Policies Towards Foreign Direct Investment

The Nicaraguan government seeks foreign direct investment to project normalcy and international support in a time when foreign investment has all but stopped following the government’s violent suppression of peaceful protests starting in April 2018.  As traditional sources of foreign direct investment fled the ongoing political crisis, the government has increasingly pursued foreign investment from other countries such as Iran and China.  Investment incentives target export-focused companies that require large amounts of unskilled or low-skilled labor.

In general, there are many laws and practices that harm foreign investors, but few that target foreign investors in particular.  Investors should be aware that local connections, in particular with the government, are vital to success.  Investors have raised concerns that regulatory authorities act arbitrarily and often favor one competitor over another.  Foreign investors report significant delays in receiving residency permits, requiring frequent travel out of the country to renew visas.

ProNicaragua, the country’s investment and export promotion agency, has all but halted its investment promotion activities.  It has virtually no clients due to the ongoing political crisis.  ProNicaragua, already heavily politicized, became more so after President Ortega installed his son, Office of Foreign Assets Control (OFAC)-designated Laureano Ortega, as the organization’s primary public face.  ProNicaragua formerly provided information packages, investment facilitation, and prospecting services to interested investors.  For more information, see http://www.pronicaragua.org .

Personal connections and affiliation with industry associations and chambers of commerce are critical for foreigners investing in Nicaragua.  Prior to the crisis, the Superior Council of Private Enterprise (COSEP) had functioned as the main private sector interlocutor with the government through a series of roundtable and regular meetings.  These roundtables have ceased since the onset of Nicaragua’s crisis in April 2018 as has collaboration between the government, private sector, and unions.  Though municipal and ministerial authorities may enact decisions relevant to foreign businesses, all actions are subject to de facto approval by the Presidency.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.  Any individual or entity may make investments of any kind.  In general, Nicaraguan law provides equal treatment for domestic and foreign investment.  There are a few exceptions imposed by specific laws, such as the Border Law (2010/749), which prohibits foreigners from owning land in certain border areas.

Nicaragua allows foreigners to be shareholders of local companies, but the company representative must be a Nicaraguan citizen or a foreigner with legal residence in the country.  Many companies satisfy this requirement by using their local legal counsel as a representative.  Legal residency procedures for foreign investors can take up to eighteen months and require in-person interviews in Managua.

The government can limit foreign ownership for national security or public health reasons under the Foreign Investment Law.  The government previously required that all investments in the petroleum sector include the state-owned enterprise Petronic as a partner.  That requirement is now in flux following the government’s creation of four new state-owned energy companies to bypass U.S. sanctions against the petroleum distribution company DNP.

The government does not formally screen, review, or approve foreign direct investments.  However, President Daniel Ortega and the executive branch maintain de facto review authority over any foreign direct investment.  This review process is not transparent.

Other Investment Policy Reviews

In the past three years, Nicaragua has not undergone any third-party investment policy reviews through multilateral organizations such as the Organization for Economic Co-operation and Development (OECD), World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD).

Business Facilitation

The government is eager to draw more foreign investment to Nicaragua.  Its business facilitation efforts focus primarily on one-on-one engagement with potential investors, rather than a systematic whole-of-government approach.

Nicaragua does not have an online business registration system.  Companies must typically register with the national tax administration, social security administration, and local municipality to ensure the government can collect taxes.  Those registers are typically not available to the public.

According to the Ministry of Growth, Industry, and Trade (MIFIC), the process to register a business takes a minimum of 14 days.  In practice, registration usually takes more time.  Establishing a foreign-owned limited liability company takes eight procedures and 42 days.

Outward Investment

Nicaragua does not promote or incentivize outward investment and does not restrict domestic investors from investing abroad.

Capital Markets and Portfolio Investment

There are no restrictions on foreign portfolio investment.  Nicaragua does not have its own equities market and there is no regulatory structure to facilitate publicly held companies.  There is a small bond market that traffics primarily in government bonds but also sells some corporate debt to institutional investors.  From January to August 2019, this market traded only 7 percent of the volume from the same period in 2018.  The Superintendent of Banks and Other Financial Institutions (SIBOIF) supervises this fledgling market.

New policies threaten the free flow of financial resources into the product and factor markets, as well as foreign currency convertibility.  Banks must now request foreign currency purchases in writing, 48 hours in advance, and the BCN reserves the right to arbitrarily deny these requests.

To shore up liquidity, banks have sharply restricted lending, increased interest rates, and implemented stricter collateral standards.  The overall size and depth of Nicaragua’s financial markets and portfolio positions are very limited.

Money and Banking System

While the banking system has grown and developed in the past two decades, Nicaragua remains underbanked relative to other countries in the region.  Only 19 percent of Nicaraguans aged 15 or older have bank accounts, and only 8 percent have any savings in such accounts, approximately half the rate of other countries in the region according to World Bank data.  One-third of Nicaraguans continue to save their money in their home or other location while 49 percent have no savings.  Nicaragua also has one of the lowest mobile banking rates in Central America.

After the sociopolitical crisis sharply slashed the National Financial System in 2018, the banking sector showed a minor recovery in 2019.  According to official data, deposits registered a slight $41 million uptick compared to 2018.  Other financial indicators, such as liquidity ratio, registered an unprecedented 47.27 percent increase due to a sustained credit portfolio recovery.  However, the overall credit portfolio continued to contract, registering a $570 million reduction compared to previous year.  The ratio of non-performing loans to banking sector assets reached 12.58 percent.  The banking sector remains fragile and vulnerable to sociopolitical uncertainty.

The banking industry remains conservative and highly concentrated, with four banks (BANPRO, Lafise BANCENTRO, BAC, and FICOHSA) constituting 77 percent of the country’s market share.  The crisis sparked large withdrawals of deposits from the banking system.  Those withdrawals have stabilized, but as of December 2019, the financial system had total assets worth USD $3.9 billion, a 29 percent drop from the 5.5 billion held in March 2018.

BANCORP, a subsidiary of ALBA de Nicaragua (ALBANISA), a joint venture between the State-owned oil companies of Nicaragua (49 percent) and Venezuela (51 percent) began accepting deposits in 2015.  On April 17, 2019, the Department of Treasury designated BANCORP for money laundering and corruption.  On April 22, BANCORP presented the bank’s dissolution to SIBOIF.  BANCORP’s closure was secretive and outside the legal framework that governs financial institutions in Nicaragua. BANCORP’s current operating status is unclear.

The BCN was established in 1961 as the regulator of the monetary system with the sole right to issue the national currency, the Córdoba.  Foreign banks are allowed to open branches in Nicaragua.  The crisis caused the number of correspondent banking relationships with the United States to shrink in 2018.  In December 2018, Wells Fargo Bank informed banks that it would withdraw from the country and would not continue to provide correspondent services.  Bank of America also withdrew correspondent services from a local bank.

Foreigners are allowed to open bank accounts as long as they are legal residents in the country.  The Foreign Investment Law allows foreign investors residing in the country to access local credit and local banks have no restrictions accepting property located abroad as collateral.

Foreign Exchange and Remittances

Foreign Exchange

Nicaragua is a highly dollarized economy.  The Foreign Investment Law (2000/344) and the Banking, Nonbank Intermediary, and Financial Conglomerate Law (2005/561) allow investors to convert freely and transfer funds associated with an investment.  CAFTA-DR ensures the free transfer of funds related to a covered investment.  However, as international sanctions target the Ortega regime’s corruption and money-laundering activities, investors should be aware that transactions with the Nicaraguan government may lead banks to reject related transactions.  Transfers of funds over USD 10,000 requires additional paperwork and due diligence.

Local financial institutions freely exchange U.S. dollars and other foreign currencies, although there are reports that SIBOIF has taken steps to ensure more Nicaraguan Córdobas are in circulation to shore up the local currency.  On October 19, 2018, BCN notified banks that in place of an on-line automated clearing house for foreign currency purchases, banks must now request such purchases in writing, 48 hours in advance, and provide the BCN with the names of savers who want to withdraw their foreign currency deposits, as well as the amounts each individual requests.

The BCN adjusts the official exchange rate daily according to a crawling peg that devalues the Cordoba against the U.S. dollar at an annual rate. The devaluation rate remained stable at 5 percent from 2004 until October 28, 2019, when the BCN announced it would devalue the Córdoba by only three percent against the U.S. Dollar.  The official exchange rate as of December 31, 2019, was 33.84 Córdobas to one U.S. dollar.  The daily exchange rate can be found on the BCN’s website .

Remittance Policies

There are no limitations on the inflow or outflow of funds for remittances or access to foreign exchange for remittances.  However, some U.S. and local banks refuse to process any transfers abroad by government officials, agencies, or SOEs due to the high risk of corruption and laundering.

Sovereign Wealth Funds

Nicaragua does not have a sovereign wealth fund.

It is virtually impossible to identify the number of companies that the Nicaraguan government owns or controls, as they are not subject to any regular audit or accounting measures and are not fully captured by the national budget or other public documents.  The Nicaraguan government uses a vast network of front men to control companies.  Even the SOEs that the government officially owns are not transparent nor subject to oversight.  Many of Nicaragua’s SOEs and quasi-SOEs were established using the now-OFAC-sanctioned ALBANISA.  The Ortega family used ALBANISA funds to divert to purchase television and radio stations, hotels, cattle ranches, electricity generation plants, and pharmaceutical laboratories.  ALBANISA’s large presence in the Nicaraguan economy and its ties to the Government of Nicaragua government put companies trying to compete in industries dominated by ALBANISA or government-managed entities at a disadvantage.

On January 28, 2019 the Office of Foreign Assets Control (OFAC) designated PDVSA and as a result all assets and subsidiary companies of PDVSA operating in Nicaragua have been subjected to the same restrictions as those in Venezuela.  This includes ALBANISA and its subsidiaries, including Bancorp.  For years, President Daniel Ortega and Vice President Rosario Murillo have engaged in corrupt deals via PDVSA that have pilfered the public resources of Nicaragua for private gain.

The government owns and operates the National Sewer and Water Company (ENACAL), National Port Authority (EPN), National Lottery, and National Electricity Transmission Company (ENATREL).  Private sector investment is not permitted in these sectors.  Nicaragua’s sole electricity distributor, Disnorte-Dissur, is widely acknowledged to be government-controlled.  In sectors where competition is allowed, the government owns and operates the Nicaraguan Insurance Institute (INISER), Nicaraguan Electricity Company (ENEL), Las Mercedes Industrial Park, Nicaraguan Food Staple Company (ENABAS), the Nicaraguan Post Office, the International Airport Authority (EAAI), the Nicaraguan Mining Company (ENIMINAS) and Nicaraguan Petroleum Company (Petronic).  In February 2020, in the aftermath of the OFAC designation of state-owned petroleum distributor DNP, the government created overnight four new entities:  the Nicaraguan Gas Company (ENIGAS); the Nicaraguan Company to Store and Distribute Hydrocarbons (ENIPLANH); the Nicaraguan Company for Hydrocarbon Exploration (ENIH); and the Nicaraguan Company to Import, Transport, and Commercialize Hydrocarbons (ENICOM).

