal” (https://www.tanzania.go.tz/documents  ), the website is generally not current and incomplete.  Alternatively, rules and regulations can be obtained on the relevant ministry’s website, but many offer insufficient information.

Nominally independent regulators are mandated with impartially following the regulations.  The process, however, has sometimes been criticized as being subject to political influence, depriving the regulator of the independence it is granted under the law. 

Tanzania does not meet the minimum standards for transparency of public finances and debt obligations. 

International Regulatory Considerations

Tanzania is a member of the World Trade Organization (WTO) and its National Enquiry Point (NEP) is the Tanzania Bureau of Standards (TBS).  As the WTO NEP, TBS handles information on adopted or proposed technical regulations, as well as on standards and conformity assessment procedures.  Tanzania is also part of both the EAC and the Southern African Development Community (SADC) and subject to their respective regulations. However, according to the 2016 East African Market Scorecard (most recent), Tanzania is not compliant with several EAC regulations.

Legal System and Judicial Independence

Tanzania’s legal system is based on the English Common Law system. The first source of law is the 1977 Constitution, followed by statutes or acts of Parliament; and case law, which are reported or unreported cases from the High Courts and Courts of Appeal and are used as precedents to guide lower courts.  The Court of Appeal, which handles appeals from mainland Tanzania and Zanzibar, is the highest ranking court, followed by the High Court, which handles civil, criminal and commercial cases. There are four specialized divisions within the High Courts: Labor, Land, Commercial, and Corruption and Economic Crimes.  The Labor, Land, and Corruption and Economic Crimes divisions have exclusive jurisdiction over their respective matters, while the Commercial division does not claim exclusive jurisdiction. The High Court and the District and Resident Magistrate Courts also have original jurisdiction in commercial cases subject to specified financial limitations. 

Apart from the formal court system, there are quasi-judicial bodies, including the Tax Revenue Appeals Tribunal and the Fair Competition Tribunal, as well as alternate dispute resolution procedures in the form of arbitration proceedings.  Judgments originating from countries whose courts are recognized under the Reciprocal Enforcement of Foreign Judgments Act (REFJA) are enforceable in Tanzania. To enforce such judgments, the judgment holder must make an application to the High Court of Tanzania to have the judgment registered. Countries currently listed in the REFJA include Botswana, Lesotho, Mauritius, Zambia, Seychelles, Somalia, Zimbabwe, Swaziland, the United Kingdom, and Sri Lanka.  

The Tanzanian constitution guarantees judicial independence.  Judges are appropriately trained, appointed by the president in consultation with an independent Judicial Service Commission, have secure tenure until retirement at age 60, and are promoted and dismissed in a fair and unbiased manner.  This gives the higher-level courts considerable independence. In 2018, the head of Tanzania’s judiciary, Chief Justice Ibrahim Hamis Juma, publicly warned politicians to stay off his “territory” warning of grave consequences for those who do not. 

Corruption within the judiciary remains a concern, despite President Magufuli’s very public campaign against corruption.  According to the 2017 Afrobarometer Survey, the percentage of Tanzanians who believed that at least some/most/all of the Judiciary were corrupt was 48 percent/17 percent/3 percent, respectively.  The selection and appointment of judges in Tanzania is criticized for its non-transparent nature. The Judiciary Service Commission proposes judges to the President for appointment. However, the criteria and process for candidates is unknown. 

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

Laws and Regulations on Foreign Direct Investment

In 2017, new laws/regulations were enacted that may impact the risk-return profile on foreign investments, especially those in the mining industry.  The laws/regulations include the Natural Wealth and Resources (Permanent Sovereignty) Act 2017, Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act 2017, Written Laws (Miscellaneous Act) 2017, and Mining (Local Content) Regulations 2018.   The three new acts were introduced by the executive branch under a certificate of urgency, meaning that standard advance publication requirements were waived to expedite passage. As a result, there was minimal stakeholder engagement.

Investors, especially those in natural resources and mining, have expressed concern about the effects of these new laws.  Two of the new laws apply to “natural wealth and resources,” which are broadly defined and not only include oil and gas, but in theory could include wind, sun, and air space.  Investors are encouraged to seek legal counsel to determine the effect these laws may have on existing or potential investments. For natural resource contracts, the laws remove rights to international arbitration and subject contracts, past and present, to Parliamentary review.  More specifically, the law states “Where [Parliament] considers that certain terms …or the entire arrangement… are prejudicial to the interests of the People and the United Republic by reason of unconscionable terms it may, by resolution, direct the Government to initiate renegotiation with a view to rectifying the terms.”  Further, if the GoT’s proposed renegotiation is not accepted, the offending terms are automatically expunged. “Unconscionable” is defined broadly, including catch-all definitions for clauses that are, for example, “inequitable or onerous to the state.” Under the law, the judicial branch does not play a role in determining whether a clause is “unconscionable.”