Through the Nicaraguan Social Security Institute (INSS), the government owns a pharmaceutical manufacturing company, and other companies and real estate holdings.  The Military Institute of Social Security (IPSM) has a controlling interest in companies in the construction, manufacturing, and services sectors.  Other companies have unclear ownership structures that likely include at least a minority ownership by the Nicaraguan government or its officials.  There are few mechanisms to ensure the transparency and accountability of state business decisions.    There is no comprehensive published list of SOEs.

State-controlled companies receive non-market-based advantages, including tax exemption benefits not granted to private actors.  In some instances they are given monopolies through implementing legislation.  In other instances, the government uses formal and informal levers to advantage its companies.

Privatization Program

Nicaragua does not have an active privatization program; on the contrary, the government attempts to dominate as many sectors as possible to enrich the Ortega family and its inner circle.

Nicaragua has a well-developed legislative framework criminalizing acts of corruption, but the rampant corruption in Nicaragua begins at the top and pervades every element of government, including the national police, judiciary, customs authorities, and tax authorities.  There is no expectation that the framework be enforced other than token cases to pretend compliance.  A general state of permissiveness, lack of strong institutions, ineffective system of checks and balances, and the FSLN’s complete control of government institutions create conditions for corruption to thrive.  The judicial system remained particularly susceptible to bribes, manipulation, and political influence.  Companies reported that bribery of public officials, unlawful seizures, and arbitrary assessments by customs and tax authorities were common.

The government does not require private companies to establish internal controls.  However, Nicaraguan banks have robust compliance and monitoring programs that detect corruption and also attempt to pierce the façade of front men seeking to process transactions for OFAC-sanctioned and other actors.  Multiple government officials and government-controlled entities have been sanctioned for corruption.

Nicaragua ratified the United Nations Convention against Corruption (UNCAC) in 2006 and the Inter-American Convention Against Corruption in 1999.  It is not party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Businesses reported that corruption is an obstacle to FDI, particularly in government procurement, licensing, and customs and taxation.

Resources to Report Corruption

Nicaragua’s supreme audit institution is the Contraloria General de la República de Nicaragua (CGR).  The CGR can be reached at +505 2265-2072 and more information is available at its website www.cgr.gob.ni .

President Daniel Ortega and his wife and Vice President Rosario Murillo dominate Nicaragua’s highly centralized, authoritarian political system.  Ortega is serving his third term as president after the Ortega-controlled Supreme Court ruled that a constitutional ban on the re-election of a sitting president was unenforceable.  Ortega’s rule has been marked by increasing human rights abuses, consolidation of executive control, and consolidation of strategic business sectors that enrich him and his inner circle.

These abuses of power came to a head in April 2018, when Ortega’s security forces killed over 300 peaceful protesters.  Government tactics included the use of live ammunition, snipers, fire as a weapon, and armed vigilante forces.  Protesters built makeshift roadblocks and confronted the national police (NNP) and parapolice with rocks and homemade mortars.  The ensuing conflict left over 325 dead, thousands injured, and more than 52,000 exiled in neighboring countries.  Hundreds were illegally detained and tortured.  Beginning in August 2018, the Ortega government instituted a policy of “exile, jail, or death” for anyone perceived as regime opponents.  It amended terrorism laws to include prodemocracy activities and used the legislature and justice system to characterize civil society actors as terrorists, assassins, and coup-mongers.  Political risk has increased dramatically as a result, and the future of the country’s political institutions remains very uncertain.

The NNP presence is ubiquitous throughout Nicaragua, including with randomized checkpoints.  Excessive use of force, false imprisonment, and other harassment against opposition leaders—including many private sector leaders—is common.  On March 5, 2020, the United States sanctioned the NNP.

Widespread dissatisfaction with Ortega’s authoritarian rule continues.  Elections are currently scheduled for November 2021, although some opposition groups press for early elections.  The Department of State’s Bureau of Consular Affairs advises that travelers reconsider travel to Nicaragua due to civil unrest, crime, limited healthcare availability, and arbitrary enforcement of laws.

Policies Towards Foreign Direct Investment

The Government of Niger is committed to attracting FDI and has repeatedly pledged to take whatever steps necessary to encourage the development of its private sector and increase trade.  The country offers numerous investment opportunities, particularly in agriculture, livestock, energy, telecommunication, industry, infrastructure, hydrocarbons, services, and mining.  In the past several years, new investor codes have been implemented (the most recent being in 2014), the Public-Private Partnership law was adopted in 2018 and subsequently implemented.  Transparency has improved, and customs and taxation procedures have been simplified.  There are no laws that specifically discriminate against foreign and/or U.S. investors.  The government of Niger has demonstrated a willingness to negotiate with prospective foreign investors on matters of taxation and customs.

The Investment Code adopted in 2014 guarantees the reception and protection of foreign direct investment, as well as tax advantages available for investment projects.  The Investment Code allows tax exemptions for a certain period and according to the location and amount of the projects to be negotiated on a case-by-case basis with the Ministry of Commerce.  The code guarantees fair treatment of investors regardless of their origin.  The code also offers tax incentives for sectors that the government deems to be priorities and strategic, including energy production, agriculture, fishing, social housing, health, education, crafts, hotels, transportation, and the agro-food industry.  The code allows free transfer of profits and free convertibility of currencies.

The Public-Private Partnership law adopted in 2018 gives such projects total exemption from duties and taxes, including Value Added Tax (VAT), on the provision of services , works and services directly contributing to the realization of the project in the design and/or implementation phase.  Parts, spare parts, and raw materials intended for projects do not benefit from a duty exemption and customs taxes unless they are not available at Niger.  In the design and/or production phase, private public partnerships benefit from free registration of agreements and all acts entered by the contracting authority and the contracting partner within the framework of the project.

Despite having regulations in place to invite FDI, Niger’s enforcement of its tax code is not always even.  In 2018 and 2019, at least two notable foreign investors complained of unfair tax enforcement or policies.

There are no laws or practices that discriminate against foreign investors including U.S. investors.

The High Council for Investment of Niger (HCIN), created in 2017, reports directly to the President of the Republic.  HCIN is the GoN’s platform for public-private dialogue and has a goal of increasing Foreign Direct Investments, improving Niger’s business environment, and defining private sector priorities to possible investors.

In 2018, Niger’s government reviewed the HCIN’s mission as related to international best practices on attracting FDI.  Subsequently the GoN added, by Presidential Decree, a Nigerien Agency for the Promotion of Private Investment and Strategic Projects (ANPIPS).  It reports to the HCIN and is the implementing agency of HCIN’s policy initiatives.  To date the two agencies have successfully completed a number of investment agreements, notably with Chinese and Turkish firms.  In 2018, it assisted representatives from an American firm in gaining access to Niger and arranging meetings with appropriate government officials.

To improve business climate indicators, the GoN created an Institutional Framework for Improving Business Climate Indicators Office (Dispositif Institutionnel d’Amélioration et de Suivi du Climat des Affaires), within the Ministry of Commerce.  Its stated goal is to create a regulatory framework that permits the implementation of sustainable reforms.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises.  Energy, mineral resources, and national security related sectors restrict foreign ownership and control; otherwise, there are no limitations on ownership or control.  In the extractive industries, any company to which the GoN grants a mining permit must give the GoN a minimum 10 percent share of the company.  This law applies to both foreign and domestic operations.

The GoN reserves the right to require companies exploiting mineral resources to give the GoN up to a 33 percent stake in their Nigerien operations.  Although Ministry of Planning authorization is required, foreign ownership of land is permitted.  In 2015, under the auspices of the Ministry of Commerce, the GoN validated a new Competition and Consumer Protection Law, replacing a 1992 law that was never operational.  Niger also adheres to the Community Competition Law of the West African Economic and Monetary Union (WAEMU) and directives of the Economic Community of West African States (ECOWAS) as well as those offered to investors by the Multilateral Investment Guarantee Agency (MIGA) all of which provide benefits and guarantees to private companies.

The Government of Niger is an active proponent of the African Continental Free Trade Agreement, which President Issoufou stated will encourage international investments and ease trade for international investors.

Foreign and domestic private entities have the right to establish and own business enterprises.  A legal Investment Code governs most activities except accounting, which the Organization for the Harmonization of Business Law in Africa (OHADA) governs.  The Mining Code governs the mining sector and the Petroleum Code governs the petroleum sector, with regulations enforced through their respective ministries.  The investment code guarantees equal treatment of investors regardless of nationality.  Companies are protected against nationalization, expropriation or requisitioning throughout the national territory, except for reasons of public utility.

The state remains the owner of water resources through the Niger Water Infrastructure Corporation (SPEN), which was created in 2001 and is responsible for the management of the state’s hydraulic infrastructure in urban and semi-urban areas, including development, and project management.  Concessions for the use of water and for the exploitation of works and hydraulic installations may be granted to legal persons governed by private law, generally by presidential decree.  However, the day to day work is through the French investor Veolia through the Niger Water Exploitation Company (SEEN).

An investment screening mechanism does not exist under the Investment Code.  The HCIN is a de facto advisory council to the government on any large scale investment.  The HCIN would support investor engagement with appropriate government offices and facilitate meeting any regulatory requirements.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews through a multi-lateral organization.  Neither the United Nations Conference on Trade and Development (UNCTAD), nor the Organization for Economic Cooperation and Development (OECD) has carried out a policy review for Niger.

The World Bank, however, cohosted a roundtable discussion in 2019 with government, civil society, and business representatives to review Niger’s business climate including its investment policies.

https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?Id=243443&filename=q/WT/TPR/S362R1-07.pdf 

http://unctad.org/en/Pages/DIAE/Investment percent20Policy percent20Reviews/Investment-Policy-Reviews.aspx 

Business Facilitation

Niger’s one-stop shop, the Maison de l’Entreprise, is mandated to enhance business facilitation by mainstreaming and simplifying the procedures required to start a business within a single window registration process.

From 2016 to 2019, the cost and time needed to register businesses dropped from 100,000 CFA (about USD190) to 17,500 CFA (about USD33).  Furthermore, the time to obtain construction permits dropped, as well as the cost of access to water and electricity networks.  The GoN also created an e-regulations website (https://niger.eregulations.org/procedure/2/1?l=fr ), which allows for a clear and complete registration process.  Foreign companies may use this website, which lists government agencies with which businesses must register.  The business registration process was down to about 3 days by 2019, from over 14 days in 2016.

The Government maintains a policy of working with international organizations in finding ways to improve its business registration process, which is reflected in its year-over-year improvements in Niger’s Ease of Doing Business Score as measured by the World Bank.  In the 2020 doing business, Niger score 56.8 and ranked at 132 out of 190 economies.

Company registration can be done at the Centre de Formalités des Entreprises (CFE), at the Maison de l’Entreprise, which is designed as a one-stop-shop for registration.  Applicants must file the documents with the Commercial Registry (Registre du Commerce et du Crédit Mobilier – RCCM), which has a representative at the one-stop shop.

At the same location, a company can register for taxes, obtain a tax identification number (Numéro d’Identification Fiscale – NIF), register with social security (Caisse nationale de Sécurité Sociale – CNSS), and with the employment agency (Agence Nationale pour la Promotion de l’Emploi – ANPE).  Employees can be registered with social security at the same location.

When a company registers, the applicant may also request the publication of a notice of company incorporation, a mandatory step, on the Maison de l’Entreprise website: http://mde.ne/spip.php?rubrique10 .  The notice of incorporation can alternatively be published in an official newspaper (journal d’annonces légales).

Outward Investment

The government does not promote outward investment.  The government’s policy objectives, as specified in the second Nigerien Renaissance Program (section 1.2), is the development of international markets, especially that of ECOWAS, for Nigerien exports rather than investment.

The GoN does not restrict domestic investors from investing abroad.  To the contrary, Niger currently has active Bilateral Investment Treaties (BITs) with Germany and Switzerland.  BITs were signed with Algeria, Tunisia and Egypt, but are not in force.  Niger is eligible to export virtually all marketable goods duty-free in to the U.S. market via the African Growth and Opportunity Act (AGOA) system of trade preferences.

Niger does not have a bilateral taxation treaty with the United States.  The United States, however, signed a Trade and Investment Framework Agreement (TIFA) with WAEMU in 2014.  It includes Niger.  There is no ongoing systemic tax dispute between the government and foreign investors.

Capital Markets and Portfolio Investment

Niger’s government welcomes foreign portfolio investment.

Niger’s capital markets are extremely underdeveloped, and the country does not have its own stock market. However, the country shares a regional stock market The Bourse Régionale des Valeurs Mobilières (BRVM) with the eight (8) Member States in the West African Economic and Monetary Union (WAEMU), namely: Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. This is the only stock market in the world shared by several countries, run totally in digital format and integrated in a perfect manner.

Although an effective regulatory system exists, and policies encourage portfolio investment, there is little market liquidity and hence little opportunity for such investment. The agency UMOA-Titres (AUT), a regional agency to support public securities issuance and management in the WAEMU (bonds market), is dedicated to helping member states use capital markets to raise the resources they need to fund their economic development policies at reasonable cost.

There are no limits on the free flow of financial resources.

The government works closely with the IMF to ensure that payments and transfers overseas occur without undue restrictions. Credit is allocated on market terms and foreigners do not face discrimination.

Credit is allocated on market terms through large corporations. Although foreign investors are generally able to get credit on the local market, limited domestic availability tends to drive investors to international markets. To access a variety of credit instruments, the private sector often looks to multinational institutions in Niger or international sources for credit. Private actors in the agriculture, livestock, forestry, and fisheries sectors (which account for more than 40 percent of GDP) receive less than one percent of total bank credit.

Money and Banking System

Less than three percent of Nigeriens have a bank account and the debt rate of the financial sector, measured by the ratio money supply, is at 24.1 percent in 2012 (the average for the sub-region is 32 percent).

The banking sector is generally healthy and well capitalized.

Not applicable, as the banking sector is generally healthy.

As of December 31, 2017, the resources mobilized by the banking system amounted to 1096.5 billion CFA (1.9 billion USD), an increase of 63.1 billion cfaf (112.5 million USD) or 6.1 percent compared to the same period of 2016. This evolution mainly explained by the increase in net capital of banks by 34.9 billion cfaf (62.3 million USD) or 27.3 percent and the increase of borrowing deposits by 16.3 billion CFA (29 million USD) or 2.0 percent. Demand deposits represent more than half of the total resources of the sector throughout the period under review. Foreign banks control about 80 percent of the sector’s assets, with SONIBANK, BIA Niger, Ecobank and Bank of Africa (BOA) being the largest banks operating in the country.

The Central Bank of West African States governs Niger’s banking institutions and sets minimum reserve requirements through its national Central Bank representation.

Foreign banks are permitted to establish operations in Niger and regulations are in place.  Niger has not lost any correspondent banking in the last three years.

There are no restrictions on a foreigner’s ability to establish a bank account, and foreign banks and their subsidiaries operate within the economy without undue restrictions. Niger is a part of the West African Economic and Monetary Union (WAEMU), which utilizes the CFA, pegged to the Euro at 655.61 CFA per euro.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment, including remittances.  Funds are freely convertible into any world currency. However, the government must approve currency conversions above 2 million CFA (approximately 3,413 USD).  The exchange rate is determined via the euro’s fluctuations on the international currency market. The CFA is pegged to the euro.

Remittance Policies

Niger’s Investment Code offers the possibility to transfer income of any kind, including capital investment and the proceeds of investment liquidation, regardless of the destination.  There are no limitations or waiting periods on remittances, though the Ministry of Finance must approve currency conversions above 2 million CFA (approximately 3,250 USD).

Sovereign Wealth Funds

Niger does not maintain a Sovereign Wealth Fund (SWF), and does not subscribe to the Santiago Principles. The government has plans for a build-up of reserves at the Central Bank of West African States (BCEAO) using oil revenues.

State-Owned Enterprises (SOEs) in Niger are defined as companies in which the GoN is the majority stakeholder. They play a major role in Niger’s economy and dominate or heavily influence a number of key sectors, including energy (NIGELEC), telecommunications (Niger Telecom), and water resources (SEEN and SPEN), construction and retail markets (SOCOGEM); petroleum products distribution (SONIDEP); mining (SOPAMIN, SOMAIR, COMINAK, SONICHAR); oil refinery (SORAZ), textile (SOTEX) and hotels (SPEG).

SOEs do not receive non-market based advantages from the host government. According to the 2016 Public Expenditures and Financial Accountability (PEFA) draft document, there are eight wholly-owned SOEs, and six SOEs majority-owned by the state. State-Owned enterprises are answerable to their supervisory ministry and send certified accounting records to the supervisory ministries and to the Public Enterprises and State Portfolio Directorate (DEP/ PE). SOE record-keeping is expected to comply with SYSCOHADA accounting system standards.

There are no laws or rules that offer preferential treatment to SOEs. They are subject to the same tax rules and burdens (although many remain in tax arrears) as the private sector, and are subject to budget constraints. Niger is not a member of the OECD and does not adhere to its guidelines.

Privatization Program

Most sectors of the economy, except for specified SOEs, have been privatized.  The state-owned oil-distribution company (SONIDEP) no longer has a monopoly over oil exportation; exportation authority is now equally shared between SONIDEP and the Chinese National Petroleum Corporation (CNPC).  Likewise, although the national electricity company (NIGELEC) continues to hold a virtual monopoly on electricity distribution, steps were taken in 2016 to allow third party access to the country’s electricity grid.  Competition in the mobile telecommunication sector forced the GoN to combine state-owned fixed line telecommunications provider SONITEL with the state-owned mobile provider Sahelcom to form a new parastatal, known as Niger Telecom. Although the state continues to hold a monopoly on fixed-line telephony, mobile communications is open to competition.

Foreign investors are welcome to participate in the country’s privatization program. Privatization operations are conducted under the technical direction of the ministry that currently controls the company.  After a detailed analysis of business operations conducted by an internationally known independent audit firm, the government issues a call for bids.

When privatization occurs, there is a process for public bidding. Depending on the ministry responsible, there may be no electronic bidding. Rather tenders may be announced only in local media.

The constitution, adopted in 2010, contains provisions for greater transparency in government reporting of revenues from the extractive industries, as well as the declaration of personal assets by government officials, including the President  Since his re-election in February 2016, President Issoufou has made combatting corruption within the GON one of the stated focus points of his presidency.

The High Authority for the Fight against Corruption and Related Offenses (HALCIA) has the authority to investigate corruption charges within all government agencies.  HALCIA is limited by a lack of resources and a regulatory process that is still developing.  Despite the limitations, HALCIA was able to conduct a number of successful investigations during 2019.

Laws related to anti-corruption measures are in place and apply to government officials, their family members, and all political parties.  Legislation on Prevention and Repression of Corruption was passed into law in January 2018; a strategy for implementation was still pending at year’s end.

Niger has laws in place designed to counter conflict of interest in awarding contracts and/or government procurements. Bribery of public officials by private companies is officially illegal, but occurs regularly despite GON denunciations of such conduct.

Law number 2017-10 of March 31, 2017, prohibits bribery of public officials, international administrators, and foreign agents, bribes within the private sector, illicit enrichment and abuse of function by public authorities. The High Authority Against Corruption and Relating Crimes (HALCIA) is further tasked with working with private companies on internal anti-corruption efforts.

Bribery of public officials occurs on a regular basis. Though most companies officially discourage such behavior, internal controls are rare except among the largest (mostly foreign) enterprises.

The government/authority encourages or requires private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

The government does not provide any additional protections to NGOs involved in investigating corruption.

The government/authority encourages or requires private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

Niger has joined several international and regional anti-corruption initiatives including the UN Convention against Corruption in 2008, the African Union Convention on Preventing and Combating Corruption in 2005, and the Protocol on Combating Corruption of the economic community of the states of West Africa (ECOWAS) in 2006. Niger is also member state of the GIABA, which is an institution of the Economic Community of West African States (ECOWAS) responsible for facilitating the adoption and implementation of Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) in West Africa.

As of April 2019, there are no U.S. firms invested in Niger, for reasons which include – but are not limited to – the perception of corruption. Cases of suspected corruption occasionally appear in media reports concerning GON procurement, the award of licenses and concessions and customs.

Resources to Report Corruption

Gousmane Abdourahamane
President
High Authority to Combat Corruption and Related Infractions (HALCIA)
BP 550 Niamey – Niger
(+227) 20 35 20 96
issoufbour@gmail.com

Wada Maman
President
Transparency International Niger (TI-N)
BP 10423, Niamey – Niger
(+227) 20 32 00 96 / 96 28 79 69
anlcti@yahoo.fr

Niger has been politically stable since 2010, when the most recent of Niger’s coup d’états (there have been four since 1990) concluded within less than a year returning the country to  democratic governance. The most recent general elections were held in in February 2016, with a presidential run-off in March 2016.  President Issoufou Mahamadou was re-elected for a second mandate by a considerable majority.  Tensions over the preparation of the elections and election logistics widened divisions between opposition activists and supporters of the incumbent president and his ruling Nigerien Party for Democracy and Socialism (PNDS) and coalition.  However, the election proceeded without violence.