The Mining (Local Content) Regulations 2018 require that indigenous Tanzanian companies are given first preference for mining licenses.  An ‘indigenous Tanzanian company’ is one incorporated under the Companies Act with at least 51 percent of its equity owned by and 100 percent of its non-managerial positions held by Tanzanians.  Furthermore, foreign mining companies must have at least 5 percent equity participation from an indigenous Tanzanian company and must grant the GoT a 16 percent carried interest. Lastly, foreign companies that supply goods or services to the mining industry must incorporate a joint venture company in which an indigenous Tanzanian company must hold equity participation of at least 20 percent.

The Mining (Local Content) Regulations 2018 also set the timeframe for local content percentages to be raised over the next 10 years which vary by type of good or service provided.  There are immediate requirements to use 100 percent local content for financial, insurance, legal, catering, cleaning, laundry, and security services. All contractors must submit a local content plan to the GoT, which includes provisions to favor local content and meets required local content percentages.  The plan must include five sub plans on employment and training; research and development; technology transfer; legal services; and financial services. The regulations also require contractors to implement bidding procedures to acquire goods and services and to award contracts to indigenous Tanzanian companies if they do not exceed the lowest bidder by more than 10 percent.  There are also regular contractor reporting requirements. Violating these regulations can lead to a fine of up to TZS 500 million or five years imprisonment.      

Competition and Anti-Trust Laws

The Fair Competition Commission (FCC) is an independent government body mandated to intervene, as necessary, to prevent significant market dominance, price fixing, extortion of monopoly rent to the detriment of the consumer, and market instability. The FCC has the authority to restrict mergers and acquisitions if the outcome is likely to create market dominance or lead to uncompetitive behavior.

Expropriation and Compensation

The constitution and investment acts require government to refrain from nationalization.  However, the GoT may expropriate property after due process for the purpose of national interest.  The Tanzanian Investment Act guarantees payment of fair, adequate, and prompt compensation; access to the court or arbitration for the determination of adequate compensation; and prompt repatriation in convertible currency where applicable.  For protection under Tanzania Investment Act, foreign investors require USD 500,000 minimum capital (a local one needs USD 100,000).

GoT authorities do not discriminate against U.S. investments, companies, or representatives in expropriation.  There have been cases of government revocation of hunting concessions that grant land rights to foreign investors, including a U.S.-based company with strategic investor status in 2016.  In late-2018, the GoT expropriated several dormant cashew-processing factories. In the same vein, in early-2019, the GoT reportedly repossessed 16 previously-privatized factories that were not in operation.  At the same time, the government issued a notice to more than 30 businesses, including hotels and other factories, warning them that if they did not present a plan for revitalizing their businesses, the GoT would repossess them too.  The ownership structure of these businesses unconfirmed; however, there are reports that some have foreign ownership. At least one factory with substantial U.S. investment reports that the GoT has blocked the sale of its assets. 

There are numerous examples of indirect expropriation, such as confiscatory tax regimes or regulatory actions that deprive investors of substantial economic benefits from their investments.

Dispute Settlement

ICSID Convention and New York Convention

Tanzania is a member of both the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA).  ICSID was established under the auspices of the World Bank by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.  MIGA is World Bank-affiliated and issues guarantees against non-commercial risk to enterprises that invest in member countries. 

Tanzania is a signatory to the New York Convention on the Recognition and Enforcement of Arbitration Awards.

The highly anticipated Public Private Partnership (PPP) (Amendment) Act, No. 9 of 2018 (the PPP Amendment Act) entered into force in September 2018.  PPP agreements are now subject to local arbitration under the arbitration laws of Tanzania. This provision augments the existing governing law provision which provides that the PPP agreement will be governed by Tanzanian law.  Therefore, in the event of a dispute, the parties must select a local arbitral forum i.e. the National Construction Council or the Tanzania Institute of Arbitrators. Additionally, Section 25A makes provision for PPP projects relating to natural wealth and resources to recognize the provisions under the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 and the Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 (collectively the Natural Wealth Laws).  These provisions include only local arbitration under Tanzanian law will be recognized as well as the right for Parliament to review any agreements in relation to, but not limited to, natural wealth and resources.