Although Niger’s politics are often contentious and antagonistic, political violence is rare.  Most parties agree that national security and peaceful cohabitation among Niger’s ethnicities are the government’s principal priority.  However, protests and strikes about non-payment of salaries for public employees, lack of funding for education, and general dissatisfaction with social conditions remain a concern.

Public protest over issues like poverty, corruption, and unemployment can also sometimes turn violent.  In October 2017, police arrested several protesters engaged in burning tires and vandalizing property in protest of a proposed finance law.  After the passage of the law, protests continued on a bi-weekly and then weekly basis through at least April 2018.  In March and April 2018, police began to intervene, and several people were arrested, including important civil society leaders.  By the end of 2018, the number of protests dropped significantly and remained peaceful throughout the remaining of the reporting period.

Nigerien students regularly participate in peaceful protests, and on occasion, these become violent.  In April 2017, one student in Niamey was killed at a protest, hit in the head by a teargas canister.

Nigeriens are generally welcoming to foreigners and foreign investment is welcomed by all elements of society. One rare exception to acceptance of foreigners occurred in January 2015 after President Issoufou was perceived to be too forgiving of anti-Muslim satire that had been published on the cover of the French magazine, Charlie Hebdo. In three days of riots throughout the country, at least ten people killed and dozens of Christian churches, market stalls, French-owned businesses, some political-party linked buildings, two private homes, and a Christian school were attacked.

Niger experiences security threats on three distinct border areas.  Niger is a founding member of the G5 Sahel fighting terrorism in the Sahel while integrating a poverty reduction dimension to mitigate the effects of youth underemployment and violent extremism. The collapse of the Libyan state to the north has resulted in a flow of weapons and extremists throughout the Sahel region. Boko Haram and ISIS-West Africa terrorists regularly launch attacks in the Diffa Region in Niger’s southeast, leading to numerous civilian and security forces deaths. Jama’at al Nusrat al-Islam wa al-Muslimin (JNIM), which is a loose affiliation of al-Qaeda in the Islamic Maghreb (AQIM), the Macina Liberation Front (MLF), Ansar Dine, and al-Mourabitoun; along with ISIS-Greater Sahara (ISIS-GS), threaten Niger’s northern and northwestern borders. Terrorists regularly crossed the Mali and Burkina Faso border to attack civilian and security sites in the Tillaberi and Tahoua regions. A German aid worker was kidnapped in Tillaberi in April 2018, an American aid worker was kidnapped in Tahoua in October 2016, and an Italian Pastor was kidnapped in Torodi in September 2018.  So far, more than 15 out of the 266 communes in Niger are in a state of emergency. The State Department’s Travel Advisory for Niger from April 2017 advises travels to be aware that violent crimes including robbery are common and terrorism is a threat.

Niger has scheduled national elections, including presidential, in December 2020.  President Issoufou has repeatedly stated he will step down at the end of his second term.  Since independence, however, Niger has not had a successful peaceful transition of power.  Many observers anticipate increased protests as elections near.

Policies Towards Foreign Direct Investment

The Nigerian Investment Promotion Commission (NIPC) Act of 1995 dismantled controls and limits on FDI, allowing for 100 percent foreign ownership in all sectors, except the petroleum sector where FDI is limited to joint ventures or production-sharing contracts.  It also created the NIPC with a mandate to encourage and assist investment in Nigeria.  The NIPC features a One-Stop Investment Center (OSIC) that nominally includes participation of 27 governmental and parastatal agencies (not all of which are physically present at the OSIC) to consolidate and streamline administrative procedures for new businesses and investments.  Foreign investors receive largely the same treatment as domestic investors in Nigeria, including tax incentives.  The NIPC’s ability to attract new investment has been limited because of the unresolved challenges to investment and business.

The Nigerian government continues to promote import substitution policies such as trade restrictions, foreign exchange restrictions, and local content requirements in a bid to attract investment that would develop domestic production capacity and services that would otherwise be imported.  The import bans and high tariffs used to advance Nigeria’s import substitution goals have been undermined by smuggling of targeted products (most notably rice and poultry) through the country’s porous borders, and by corruption in the import quota systems developed by the government to incentivize domestic investment.  The government began closing land borders to commercial trade in August 2019 to try and curb smuggling.  Investors generally find Nigeria a difficult place to do business despite the government’s stated goal to attract investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are currently no limits on foreign control of investments; however, Nigerian regulatory bodies may insist on domestic equity as a prerequisite to doing business.  The NIPC Act of 1995 liberalized the ownership structure of business in Nigeria allowing foreign investors to own and control 100 percent of the shares in any company except the petroleum industry.  Ownership prior to the NIPC Act was limited to a 60/40 percentage in favor of majority Nigeria control.   The foreign control of investments applies to all industries minus a few exceptions.  Investment in the oil and gas sector is limited to joint ventures or production-sharing agreements.  Laws also control investment in the production of items critical to national security (i.e. firearms, ammunition, and military and paramilitary apparel) to domestic investors.  Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990.  The NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in case of national interest.

Other Investment Policy Reviews

The OECD completed an investment policy review of Nigeria in 2015. (http://www.oecd.org/countries/nigeria/oecd-investment-policy-reviews-nigeria-2015-9789264208407-en.htm ).  The WTO published a trade policy review of Nigeria in 2017, which also includes a brief overview and assessment of Nigeria’s investment climate.  That review is available at https://www.wto.org/english/tratop_e/tpr_e/tp456_e.htm .

The United Nations Council on Trade and Development (UNCTAD) published an investment policy review of Nigeria and a Blue Book on Best Practice in Investment Promotion and Facilitation in 2009 (available at unctad.org ).  The recommendations from its reports continue to be valid:  Nigeria needs to diversify FDI away from the oil and gas sector by improving the regulatory framework, investing in physical and human capital, taking advantage of regional integration and reviewing external tariffs, fostering linkages and local industrial capacity, and strengthening institutions dealing with investment and related issues.  NIPC and the Federal Inland Revenue Service published a compendium of investment incentives which is available online at https://nipc.gov.ng/compendium .

Business Facilitation

Although the NIPC offers the OSIC, Nigeria does not have an online single window business registration website, as noted by Global Enterprise Registration (www.GER.co ).  The Nigerian Corporate Affairs Commission (CAC) maintains an information portal and in 2018 the Trade Ministry launched an online portal for investors called “iGuide Nigeria” (https://theiguides.org/public-docs/guides/nigeria ).  Many steps for business registration can be completed online, but the final step requires submitting original documents to a CAC office to complete registration.  On average, a foreign-owned limited liability company (LLC) in Nigeria (Lagos) can be established in 10 days through eight steps.  This average is significantly faster than the 23-day average for Sub-Saharan Africa.  Timing may vary in different parts of the country.  Only a local legal practitioner accredited by the CAC can incorporate companies in Nigeria.  According to the Nigerian Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, foreign capital invested in an LLC must be imported through an authorized dealer, which will issue a Certificate of Capital Importation.  This certificate entitles the foreign investor to open a bank account in foreign currency.  Finally, a company engaging in international trade must get an import-export license from the Nigerian Customs Service (NCS).

Although not online, the OSIC co-locates relevant government agencies to provide more efficient and transparent services to investors.  The OSIC assists with visas for investors, company incorporation, business permits and registration, tax registration, immigration, and customs issues.  Investors may pick up documents and approvals that are statutorily required to establish an investment project in Nigeria.  The Nigerian government has not established uniform definitions for micro, small, and medium enterprises (MSMEs) with different agencies using different definitions, so the process may vary from one company to another.

Outward Investment

The Nigerian Export Promotion Council (NEPC) administered an Export Expansion Grant (EEG) scheme to improve non-oil export performance, but the government suspended the program in 2014 due to concerns about corruption on the part of companies that collected grants but did not actually export.  The program was revised and re-launched in 2018 when the federal government set aside 5.12 billion naira (roughly USD 14.2 million) in the 2019 budget for the EEG scheme.  The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused.  NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports.

Agencies created to promote industrial exports remain burdened by uneven management, vaguely defined policy guidelines, and corruption.  Nigeria’s inadequate power supply and lack of infrastructure coupled with the associated high production costs leave Nigerian exporters at a significant disadvantage.  Many Nigerian businesses fail to export because they find meeting international packaging and safety standards is too difficult or expensive.  Similarly, firms often are unable to meet consumer demand for a consistent supply of high-quality goods in sufficient quantities to support exports and meet domestic demand.  Most Nigerian manufacturers remain unable to or uninterested in competing in the international market,  given the size of Nigeria’s domestic market.

Capital Markets and Portfolio Investment

The NIPC Act of 1995 liberalized Nigeria’s foreign investment regime, which has facilitated access to credit from domestic financial institutions.  Foreign investors who have incorporated their companies in Nigeria have equal access to all financial instruments.  Some investors consider the capital market, specifically the Nigerian Stock Exchange, a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments.

The Nigeria Stock Exchange (NSE) was reflective of the sluggishness in the larger economy in 2019 as it posted a negative return of -14.6 percent to close the year with its All Share Index at 26,842.07.   The poor performance was mostly attributed to government regulatory uncertainty and the 2019 presidential elections.   However, the equity market capitalization increased by 11 percent to USD 36.0 billion from USD 32.5 billion in 2018, largely due to the notable listings of telecom companies MTN Nigeria Communications Plc and Airtel Africa which had been long awaited.   As of December 2019 the NSE had 164 listed companies.  The total number of securities listed increased by 26 percent to 361 from 286 securities in 2018, largely due to a growth in government bonds.  The Nigerian government has considered requiring companies in certain sectors such as telecoms, oil and gas, or over a certain size to list on the NSE as a means to encourage greater corporate participation and sectoral balance in the Nigerian Stock Exchange, but those proposals have not been enacted to date.

The Government employs debt instruments, issuing bonds of various maturities ranging from two to 20 years.  Nigeria has issued bonds to restructure the government’s domestic debt portfolio from short- to medium- and long-term instruments.  Some state governments have issued bonds to finance development projects, while some domestic banks have used the bond market to raise additional capital.  The Nigerian Securities and Exchange Commission has issued stringent guidelines for states wishing to raise funds on capital markets, such as requiring credit assessments conducted by recognized credit rating agencies.

Money and Banking System

The CBN currently licenses 22 deposit-taking commercial banks in Nigeria.  Following a 2009 banking crisis, CBN officials intervened in eight of 24 commercial banks (roughly one-third of the system by assets) due to insolvency or serious undercapitalization.  At the same time, it established the government-owned Asset Management Company of Nigeria (AMCON) to address bank balance sheet disequilibria via discounted purchases of non-performing loans.  The Nigerian banking sector emerged stronger from the crisis thanks to AMCON and a number of other reforms undertaken by the CBN, including the adoption of uniform year-end International Financial Reporting Standards (IFRS) to increase transparency, a stronger emphasis on risk management and corporate governance, and the nationalization of three distressed banks.

In 2013, the CBN introduced a stricter supervision framework for the country’s top banks, identified as “Systemically Important Banks” (SIBs) as they account for more than 70 percent of the industry’s total assets, loans and deposits, and their failure or collapse could disrupt the entire financial system and the country’s real economy.  These banks are:  First Bank of Nigeria, United Bank for Africa, Zenith Bank, Access Bank, Ecobank Nigeria, Guaranty Trust Bank, and Polaris Bank.  Under the new supervision framework, the operations of SIBs are closely monitored with regulatory authorities conducting stress tests on the SIBs’ capital and liquidity adequacy.  Moreover, SIBs are required to maintain a higher minimum capital adequacy ratio of 15 percent.  In September 2018, the CBN revoked the operating license of one of the SIBs, due to the deterioration of its share capital and its board’s failure to recapitalize the bank, making it the fourth bank to be nationalized.

The CBN reported that total deposits increased by N2.34tn or 10.7 percent and aggregate credit grew by N2.2tn or 14.5 percent by December 2019.  Non-performing loans (NPLs) declined to 6.1 percent in December, 2019 from 14.2 percent in 2018.  However, NPLs are expected to rise following the CBN’s directive to banks to increase their loan to deposit ratio to 6 percent or be penalized.  This has forced several banks to grant more credits, many of which may result in default.  Nigerian government and private sector analysts assess that the volume of NPLs may be higher than these figures, owing in part to banks not reporting non-performing insider loans made to banks’ owners and directors.

The CBN supports non-interest banking.  Several banks have established Islamic banking operations in Nigeria including Jaiz Bank International Plc, Nigeria’s first full-fledged non-interest bank, which commenced operations in 2012.  A second non-interest bank, Taj Bank, started operations in December 2019.   There are five licensed merchant banks: Coronation Merchant Bank Limited, FBN Merchant Bank, FSDH Merchant Bank Ltd, NOVA Merchant Bank, and Rand Merchant Bank Nigeria Limited.

The CBN has issued regulations for foreign banks regarding mergers with or acquisitions of existing local banks in the country.  Foreign institutions’ aggregate investment must not be more than 10 percent of the latter’s total capital.

Foreign Exchange and Remittances

Foreign Exchange

Foreign currency for most transactions is procured through local banks in the inter-bank market.  Low value foreign exchange may also be procured at a premium from foreign exchange bureaus, called Bureaus de Change.  Domestic and foreign businesses have frequently expressed strong concern about the CBN’s foreign exchange restrictions, which they report prevent them from importing needed equipment and goods and from repatriating naira earnings.  Foreign exchange demand remains high because of the dependence on foreign inputs for manufacturing and refined petroleum products.

In 2015, the CBN published a list of 41 product categories which could no longer be imported using official foreign exchange channels; the number of categories has since been increased to 44.  Affected businesses (American and Nigerian) have complained publicly and privately that the policy in effect bans the import of some 700 individual items and severely hampers their ability to source inputs and raw materials.  In February 2019, the Governor of the Central Bank commented that the Bank is currently considering adding more items to the list and bringing the number as high as 50 items.

https://www.cbn.gov.ng/out/2015/ted/ted.fem.fpc.gen.01.011.pdf 

In 2017, the CBN began providing more foreign exchange to the interbank market via wholesale and retail forward contract auctions in order to meet some of the demand that had been forced to the parallel market.    The CBN also established the “investors and exporters” window in 2017, which allows trade to occur at prevailing market rates (around 360 naira to the dollar in December 2019).  In March 2020, the CBN announced it had collapsed its multiple exchange rate policy following a currency adjustment such that the investor and exporters window rate was increased to 380 naira to the dollar, and government transactions are now contracted at approximately 360 naira to the dollar.

Remittance Policies

The NIPC guarantees investors unrestricted transfer of dividends abroad (net a 10 percent withholding tax).  Companies must provide evidence of income earned and taxes paid before repatriating dividends from Nigeria.  Money transfers usually take no more than 48 hours.  In 2015, the CBN implemented restrictions on foreign exchange remittances.  All such transfers must occur through banks.  Such remittances may take several weeks depending on the size of the transfer and the availability of foreign exchange at the remitting bank.  Transfers of currency are protected by Article VII of the International Monetary Fund Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

Sovereign Wealth Funds

The Nigeria Sovereign Investment Authority (NSIA) manages Nigeria’s sovereign wealth fund.  It was created by the NSIA Act in 2011 and began operations in October 2012 with USD 1 billion seed capital and received an additional USD 500 million in 2017.  In its most recent annual report, the total assets being managed by NSIA, increased to N617.7 billion (USD 2.0 billion) in 2018, an increase of 15.7 percent from 2017.  The NSIA also posted total comprehensive income of N44.3 billion (USD 144.9 million) in 2018, a 58.8 percent growth over the 2017 figure of N27.9 billion (USD 91.2 million).  http://www.nsia.com.ng/~nsia/sites/default/files/annual-reports/NSIA%20Annual%20Report%202018.pdf   It was created to receive, manage, and grow a diversified portfolio that will eventually replace government revenue currently drawn from non-renewable resources, primarily hydrocarbons.

The NSIA is a public agency that subscribes to the Santiago Principles, which are a set of 24 guidelines that assign “best practices” for the operations of Sovereign Wealth Funds globally. The NSIA invests through three funds:  the Future Generations Fund for diversified portfolio of long term growth, the Nigeria Infrastructure Fund for domestic infrastructure development, and the Stabilization Fund to act as a buffer against short-term economic instability.  The NSIA does not take an active role in management of companies.  The Embassy has not received any report or indication that NSIA activities limit private competition.

The Nigerian government does not have an established practice consistent with the OECD Guidelines on Corporate Governance for state-owned enterprises (SOEs), but SOEs do have enabling legislation that governs their ownership.  To legalize the existence of state-owned enterprises, provisions have been made in the Nigerian constitution under socio-economic development in section 16 (1) of the 1979 and 1999 Constitutions respectively.  The government has privatized many former SOEs to encourage more efficient operations, such as state-owned telecommunications company Nigerian Telecommunications and mobile subsidiary Mobile Telecommunications in 2014.

Nigeria does not operate a centralized ownership system for its state-owned enterprises.  The enabling legislation for each SOE stipulates its ownership and governance structure.  The Boards of Directors are usually appointed by the President on the recommendation of the relevant Minister.  The Boards operate and are appointed in line with the enabling legislation which usually stipulates the criteria for appointing Board members.  Directors are appointed by the Board within the relevant sector.  In a few cases, however, appointments have been viewed as a reward to political affiliates.

The Nigerian National Petroleum Corporation (NNPC) is Nigeria’s most prominent state-owned enterprise.  NNPC Board appointments are made by the presidency, but day-to-day management is overseen by the Group Managing Director (GMD).  The GMD reports to the Minister of Petroleum.  In the current administration the President has retained that ministerial role for himself, and the appointed Minister of State for Petroleum acts as the de facto Minister of Petroleum in the President’s stead.  The National Assembly passed a Petroleum Industry Governance Bill in March 2018, but the President sent it back to the National Assembly requesting amendments.  The bill would clarify regulatory, policy, and operational roles in the petroleum sector and pave the way for partial privatization of NNPC.

NNPC is Nigeria’s biggest and arguably most important state-owned enterprise and is responsible for exploration, refining, petrochemicals, products transportation, and marketing.  It owns and operates Nigeria’s four refineries (one each in Warri and Kaduna and two in Port Harcourt), all of which operate far below capacity, if at all.  Nigeria’s tax agency receives taxes on petroleum profits and other hydrocarbon-related levies, while the Department of Petroleum Resources under the Ministry of Petroleum Resources collects rents, royalties, license fees, bonuses, and other payments.  In an effort to provide greater transparency in the collection of revenues that accrue to the government, the Buhari administration requires these revenues, including some from the NNPC, to be deposited in the Treasury Single Account.

Another key state-owned enterprise is the Transmission Company of Nigeria (TCN), responsible for the operation of Nigeria’s national electrical grid.  Private power generation and distribution companies have accused the TCN grid of significant inefficiency and inadequate technology which greatly hinder the nation’s electricity output and supply.  TCN emerged from the defunct National Electric Power Authority as an incorporated entity in 2005.  It is the only major component of Nigeria’s electric power sector, which was not privatized in 2013.

Privatization Program

The Privatization and Commercialization Act of 1999 established the National Council on Privatization, the policy-making body overseeing the privatization of state-owned enterprises, and the Bureau of Public Enterprises (BPE), the implementing agency for designated privatizations.  The BPE has focused on the privatization of key sectors, including telecommunications and power, and calls for core investors to acquire controlling shares in formerly state-owned enterprises.

The BPE has privatized and concessioned more than 140 enterprises since 1999, including an aluminum complex, a steel complex, cement manufacturing firms, hotels, a petrochemical plant, aviation cargo handling companies, vehicle assembly plants, and electricity generation and distribution companies.  The electricity transmission company remains state-owned.  Foreign investors can and do participate in BPE’s privatization process.  The BPE also retains partial ownership in some of the privatized companies.  (It holds a 40 percent stake in the power distribution companies.)

The National Assembly has questioned the propriety of some of these privatizations, with one ongoing case related to an aluminum complex privatization the subject of a Supreme Court ruling on ownership.  In addition, the failure of the 2013 power sector privatization to restore financial viability to the sector has raised criticism of the privatized power generation and distribution companies.  Nevertheless, the government’s long-delayed sale in 2014 of state-owned Nigerian Telecommunications and Mobile Telecommunications shows a continued commitment to the privatization model.

Foreign companies, whether incorporated in Nigeria or not, may bid on government projects and generally receive national treatment in government procurement, but may also be subject to a local content vehicle (e.g., partnership with a local partner firm or the inclusion of one in a consortium) or other prerequisites which are likely to vary from tender to tender.  Corruption and lack of transparency in tender processes has been a far greater concern to U.S. companies than discriminatory policies based on foreign status.  Government tenders are published in local newspapers, a “tenders” journal sold at local newspaper outlets, and occasionally in foreign journals and magazines.  The Nigerian government has made modest progress on its pledge to conduct open and competitive bidding processes for government procurement with the introduction of the Nigeria Open Contracting Portal in 2017 under the Bureau of Public Procurement.