Investor-State Dispute Settlement

Investment-related disputes in Tanzania can be protracted.  The Commercial Court of Tanzania operates two sub-registries located in the cities of Arusha and Mwanza.  The sub-registries, however, do not have resident judges. A judge from Dar es Salaam conducts a monthly one-week session at each of the sub-registries.  The government said it intends to establish more branches in other regions including Mbeya, Tanga, and Dodoma, though progress has stagnated. Court-annexed mediation is also a common feature of the country’s commercial dispute resolution system.

Despite legal mechanisms in place, foreign investors have claimed that the GoT sometimes does not honor its agreements.  Additionally, investors continue to face challenges receiving payment for services rendered for GoT projects. One high profile example of such a dispute is that of U.S.-based Symbion Power, which in 2017 filed an application for ICSID arbitration seeking USD 561 million for alleged breach of contract of a purchase power agreement, and the dispute is ongoing.

International Commercial Arbitration and Foreign Courts

On 12 September 2018, the Tanzanian Parliament enacted the Public Private Partnership (Amendment) Bill 2018.  The amendment includes a provision requiring foreign investors to resolve disputes exclusively through Tanzania’s domestic courts, without recourse to international arbitration.  This has been a cause of alarm among international investors. The bill comes just a year after two natural resources legislation handed the Tanzanian government and parliament greater control over mining, oil and gas operations in the country, including the right to renegotiate or remove certain terms from existing contracts.

The Attorney General, Adelarus Kilangi, told Members of Parliament during the passage of the bill that the Tanzanian judicial system was best placed to hear disputes from international investors.  He further commented that the amendments were necessary to counteract the “bias” of international arbitration institutions, such as the International Centre for Settlement of Investment Disputes (ICSID) and the panels of international arbitrators who hear such disputes.

In August 2018, Tanzania Electric Supply Co (Tanesco), wholly owned by the Tanzanian government, lost an appeal against an ICSID award in a long-running case against Standard Chartered Bank and was ordered to pay USD 148 million.  Tanesco is also facing a claim from U.S.-based Symbion Power for USD 561 million. There are at least 22 pending filings of international arbitration against Tanzania. 

Bankruptcy Regulations

According to the 2019 World Bank’s Ease of Doing Business report, it takes an average of three years to conclude bankruptcy proceedings in Tanzania. The recovery rate for creditors on insolvent firms was reported at 20.3 U.S. cents on the dollar, with judgments typically made in local currency.

Investment Incentives

The TIC offers a package of investment benefits and incentives to both domestic and foreign investors without performance requirements.  A minimum capital investment of USD 500,000 if foreign owned or USD 100,000 if locally owned is required. These incentives include:

• Discounts on customs duties, corporate taxes, and VAT paid on capital goods for investments in mining, infrastructure, road construction, bridges, railways, airports, electricity generation, agribusiness, telecommunications, and water services.
• 100 percent capital allowance deduction in the years of income for the above mentioned types of investments – though there is ambiguity as to how this is accomplished.
• No remittance restrictions. The GoT does not restrict the right of foreign investors to repatriate returns from an investment.
• Guarantees against nationalization and expropriation. Any dispute arising between the GoT and investors may be settled through negotiations or submitted for arbitration.
• Allowing interest deduction on capital loans and removal of the five-year limit for carrying forward losses of investors.

Investors may apply for “Strategic Status” or “Special Strategic Status” to receive further incentives.  The criteria used to determine whether an investor may receive these designations are available on TIC’s website (www.tic.co.tz/strategicInvestor  ). 

The government habitually introduces waivers through the Public Finance Act with the aim of attracting investment in certain targeted sectors. In Financial Year 2018/19, the government introduced a VAT exemption for the following items in order to encourage investment: Packaging materials produced for use by local manufacturers of pharmaceutical products; imported animal and poultry feeds additives; and sanitary pads. The government also introduced 100 percent tax amnesty on interest and penalties from July 1 to December 31, 2018 in order to encourage tax compliance among the business community.  

The Export Processing Zones Authority (EPZA) oversees Tanzania’s Export Processing Zones (EPZs) and Special Economic Zones (SEZs).  EPZA’s core objective is to build and promote export-led economic development by offering investment incentives and facilitation services. Minimum capital requirements for EPZ and SEZ investors are USD 500,000 for foreign investors and USD 100,000 for local investors.  Investment incentives offered for EPZs include:

• An exemption from corporate taxes for 10 years.
• An exemption from duties and taxes on capital goods and raw materials.
• An exemption on VAT for utility services and on construction materials.
• An exemption from withholding taxes on rent, dividends, and interests.
• Exemption from pre-shipment or destination inspection requirements.
• SEZs offer similar incentives, excluding the 10 year exemption from corporate taxes.