The Public Procurement Law of 2007 established the Bureau of Public Procurement as the successor agency to the Budget Monitoring and Price Intelligence Unit.  It acts as a clearinghouse for government contracts and procurement and monitors the implementation of projects to ensure compliance with contract terms and budgetary restrictions.  Procurements above 100 million naira (about USD 277,550) reportedly undergo full “due process,” but government agencies routinely flout public procurement requirements.  Some of the 36 states of the federation have also passed public procurement legislation.

The reforms have also improved transparency in procurement by the state-owned NNPC.  Although U.S. companies have won contracts in numerous sectors, difficulties in receiving payment are not uncommon and can deter firms from bidding.  Supplier or foreign government subsidized financing arrangements appear in some cases to be a crucial factor in the award of government procurements.  Nigeria is not a signatory to the WTO Agreement on Government Procurement.

In 2016, Nigeria announced its participation in the Open Government Partnership, a potentially significant step forward on public financial management and fiscal transparency.  The Ministry of Justice presented Nigeria’s National Action Plan for the Open Government Partnership.  Implementation of its 14 commitments has made some progress, particularly on the issues such as tax transparency, ease of doing business, and asset recovery.  The National Action Plan, which ran through 2019, covered five major themes:  ensuring citizens’ participation in the budget cycle, implementing open contracting and adoption of open contracting data standards, increasing transparency in the extractive sectors, adopting common reporting standards like the Addis Tax initiative, and improving the ease of doing business.  Full implementation of the National Action Plan would be a significant step forward for Nigeria’s fiscal transparency, although Nigeria has not fully completed any commitment to date.

Businesses report that bribery of customs and port officials remains common and often necessary to avoid extended delays in the port clearance process, and that smuggled goods routinely enter Nigeria’s seaports and cross its land borders.

Domestic and foreign observers identify corruption as a serious obstacle to economic growth and poverty reduction.  Nigeria scored 26 out of 100 in Transparency International’s 2019 Corruption Perception Index, with an overall ranking of 146 out of the 180 countries, a two-point drop since 2018.  The Economic and Financial Crimes Commission (EFCC) Establishment Act of 2004 established the EFCC to prosecute individuals involved in financial crimes and other acts of economic “sabotage.”  Traditionally, the EFCC has achieved the most success in prosecuting low-level Internet scam operators.  A relative few high-profile convictions have taken place, such as a former governor of Adamawa State, a former governor of Bayelsa State, a former Inspector General of Police, and a former Chair of the Board of the Nigerian Port Authority.  However, in the case of the convicted governor of Bayelsa State, the President of Nigeria pardoned him in 2013.  The case of the former governor of Adamawa, who was convicted in 2017, is under appeal, and he is currently free on bail.

Since taking office in 2015, President Buhari has focused on implementing a campaign pledge to address corruption, though his critics contend his anti-corruption efforts often target political rivals.  Since then, the EFCC arrested a former National Security Advisor (NSA), a former Minister of State for Finance, a former NSA Director of Finance and Administration, and others on charges related to diversion of funds intended for government arms procurement.

The Corrupt Practices and Other Related Offences Act of 2001 established an Independent Corrupt Practices and Other Related Offences Commission (ICPC) to prosecute individuals, government officials, and businesses for corruption.  The Corrupt Practices Act punishes over 19 offenses, including accepting or giving bribes, fraudulent acquisition of property, and concealment of fraud.  Nigerian law stipulates that giving and receiving bribes constitute criminal offences and, as such, are not tax deductible.  Since its inauguration, the ICPC has secured convictions in 71 cases (through 2015, latest data available) with nearly 300 cases still open and pending as of July 2018.  In 2014, a presidential committee set up to review Nigeria’s ministries, departments, and agencies recommended that the EFCC, the ICPC, and the Code of Conduct Bureau (CCB) be merged into one organization.  The federal government, however, rejected this proposal to consolidate the work of these three anti-graft agencies.

Nigeria gained admittance into the Egmont Group of Financial Intelligence Units in 2007.  In July 2017 the Egmont Group suspended Nigeria due to concerns about the Nigeria Financial Intelligence Unit’s operational autonomy and ability to protect classified information. It lifted the suspension in September 2018 due to the Nigerian government’s efforts to address the Egmont Group’s concerns, through the passage of the Nigerian Financial Intelligence Agency Act in July 2018.

The Paris-based Financial Action Task Force (FATF) removed Nigeria from its list of Non-Cooperative Countries and Territories in 2006.  In 2013, the FATF decided that Nigeria had substantially addressed the technical requirements of its FATF Action Plan and agreed to remove Nigeria from its monitoring process conducted by FATF’s International Cooperation Review Group.  Nigeria, as a member of the Inter-governmental Action Group Against Money Laundering in West Africa, is an associated member of FATF.

The Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007 provided for the establishment of the NEITI organization, charged with developing a framework for transparency and accountability in the reporting and disclosure by all extractive industry companies of revenue due to or paid to the Nigerian government.  NEITI serves as a member of the international Extractive Industries Transparency Initiative, which provides a global standard for revenue transparency for extractive industries like oil and gas and mining.  Nigeria is party to the United Nations Convention Against Corruption.  Nigeria is not a member of the OECD and not party to the OECD Convention on Combating Bribery.

Resources to Report Corruption

Economic and Financial Crimes Commission
Headquarters:  No. 5, Fomella Street, Off Adetokunbo Ademola Crescent, Wuse II, Abuja, Nigeria.
Branch offices in Ikoyi, Lagos State; Port Harcourt, Rivers State; Independence Layout, Enugu State; Kano, Kano State; Gombe, Gombe State.
Hotline: +234 9 9044752 or +234 9 9044753

Independent Corrupt Practices and Other Related Offences Commission:
Abuja Office – Headquarters
Plot 802 Constitution Avenue, Central District, PMB 535, Garki Abuja
Phone/Fax: 234 9 523 8810   Email: info@icpc.gov.ng

Political, religious, and ethnic violence continue to affect Nigeria.  The Islamist group Jama’atu Ahl as-Sunnah li-Da’awati wal-Jihad, popularly known as Boko Haram, and the ISIS-WA have waged a violent campaign to destabilize the Nigerian government, killing tens of thousands of people, forcing over two million to flee to other areas of Nigeria or into neighboring countries, and leaving more than seven million people in need of humanitarian assistance in the country’s northeast.  Boko Haram has targeted markets, churches, mosques, government installations, educational institutions, and leisure sites with improvised explosive devices (IEDs) and suicide vehicle-borne IEDs across nine northern states and in Abuja.  In 2017, Boko Haram employed hundreds of suicide bombings against the local population.  Women and children were forced to carry out many of the attacks.  There were multiple reports of Boko Haram killing entire villages suspected of cooperating with the government.  ISIS-WA targeted civilians with attacks or kidnappings less frequently than Boko Haram.  ISIS-WA employed targeted acts of violence and intimidation against civilians in order to expand its area of influence and gain control over critical economic resources.  As part of a violent and deliberate campaign, ISIS-WA also targeted government figures, traditional leaders, and contractors.

President Buhari has focused on matters of insecurity in Nigeria and in neighboring countries.   While the two insurgencies maintain the ability to stage forces in rural areas and launch attacks against civilian and military targets across the northeast, Nigeria is also facing rural violence in the Nigeria’s north-central states caused by criminal actors and by conflicts between migratory pastoralist and farming communities, often over scarce resources.  Another major trend is the rise in kidnappings for ransom and attacks on villages by armed gangs.

Due to challenging security dynamics throughout the country, the U.S. Mission to Nigeria has significantly limited official travel in the northeast and travel to other parts of Nigeria requires security precautions.

Decades of neglect, persistent poverty, and environmental damage caused by oil spills have left Nigeria’s oil rich Niger Delta region vulnerable to renewed violence.  Though each oil-producing state receives a 13 percent derivation of the oil revenue produced within its borders, and several government agencies, including the Niger Delta Development Corporation (NDDC) and the Ministry of Niger Delta Affairs, are tasked with implementing development projects, bureaucratic mismanagement and corruption have prevented these investments from yielding meaningful economic and social development in the region.  Niger Delta militants have demonstrated their ability to attack and severely damage oil instillations at will as seen when they cut Nigeria’s production by more than half in 2016.  Attacks on oil installations have since decreased due to a revamped amnesty program and continuous high-level engagement with the region.

Other security challenges facing Nigeria include thousands of refugees fleeing to Nigeria from Cameroon’s English-speaking region due to tensions there and kidnappings for ransom.

Policies Towards Foreign Direct Investment

Attracting FDI is one of the government’s main pillars of economic growth and job creation. There are no laws or practices that discriminate against foreign investors. In March 2018 the government passed its “Plan for Economic Growth” (http://vlada.mk/PlanEkonomskiRast ), which provides substantial incentives to foreign companies operating in the 15 free economic zones. The incentives include a variety of measures including job creation subsidies, capital investment subsidies, and financial support to exporters. Also, North Macedonia is a signatory to multilateral conventions protecting foreign investors and is party to a number of bilateral investment protection treaties, though none with the United States.

Three government ministers and multiple agencies promote North Macedonia as an investment destination. Invest North Macedonia – the Agency for Foreign Investments and Export Promotion, http://www.investinmacedonia.com , is the primary government institution in charge of facilitating foreign investments. It works directly with potential foreign investors, provides detailed explanations and guidance for registering a business in North Macedonia, provides analysis on potential industries and sectors for investing, provides information on business regulations, and publishes reports about the domestic market. The North Macedonia Free Zones Authority, http://fez.gov.mk/ , a governmental managing body responsible for developing free economic zones throughout the country, also assists foreign investors interested in operating in the zones. It manages all administrative affairs of the free economic zones and assists foreign investors to identify appropriate investment locations and facilities. North Macedonia does not maintain a “one-stop-shop” for FDI, requiring investors to navigate through several bureaucratic institutions to implement their investments.

The government maintains contact with large foreign investors through frequent meetings and formal surveys to solicit feedback. Large foreign investors have direct and easy access to government leaders, whom they can contact for assistance to resolve issues. The Foreign Investors Council, http://fic.mk/ , advocates for foreign investors and suggests ways to improve the business environment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors can invest directly in all industry and business sectors except those limited by law. For instance, investment in the production of weapons and narcotics remains subject to government approval, while investors in sectors such as banking, financial services, insurance, and energy, must meet certain licensing requirements that apply equally to both domestic and foreign investors. Foreign investment may be in the form of money, equipment, or raw materials. Under the law, if assets are nationalized, foreign investors have the right to receive the full value of their investment. This provision does not apply to national investors.