The Zanzibar Investment Promotion Agency (ZIPA) and the Zanzibar Free Economic Zones Authority (ZAFREZA) offer roughly equivalent incentives as those offered by TIC and EPZA policies.

Foreign Trade Zones/Free Ports/Trade Facilitation

Tanzania’s export processing zones (EPZs) and special economic zones (SEZs) are assigned geographical areas or industries designated to undertake specific economic activities with special regulations and infrastructure requirements.  EPZ status can also be extended to stand-alone factories at any geographical location. EPZ status requires the export of 80 percent or more of the goods produced while SEZ status has no export requirement, allowing manufacturers to sell their goods locally.  As of March 2018, there were 14 designated EPZ/SEZ industrial parks, 10 of which are in development, and 75 stand-alone EPZ factories.

Performance and Data Localization Requirements

The Non-Citizens (Employment Regulation) Act (see Section 12 Labor Policies and Practices below) requires employers to attempt to fill positions with Tanzanian citizens before seeking work permits for foreign employees, and to develop plans to transition to local employees.

In recognition of the fact that the local content (LC) initiative cuts across all economic sectors, the government decided that LC development should take a multi-sector approach, rather than being confined to a single ministry or sector.  In 2015, the government directed the National Economic Empowerment Council (NEEC) to oversee implementation of local empowerment initiatives. The objective of the local content policy is to put local products and services – delivered by businesses owned and operated by Tanzanians – in an advantageous position to exploit opportunities emanating from inbound foreign direct investments.  In 2015, the GoT enacted The Petroleum Act 2015 and, subsequently, issued The Petroleum (Local Content) Regulations 2017. Similarly, in 2017, the GoT amended mining laws, issuing The Mining (Local Content) Regulations 2018. (See Chapter 4: Laws and Regulations on Foreign Direct Investment for more on recent local content laws.)

The GoT requires banks to physically house their computer servers in Tanzania.  In 2016, the GoT launched a USD 94 million national data center (NDC), which is operated by the GoT’s Telecommunications Corporation (TTC).  Under the Tanzania Telecommunications Corporation (TTC) Act 2017, the TTC plans, builds, operates and maintains the “strategic telecommunications infrastructure,” which is defined as transport core infrastructure, data center and other infrastructure that the GoT proclaims “strategic” via official public notice.  It is not yet clear how the law will be implemented and whether telecommunications operators will be required to use the TTC’s data center or provide the TTC greater data access. 

Capital Markets and Portfolio Investment

Tanzania’s Dar es Salaam Stock Exchange (DSE) is a self-listed publicly-owned company.  In 2013, the DSE launched a second tier market, the Enterprise Growth Market (EGM) with lower listing requirements designed to attract small and medium sized companies with high growth potential.  As of December 2017, DSE’s total market capitalization reached USD 10.5 billion, a 20.6 percent increase over the previous year’s figure. The Capital Markets and Securities Authority (CMSA) Act facilitates the free flow of capital and financial resources to support the capital market and securities industry.  Tanzania, however, restricts the free flow of investment in and out of the country, and Tanzanians cannot sell or issue securities abroad unless approved by the CMSA.

Under the Capital Markets and Securities (Foreign Investors) Regulation 2014, there is no aggregate value limitation on foreign ownership of listed non-government securities.  Despite progress, the country’s capital account is not fully liberalized and only foreign individuals or companies from other EAC nations are permitted to participate in the government securities market.  Even with this recent development allowing EAC participation, ownership of government securities is still limited to 40 percent of each security issued.

Tanzania’s Electronic and Postal Communications Act 2010 amended in 2016 by the Finance Act 2016 requires telecom companies to list 25 percent of their shares via an initial public offering (IPO) on the DSE.  Of the seven telecom companies that filed IPO applications with the CMSA, only Vodacom’s application received approval. In 2017, Vodacom planned to offer its shares from March 9 to April 19, but lack of demand required it to extend the offering period to July 28.  Moreover, to spur demand, the GoT opened the IPO to foreign investors who purchased 40 percent of the total shares offered.