Invest North Macedonia conducts screening and due diligence reviews of foreign direct investments in a non-public procedure on an ad-hoc basis. The main purpose of the screening is to ensure economic benefit for the country and to protect national security. The process does not disadvantage foreign investors. More information about the screening process is available directly from Invest North Macedonia, at http://www.investinmacedonia.com . U.S. investors are not disadvantaged or singled out by any of the ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

There have been no third-party reviews of the government’s investment policy in the past four years. The World Trade Organization’s (WTO) last review of North Macedonia’s trade policy published in 2019 is available at: https://www.wto.org/english/tratop_e/tpr_e/s390_e.pdf . The most recent United Nations Conference on Trade and Development (UNCTAD) investment policy review on North Macedonia, from March 2012, is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2011d3_en.pdf . A 2017 regional investment policy review of South-East Europe covering seven economies including North Macedonia is available at: https://unctad.org/en/PublicationsLibrary/diaepcb2017d6_en.pdf. The International Monetary Fund (IMF) and the World Bank have assessed aspects of the government’s policies for attracting foreign investment in their regular country reports but have not provided specific policy recommendations.

Business Facilitation

All legal entities in the country must register with the Central Registry of the Republic of North Macedonia (Central Registry). Foreign businesses may register a limited liability company, single-member limited liability company, joint venture, joint stock company, as well as branches and representative offices. There is a one-stop-shop system that enables investors to register their businesses within a day by visiting one office, obtaining the information from a single place, and addressing one employee. Once the company is registered with the Central Registry it is valid for all other agencies. In addition to registering, some businesses must obtain additional working licenses or permits for their activities from relevant authorities. More information on business registration documentation and procedures is available at the Central Registry’s website, http://www.crm.com.mk . All investors may register a company online at http://e-submit.crm.com.mk/eFiling/en/home.aspx . Applications must be submitted by an authorized registration agent. The online business registration process is clear and complete, and available for use by foreign companies. The 2020 World Bank Doing Business Report put North Macedonia 78th in the world for ease of starting a business, 31 spots down from 2019.

Outward Investment

The government does not restrict domestic investors from investing abroad, but it does not promote or provide incentives for outward investments. Publicly reported total outward investments are small, worth approximately $71 million, the majority of which are in the Balkan region and the Netherlands.

Capital Markets and Portfolio Investment

The government openly welcomes foreign portfolio investors. The establishment of the Macedonian Stock Exchange (MSE) in 1995 made it possible to regulate portfolio investments. North Macedonia’s capital market is modest in turnover and capitalization. Market capitalization in 2019 was $3.4 billion, a 14.3 percent rise from the previous year. The main index, MBI10, increased by 34 percent, reaching 4,649 points at year-end. Foreign portfolio investors accounted for an average of 22.3 percent of total MSE turnover, 8.8 percentage points higher than in 2018. The current regulatory framework does not appear to discriminate against foreign portfolio investments.

There is an effective regulatory system for portfolio investments, and North Macedonia’s Securities and Exchange Commission (SEC) licenses all MSE members to trade in securities and regulates the market. In 2019, the total number of listed companies was 106, one more than in 2018, but total turnover dropped by 26.1 percent. Compared to international standards, overall liquidity of the market is modest for entering and/or exiting sizeable positions. Individuals generally trade at the MSE as individuals, rather than through investment funds, which have been present since 2007.

There are no legal barriers to the free flow of financial resources into the products and factor markets. The National Bank of the Republic of North Macedonia (NBRNM) respects IMF Article VIII and does not impose restrictions on payments and transfers for current international transactions. A variety of credit instruments are provided at market rates to both domestic and foreign companies.

Money and Banking System

In its regular report on Article IV consultations, published January 2020, the International Monetary Fund assessed that North Macedonia’s banking sector is healthy, well-capitalized, liquid, and profitable; and banks comfortably meet capital adequacy requirements, but efforts are needed to further mitigate credit risk. Domestic companies secure financing primarily from their own cash flow and bank loans, due to the lack of corporate bonds and other securities as credit instruments.

Financial resources are almost entirely managed through North Macedonia’s banking system, consisting of 15 banks and a central bank, the NBRNM. It is a highly concentrated system, with the three of the largest banks controlling 56.6 percent of the banking sector’s total assets of about $9.6 billion and collecting 69.2 percent of total household deposits. The largest commercial bank in the country has estimated total assets of about $2.2 billion, and the second largest of about $1.8 billion. The 10 smallest banks, which have individual market shares of less than 6 percent, account for 25.3 percent of total banking sector assets. Out of them, the five smallest banks hold a combined market share of just 7.2 percent. Foreign banks or branches are allowed to establish operations in the country at equal terms as domestic operators, subject to licensing and prudent supervision from the NBRNM. In 2019, foreign capital remained present in 14 of North Macedonia’s 15 banks, and was dominant in 11 banks, controlling 71.8 percent of total banking sector assets, 80.3 percent of total loans, and 70.2 percent of total deposits.

According to the NBRNM, the banking sector’s non-performing loans at the end of 2019 (latest available data) were 4.8 percent of total loans, dropping by 0.4 percentage points on an annual basis. Total profits in 2019 reached $122 million, which was 20 percent less than in 2018.

Banks’ liquid assets at the end of 2019 were 32.4 percent of total assets, 1.8 percentage points higher compared to the same period of 2018, remaining comfortably high. In 2019 NBRNM conducted different stress-test scenarios on the banking sector’s sensitivity to increased credit risk, liquidity shocks, and insolvency shocks, all of which showed that the banking sector is healthy and resilient to shocks, with a capital adequacy ratio remaining above the legally required minimum of eight percent. The actual capital adequacy ratio of the banking sector at the end 2019 was 16.3 percent, 0.2 percent lower compared to the end of 2018, with all banks maintaining a ratio above the required minimum.

There are no restrictions on a foreigner’s ability to establish a bank account. All commercial banks and the NBRNM have established and maintain correspondent banking relationships with foreign banks. The banking sector did not lose any correspondent banking relationships in the past three years, nor were there any indications that any current correspondent banking relationships were in jeopardy. There is no intention to implement or allow the implementation of blockchain technologies in banking transactions in North Macedonia. Also, alternative financial services do not exist in the economy—the transaction settlement mechanism is solely through the banking sector.

Foreign Exchange and Remittances

Foreign Exchange

The constitution provides for free transfer, conversion, and repatriation of investment capital and profits by foreign investors. Funds associated with any form of investment can be freely converted into other currencies. Conversion of most foreign currencies is possible at market terms on the official foreign exchange market. In addition to banks and savings houses, numerous authorized exchange offices also provide exchange services. The NBRNM operates the foreign exchange market, but participates on an equal basis with other entities. There are no restrictions on the purchase of foreign currency.

Parallel foreign exchange markets do not exist in the country, largely due to the long-term stability of the national currency, the Denar (MKD). The Denar is convertible domestically, but is not convertible on foreign exchange markets. The NBRNM is pursuing a strategy of pegging the Denar to the Euro and has successfully kept it at the same level since 1997. Required foreign currency reserves are spelled out in the banking law.

Remittance Policies

There were no changes in investment remittance policies, and there are no immediate plans for changes to the regulations. By law, foreign investors are entitled to transfer profits and income without being subject to a transfer tax. All types of investment returns are generally remitted within three working days. There are no legal limitations on private financial transfers to and from North Macedonia. Remittances from workers in the diaspora represent a significant source of income for Republic of North Macedonia’s households. In 2019, net private transfers amounted to $1.9 billion, accounting for 15 percent of GDP.

Sovereign Wealth Funds

North Macedonia does not have a sovereign wealth fund.

There are about 120 State Owned Enterprises (SOEs) in North Macedonia, the majority of which are public utilities in which the central government is the majority shareholder, though the 81 local governments also own local public utility enterprises. Тhe government estimated that about 8,600 people are employed in SOEs. SOEs operate in several sectors of the economy including energy, transportation, and media. There are also industries such as arms production and narcotics in which private enterprises may not operate without government approval. SOEs are governed by boards of directors consisting of members appointed by the government. All SOEs are subject to the same tax policies as private sector companies. SOEs are allowed to purchase or supply goods or services from the private sector and are not given advantages that are not market-based, such as preferential access to land and raw materials.

There is no published registry with complete information on all SOEs in the country.

Following media reports that SOEs continued to employ party members and their relatives in 2019, the government announced it would review SOE hiring decisions and implement broader public administration reform, which is yet to be completed. North Macedonia is not a signatory to the OECD Guidelines on Corporate Governance for SOEs. In February 2018 the government sent its bid to the World Trade Organization to upgrade its status from observer to a fully-fledged member of the Government Procurement Agreement (GPA). The negotiation process is still ongoing.

Privatization Program

North Macedonia’s privatization process is almost complete, and private capital is dominant in the market. The government is trying to resolve the status of one remaining state-owned loss-making company in a non-discriminatory process through an international tender. Foreign and domestic investors have equal opportunity to participate in the privatization of the remaining state-owned assets through an easily understandable, non-discriminatory, and transparent public bidding process. Neither the central government nor any local government has announced plans to fully or partially privatize any of the utility companies or SOEs in their ownership.

North Macedonia has laws intended to counter bribery, abuse of official position, and conflicts-of-interest, and government officials and their close relatives are legally required to disclose their income and assets. However, enforcement of anti-corruption laws has at times been weak and selectively targeted government critics and low-level offenders. There have been credible allegations of corruption in law enforcement, the judiciary, and many other sectors. The State Commission for the Prevention of Corruption (SCPC) (https://www.dksk.mk/index.php?id=home ), established in 2002 to prevent corruption and conflicts of interest, did not function for a year between March 2018 and February 2019 due to the resignation of its members after media revealed excessive and fraudulent travel invoicing. Following the passage of new anticorruption legislation in January 2019 and the appointment of new commissioners in February 2019, the commission restarted its work. The appointment of the new SCPC commissioners was done in a more transparent manner than before, and in the past year the SCPC has been more proactive in fighting corruption. The Special Prosecutor’s Office (SPO) was established in 2015 to investigate cases linked to a wiretapping scandal that revealed extensive abuse of office by public officials, including alleged corruption in public tenders. After the Chief Special Prosecutor was indicted in a corruption scandal in November 2019, all cases were transferred to the Public Prosecution Office’s Organized Crime and Corruption Prosecution Office . Transparency International ranked North Macedonia 106th out of 180 countries on the 2019 Corruption Perception Index, a drop of 13 places, following the SPO corruption scandal.