As part of the Mining (Minimum Shareholding and Public Offering) Regulations 2016, large scale mining operators were required to float a 30 percent stake on the DSE by October 7, 2018.  On February 24, 2017, however, the GoT surprised the industry by amending the regulations so that the 30 percent stake had to be floated by August 23, 2017, rather than October 7, 2018. However, some mining companies have not listed on the DSE.

Money and Banking System

Finscope’s 2017 Financial Inclusion Report revealed that Tanzania’s financial inclusion rate increased to 65 percent in 2017 from 58 percent in 2013, primarily because of increased mobile phone usage.  However, participation in the formal banking sector still remains low. In 2017, low private sector credit growth and high non-performing loan (NPL) rates were persistent problems. In March 2017, the Bank of Tanzania (BoT) cut its discount rate to 12 percent from 16 percent to boost lending and economic growth, the first time it had cut interest rates since 2013.  In April 2017, the BoT reduced commercial banks’ statutory minimum reserves (SMR) requirement from 10 to 8 percent. These measures did not adequately spur lending, so in August 2017, the BoT reduced its discount rate for the second time from 12 to 9 percent. Despite these measures, private sector credit growth was lower than expected and NPL rates in December 2017 remained more than double the BoT’s targeted 5 percent rate.

In 2018, the BoT continued to address problems in the banking sector.  In January 2018, the BoT closed five community banks for under capitalization and gave an additional three until June 2018 to raise capital.  In its February 14, 2018 Tanzania Country Partnership Framework FY18-FY22, the World Bank reported that Tanzania’s “financial sector is stable despite high nonperforming loans…, which must be addressed.”  In a February 19, 2018 Circular titled “Measures to Increase Credit to Private Sector and Contain Non-Performing Loans,” the BoT issued guidelines to boost lending and reduce NPLs.

As of March 31, 2018, the banking sector was composed of 41 commercial banks, 6 community banks, 5 microfinance banks, 3 development financial institutions, 3 financial leasing companies and 2 credit bureaus. The two largest banks are CRDB Bank and National Microfinance Bank (NMB), which represent almost 30 percent of the market.  Private sector companies have access to commercial credit instruments including documentary credits (letters of credit), overdrafts, term loans, and guarantees. Foreign investors may open accounts and earn tax-free interest in Tanzanian commercial banks.

The Banking and Financial Institution Act 2006 established a framework for credit reference bureaus, permits the release of information to licensed reference bureaus, and allows credit reference bureaus to provide to any person, upon a legitimate business request, a credit report.  Currently, there are two private credit bureaus operating in Tanzania – Credit Info Tanzania Limited and Dun & Bradstreet Credit Bureau Tanzania Limited.

Foreign Exchange and Remittances

Foreign Exchange Policies

Tanzanian regulations permit unconditional transfers through any authorized bank in freely convertible currency of net profits, repayment of foreign loans, royalties, fees charged for foreign technology, and remittance of proceeds. The only official limit on transfers of foreign currency is on cash carried by individuals traveling abroad, which cannot exceed USD 10,000 over a period of 40 days. Investors rarely use convertible instruments.

In 2018 and 2019, the Bank of Tanzania inspected all forex shops in the country and ultimately found that most of them did not meet the requirements of new laws governing the businesses.  As a result, more than ninety percent of the Forex bureaus in country were closed. The government then licensed the commercial banks and Tanzania Post Corporation to open forex shops.

Remittance Policies

There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

Sovereign Wealth Funds

Tanzania has not established a sovereign wealth fund.

Public enterprises do not compete under the same terms and conditions as private enterprises because they have access to government subsidies and other benefits.  SOEs are active in the power, communications, rail, telecommunications, insurance, aviation, and port sectors. SOEs generally report to ministries and are led by a board.  Typically, a presidential appointee chairs the board, which usually includes private sector representatives. SOEs are not subjected to hard budget constraints. SOEs do not discriminate against or unfairly burden foreigners, though they do have access to sovereign credit guarantees.

As of June 2015, the GoT’s Treasury Registrar reported shares and interests in 215 public parastatals, companies and statutory corporations.  (See http://www.tro.go.tz/index.php/en/2014-12-17-09-13-44/commercial  )

Relevant ministry officials usually appoint SOEs’ board of directors to serve preset terms under what is intended to be a competitive process.  As in a private company, senior management report to the board of directors. Summary financial results for fiscal year 2017 of SOEs are included in the GoT’s consolidated financial statements (CFS) which are available online.  This year, however, the National Audit Office issued an adverse audit opinion, calling CFS accuracy into question.

Privatization Program

The government retains a strong presence in energy, mining, telecommunication services, and transportation.  The government is increasingly empowering the state-owned Tanzania Telecommunications Corporation Limited (TTCL) with the objective of safeguarding the national security, promoting socio-economic development, and managing strategic communications infrastructure.  The government also acquired 51 percent of Airtel Telecommunication Company Limited and became the majority shareholder.  In the past, the GoT has sought foreign investors to manage formerly state-run companies in public-private partnerships, but successful privatizations have been rare.  Though there have been attempts to privatize certain companies, the process is not always clear and transparent. In some instances, the GoT took back control as was the case in 2009-10 when the government nationalized formerly-privatized Tanzania Railways Limited, General Tyre, and Kilimanjaro International Airport based on mismanagement.

In 2010, the GoT enacted the Public Private Partnership (PPP) Act.  According to the act, any ministry, government department or agency, or statutory corporation may act as a PPP procuring authority.  The 2014 amendment of the PPP Act created a new PPP Center to be incorporated in the Office of the Prime Minister through merging the Coordination Unit and the Finance Unit.  It also set up a PPP Technical Committee to recommend PPP projects for approval by the National Investment Steering Committee. In spite of these developments, Tanzania’s Five Year Development Plan (2016-2021) (FYDP II) recognized weaknesses in the PPP legal framework and inadequate understanding and operationalization of PPP concepts as impediments to private sector financing.  As a result, FYDP II calls for an expanded role of the private sector through PPPs. Despite this goal, little progress has been made in this area.

In August 2017, President Magufuli instructed the Minister of Industry, Trade and Investments to revisit the terms of privatization and the ensuing performance of previously privatized companies/assets – most of which took place during the 1990s.  According to the Minister, of 156 privatized companies, 62 were operating normally, 28 were under-performing and 56 were no longer in operation. The GoT, in turn, has implemented a plan to repossess and subsequently retender idle companies/assets.  As a result, according to the Treasury Registrar Office, three companies were repossessed and an additional 12 companies are being considered for similar action by the Attorney General.

Responsible business conduct (RBC) includes respecting human rights, environmental protection, labor relations and financial accountability, and it is practiced by a number of large foreign firms.  Tanzania has laws covering labor and environmental issues. The Employment and Labor Relations Act (ELRA) establishes labor standards, rights and duties, while the Labor Institutions Act (LIA) specifies the government entities charged with administering labor laws.

The GoT’s National Environment Management Council (NEMC) undertakes enforcement, compliance, review and monitoring of environmental impact assessments; performs research; facilitates public participation in environmental decision-making; raises environmental awareness; and collects and disseminates environmental information.  Stakeholders, however, have expressed concerns over whether the NEMC has sufficient funding and capacity to handle its broad mandate.

There are no legal requirements for public disclosure of RBC, and the GoT has not yet addressed executive compensation standards.  Dar es Salaam Stock Exchange (DSE) listed companies, however, must release legally required information to shareholders and the general public.  In addition, the DSE signed a voluntary commitment with the United Nations Sustainable Stock Exchanges Initiative in June 2016, to promote long-term sustainable investments and improve environmental, social and corporate governance.  Tanzania has accounting standards compatible with international accounting bodies.

The Tanzanian government does not usually factor in RBC into procurement decisions.  The GoT is responsible for enforcing local laws, however, the media regularly reports on corruption cases where offenders allegedly avoid sanctions.  There have also been reports of corporate entities collaborating with local governments to carry out controversial undertakings that may not be in the best interest of the local population.

Conflicts between mining companies and neighboring communities have been reported mostly in gold mining areas, leading to intrusion into mining sites and clashes with mining company guards and police.  For example, in June 2017, media reported that villagers invaded Acacia’s North Mara Mine demanding compensation, and leading to the arrest of 66 people and several injuries. Communities often protest the government’s decision to grant mining rights and/or seek compensation over allegations of death, injuries, or environmental damage.

Forty-one Tanzanian entities participate in the United Nations Global Compact Network which focuses on RBC.  Some foreign companies have engaged NGOs that monitor and promote RBC to avoid adversarial confrontations. In addition, some of the multinational mining companies who are signatories to the Voluntary Principles on Security and Human Rights (VPs) have taken the lead and appointed NGOs to conduct programs to mitigate conflicts between the mining companies, surrounding communities, local government officials and the police.

Tanzania is a member of Extractive Industries Transparency Initiative (EITI) since 2009 and in 2015 Tanzania enacted the Extractive Industries Transparency and Accountability Act, which demands that all new concessions, contracts and licenses are made available to the public.  The government produces EITI Reports that disclose revenues from the extraction of its natural resources.

Tanzania has laws and institutions designed to combat corruption and illicit practices.  It is a party to the UN Convention against Corruption, but it is not a signatory to the OECD Convention on Combating Bribery.  Although corruption is still viewed as a major problem, President Magufuli’s focus on anti-corruption has translated into an increased judiciary budget, new corruption cases, and a decline in perceived corruption.  This improvement is partly attributed to instituting electronic services which reduce the opportunity for corruption through human interactions at agencies such as the Tanzania Revenue Authority (TRA), the Business Registration and Licensing Authority (BRELA), and the Port Authority.

Tanzania has three institutions specifically focused on anti-corruption.  The PCCB prevents corruption, educates the public, and enforces the law against corruption.  The Ethics Secretariat and its associated Ethics Tribunal under the President’s office enforces compliance with ethical standards defined in the Public Leadership Codes of Ethics Act 1995.  Lastly, the Economic, Corruption and Organized Crime Court, created in 2016, prosecutes corruption cases. As of April 2017, the Court had registered a total of 25 cases – some of which are high-profile grand corruption cases.

Companies and individuals seeking government tenders are required to submit a written commitment to uphold anti-bribery policies and abide by a compliance program.  These steps are designed to ensure that company management complies with anti-bribery polices.

The GoT is currently implementing its National Anti-Corruption Strategy and Action Plan Phase III (2017-2022) (NACSAP III) which is a decentralized approach focused on broad government participation.  NACSAP III has been prepared to involve a broader domain of key stakeholders including GoT local official, development partners, civil society organization (CSOs), and the private sector. The strategy puts more emphasis on areas that historically have been more prone to corruption in Tanzania such as revenue collection of oil, gas, and natural resources.  Despite the outlined role of the GoT, CSOs, NGOs and media find it increasingly more difficult to investigate corruption in the current political environment. (See Chapter 11)

President Magufuli’s current anti-corruption campaign has affected public discourse about the prevailing climate of impunity, and some officials are reluctant to engage openly in corruption.  Transparency International (TI), which ranks perception of corruption in public sector, gave Tanzania a score of 36 points out of 100 for both 2017 and 2018. The TI ranking, however, improved from 116 out of 180 countries in 2017 to 99 in 2018.

Some critics, however, question how effective the initiative will be in tackling deeper structural issues that have allowed corruption to thrive.  Despite President Magufuli’s focus on anti-corruption, there has been little effort to institutionalize what often appear to be ad hoc measures, a lack of corruption convictions, and persistent underfunding of the country’s main anti-corruption bodies.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

The Director General
Prevention and Combating of Corruption Bureau
P.O. Box 4865, Dar es Salaam, Tanzania
Tel: +255 22 2150043   Email: dgeneral@pccb.go.tz

Contact at “watchdog” organization:

Executive Director
Legal and Human Rights Centre
P.O. Box 75254, Dar es Salaam, Tanzania
Tel: +255 22 2773038/48   Email: lhrc@humanrights.or.tz

Since gaining independence, Tanzania has enjoyed a relatively high degree of peace and stability compared to its neighbors in the region.  Tanzania has held five national multi-party elections since 1995, the most recent in 2015. Mainland Tanzania government elections have been generally free of political violence.  Elections on the semi-autonomous archipelago of Zanzibar, however, have been marred by political violence several times since 1995.

October 2015 general elections were conducted in a largely open and transparent atmosphere; however, simultaneous elections in Zanzibar were controversially annulled after an opposition candidate declared victory.  A heavily criticized re-run election was held on March 20, 2016 despite an opposition boycott. Since the 2015 election, the GoT has placed several restrictions on political activity, including severely limiting the ability of opposition political parties and civil society organizations to debate issues publicly, or peacefully assemble.  An attempted assassination of opposition politician Tundu Lissu in October 2017 resulted in international calls for investigation; as of May 2018 police had not identified a suspect. Subsequent by-elections in 2017 and 2018 were marred by allegations of irregularities, and instances of political violence, including the unintended police killing of a young woman on apublic bus near a political demonstration.

Over a period of several months in 2017, a string of 43 killings took place; victims included local government officials and police in the southern half of Tanzania’s Pwani region near Dar es Salaam.  Authorities, who referred to the incident as presenting “unprecedented security threats and challenges” established a special police zone in the area and ultimately succeeded in halting the killings after a violent confrontation with the alleged perpetrators.

In addition to monitoring the political climate, foreign investors remain concerned about land tenure issues. Although the government owns all land in Tanzania and oversees the issuance of land leases of up to 99 years, many Tanzanian citizens judge that foreign investors exploit Tanzanian resources, sometimes resulting in conflict between investors and nearby residents. In Arusha, some of these conflicts have led to violence, prompting the GoT to emphasize its commitment to supporting foreign investment while also ensuring the intended benefit of the investments to Tanzanian citizens.

The GoT’s Five Year Development Plan 2016-2021 (FYDP II), which is in its third year of implementation, acknowledges Tanzania’s shortage of skilled labor and the importance of professional training to support industrialization.  The Integrated Labor Force Survey Analytical Report of 2014 found that only 3.6 percent of Tanzania’s 20 million person labor force is highly skilled.  On the regional front, Tanzania, Uganda, Rwanda and Kenya have committed to the EAC’s 2012 Mutual Recognition Agreement of engineers, making for a more regionally competitive engineering market.

In Tanzania, labor and immigration regulations permit foreign investors to recruit up to five expatriates with the possibility of additional work permits granted under specific conditions.

The Non-Citizens (Employment Regulation) Act 2015 introduced stricter rules for hiring foreign workers.  Under the Act, the Labor Commissioner must determine if “all possible efforts have been explored to obtain a local expert” before approving a non-citizen work permit.  In addition, employers must submit “succession plans” for foreign employees, detailing how knowledge and skills will be transferred to local employees.

Non-citizens may be granted two-year work permits, renewable up to five years, while foreign investors may be granted 10 year work permits which may be extended if the investor is deemed to be contributing to the economy and well-being of Tanzanians.  Some stakeholders fear that this provision creates an opening for corruption and arbitrarily prejudicial decisions against foreign investors. Since the passage of the Act, GoT officials have been conducting aggressive “special permit inspections” to verify the validity of work permits.  The process for obtaining work permits remains immensely bureaucratic, opaque at times, and slow.

Mainland Tanzania’s minimum wage, which has not changed since July 2013, is set by categories covering 12 employment sectors. The minimum wage ranges from TZS 100,000 (USD 45) per month for agricultural laborers to TZS 400,000 (USD 180) per month for laborers employed in the mining sector.  Zanzibar’s minimum wage is TZS 300,000 (USD 135), after being increased from TZS 150,000 (USD 68) in April 2017.

Mainland Tanzania and Zanzibar governments maintain separate labor laws. Workers on the mainland have the right to join trade unions.  Any company with a recognized trade union possessing bargaining rights can negotiate in a Collective Bargaining Agreement. As of 2012, unionized workers comprised 13 percent of the formal sector work force.  In the agricultural sector, the country’s largest employment sector, 5-8 percent of the work force is unionized. In the public sector, the government sets wages administratively, including for employees of state-owned enterprises.

Mainland workers have the legal right to strike and employers have the right to a lockout.  The law restricts the right to strike when doing so may endanger the health of the population. Workers in certain sectors are restricted from striking or subject to limitations.  In 2017, the GoT issued regulations that strengthened child labor laws, created minimum one-year terms for certain contracts, expanded the scope of what is considered discrimination, and changed contract requirements for outsourcing agreements.

The labor law in Zanzibar applies to both public and private sector workers.  Zanzibar government workers have the right to strike as long as they follow procedures outlined in the Employment Act of 2005, but they are not allowed to join mainland-based labor unions.  Zanzibar requires a union with 50 or more members to be registered and sets literacy standards for trade union officers. An estimated 40 percent of Zanzibar’s workforce is unionized. (See Chapter 4: Laws and Regulations on Foreign Direct Investment for more on recent local content laws.)

In 1996, the U.S. Overseas Private Investment Corporation (OPIC) signed an incentive agreement with the GoT.  . The current portfolio includes projects in agriculture, energy, microfinance and logistics. OPIC provides financing or insurance to these projects.  In addition, USAID’s Development Credit Authority (DCA) provides guarantees for commercial loans and has active portfolio guarantees with four banks to encourage lending to small and medium sized enterprises.  Tanzania is also a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA), which offers political risk insurance and technical assistance to attract FDI.

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

* Source for Host Country Data: National Bureau of Statistics (NBS); 2017 GDP: TZS 116,101,908,000,000 (Ex/rate TZS/USD: TZS 2300/USD)

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.