To deter corruption, the government uses an automated electronic customs clearance process, which allows businesses to monitor the status of their applications. In order to raise transparency and accountability in public procurement, the Bureau for Public Procurement introduced an electronic system that allows publication of notices from domestic and international institutions, tender documentation previews without registration in the system, e-payments for system use, electronic archiving, and electronic complaint submission (https://www.e-nabavki.gov.mk/PublicAccess/Home.aspx#/home ).

The government does not require private companies to establish internal codes of conduct prohibiting bribery of public officials. A number of domestic NGOs focus on anti-corruption, and transparency in public finance and tendering procedures. There are frequent reports of nepotism in public tenders. The government does not provide any special protections to NGOs involved in investigating corruption. North Macedonia has ratified the UN Convention against Corruption and the UN Convention against Transnational Organized Crime and has signed the Organization for Economic Cooperation and Development’s (OECD) Convention on Combating Bribery.

Many businesses operating in North Macedonia, including some U.S. businesses, identified corruption as a problem in government tenders and in the judiciary. No local firms or non-profit groups provide vetting services of potential local investment partners. Foreign companies often hire local attorneys, who have knowledge of local industrial sectors and access to the Central Registry and business associations, and can provide financial and background information on local businesses and potential partners.

Resources to Report Corruption

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

State Commission for the Prevention of Corruption
Ms. Biljana Ivanovska, President
Dame Gruev 1
1000 Skopje, North Macedonia
+389 2 321 5377
dksk@dksk.org.mk

Organized Crime and Corruption Prosecution Office
Ms. Vilma Ruskovska, Chief
Boulevard Krste Misirkov BB, Sudska Palata
1000 Skopje, North Macedonia
+389 2 321 9884
ruskovska@jorm.gov.mk

Ministry of Interior
Organized Crime and Corruption Department
Mr. Lazo Velkovski, Head of the Department
Dimce Mircev bb
1000 Skopje, Macedonia + 389 2 314 3150
+ 389 2 314 3150

Transparency International – Macedonia
Ms. Slagjana Taseva, President
Naum Naumovski Borce 58
P.O. Box 270
1000 Skopje, North Macedonia
+389 2 321 7000
info@transparency.mk

North Macedonia generally has been free from political violence over the past decade, although interethnic relations have been strained at times. Public protests, demonstrations, and strikes occur sporadically, and often result in traffic jams, particularly near the center of Skopje.

After the 2016 elections resulted in a change of government and the subsequent parliamentary majority elected Talat Xhaferi, an ethnic Albanian, as speaker, an organized group of protestors leveraged ongoing protests and stormed the parliament building on April 27, 2017. More than 100 people were injured, including several members of government and seven MPs. On March 18, 2019, 16 individuals were convicted and given lengthy prison sentences for their involvement in the attacks, including the former head of the Public Security Bureau (who had previously served as Minister of Interior) and former security officers. The trial against the suspected organizers, including former Prime Minister Nikola Gruevski, the former parliament speaker, two former ministers, and a former director of the Department of Security and Counterintelligence, is ongoing.

There is neither widespread anti-American nor anti-Western sentiment in North Macedonia. There have been no incidents in recent years involving politically motivated damage to projects or installations. Violent crime against U.S. citizens is rare. Theft and other petty street crimes do occur, particularly in areas where tourists and foreigners congregate.

North Macedonia formally deposited its instrument of accession to the North Atlantic Treaty and was formally accepted as NATO’s 30th member March 27, 2020. On March 22, 2004, the country submitted its application for EU membership and, on March 25, 2020, the General Affairs Council of the European Union decided to open accession negotiations with North Macedonia, which was endorsed by the European Council the following day.

Policies Towards Foreign Direct Investment

Norwegian lawmakers and businesses welcome foreign investment as a matter of policy and the government generally grants national treatment to foreign investors. The Government established “Invest in Norway,” an official investment promotion agency, to help attract and assist foreign investors, including in the key offshore energy sector and in less developed regions such as northern Norway.

While not a member of the European Union, Norway is an EEA signatory and continues to liberalize its foreign investment legislation to conform more closely to EU standards. Current laws, rules, and practices follow below.

Limits on Foreign Control and Right to Private Ownership and Establishment

Norway’s investment policies vis-á-vis third countries, including the United States, will likely continue to be governed by reciprocity principles and by bilateral and international agreements. The European Economic Area (EEA) free trade accord, which came into force for Norway in 1995, requires the country to apply principles of national treatment to EU members and the other EEA members – Iceland and Liechtenstein – in certain areas where foreign investment was prohibited or restricted in the past. Norway’s investment regime is generally based on the national treatment principle, but ownership restrictions exist on some natural resources and on some activities (fishing/ maritime/ road transport). State ownership in companies can be used as a means of ensuring Norwegian ownership and domicile for these firms.

Government Monopolies

Norway has traditionally barred foreign and domestic investors alike from investing in certain industries, including postal services, railways, and the retail sale of alcohol. In 2004, Norway slightly relaxed the restrictions, allowing foreign companies to bid on certain commercial postal services (e.g., air express services between countries) and railway cargo services (notably between Norway and Sweden). In 2016, the government initiated a reform of the railway sector leading to the first railway line opening for competition in 2018 and contracts being awarded to British and Swedish operators. The government has a mandate to allow foreign investment in hydropower (limited to 20 percent of equity), but rarely does so. However, the government has fully opened the electricity distribution system to foreign participation, making it one of the most liberalized power sectors in the world.

Ownership of Real Property

Foreign investors may generally own real property, though ownership of certain real assets is restricted. Companies must obtain a concession to acquire rights to own or use various kinds of real property, including forests, mines, tilled land, and waterfalls. Foreign companies need not seek concessions to rent real estate, e.g. commercial facilities or office space, provided the rental contract period does not exceed ten years. The two major laws governing concessions are the Act of December 14, 1917, and the Act of May 31, 1974.

Petroleum Sector

The Petroleum Act of November 1996 (superseding the 1985 Petroleum Act) sets forth the legal basis for Norwegian authorities’ awards of petroleum exploration rights, production blocks and follow-up activity. The Act covers governmental control over exploration, production, and transportation of petroleum.

Foreign oil companies report no discrimination in the award of petroleum exploration and development blocks in recent licensing rounds. The Norwegian government has implemented EU directives requiring equal treatment of EEA oil and gas companies. The Norwegian offshore concession system complies with EU directive 94/33/EU of May 30, 1994, which governs conditions for awards and hydrocarbon development. Norway’s concession process operates on a discretionary basis, with the Ministry of Petroleum and Energy awarding licenses based on which company or group of companies it views will be the best overall operator for a particular field, rather than purely competitive bids. A number of U.S. energy companies are present on the Norwegian Continental Shelf (NCS).

The Norwegian government has dismantled former tight controls over the gas pipeline transit network that carries gas to the European market. All gas producers and operators on the NCS are free to negotiate gas sales contracts on an individual basis, with access to the gas export pipeline network guaranteed.

Norwegian authorities encourage the use of Norwegian goods and services in the offshore petroleum sector, but do not require it. The Norwegian share of the total supply of goods and services on the NCS has remained at approximately 50 percent over the last decade.

Manufacturing Sector

Norwegian legislation granting national treatment to foreign investors in the manufacturing sector dates from 1995. Legislation was repealed in July 2002 that formerly required both foreign and Norwegian investors to notify and, in some cases, file burdensome reports to the Ministry of Industry and Trade if their holdings of a company’s equity exceeded certain threshold levels. Foreign investors are not currently required to obtain government authorization before buying shares of Norwegian corporations.

Financial and Other Services

In 2004, the Norwegian government liberalized restrictions on acquisitions of equity in Norwegian financial institutions. Current regulations delegate responsibility for acquisitions to

the Norwegian Financial Supervisory Authority and streamline the process. Financial Supervisory Authority permission is required for acquisitions of Norwegian financial institutions that exceed defined threshold levels (20, 25, 33 or 50 percent). The Authority assesses the acquisitions to ensure that prospective buyers are financially stable and that the acquisition does not unduly limit competition.

The Authority applies national treatment to foreign financial groups and institutions, but nationality restrictions still apply to banks. At least half the members of the board and half the members of the corporate assembly of a bank must be nationals and permanent residents of Norway or another EEA nation. Effective January 1, 2005, there is no ceiling on foreign equity in a Norwegian financial institution as long as the Authority has granted permission for the acquisition.

The Finance Ministry has abolished remaining restrictions on the establishment of branches by foreign financial institutions, including banks, mutual funds and others. Under the liberalized regime, Norway grants branches of U.S. and other foreign financial institutions the same treatment as domestic institutions.

Media

Media ownership is regulated by the Media Ownership Act of 1997 and the Norwegian Media Authority. No individual party, domestic or foreign, may control more than 1/3 of the national newspaper, radio and/or television markets without a concession. National treatment is granted in line with Norway’s obligations under the EEA accord. The introduction and growing importance of new media forms (including those emerging from the internet and wireless industries) has raised concerns that the existing domestic legal regime (which largely focuses on printed media) is becoming outmoded.

Investment Screening

A new National Security Act that entered into force January 1, 2019, provides the legal foundations for enhanced government screening of foreign investments. Implementing regulations for the Act are under development, including a comprehensive list of the critical infrastructure, entities, and products to be covered by the legislation and by subsequent investment screening procedures.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) conducted an Economic Survey for Norway in 2018: https://www.oecd-ilibrary.org/economics/oecd-economic-surveys-norway-2018_eco_surveys-nor-2018-e 

The OECD also conducted a Peer Review of Norway in 2019:  https://www.oecd.org/dac/oecd-development-co-operation-peer-reviews-norway-2019-75084277-en.htm 

The World Trade Organization (WTO) conducted a Trade Policy Review for Norway in 2018: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/TPR/S373.pdf 

Business Facilitation

Altinn.no is a web portal that serves as a one-stop shop for establishing a company and contains the necessary forms; it also provides an electronic platform for dialogue between the business/industry sector, citizens and other stakeholders, and government agencies. The business registration processes are straight-forward, complete, and open to foreign companies. Please note, however, that registration of Norwegian Registered Foreign Business Enterprises (NUF) cannot be done electronically. A guide for establishing a business is available at the following address: https://www.altinn.no/en/start-and-run-business/ 

Outward Investment

The government does not directly incentivize outward investment. However, the GON acknowledges that for Norwegian companies to be successful, they need to grow in markets and economies that are larger than Norway, so the trade and investment promotion agency Innovation Norway has offices in key foreign markets, including four offices in the United States:  Houston, New York City, San Francisco and Washington D.C.. Norway’s Government Pension Fund Global, the largest sovereign wealth fund in the world, owns 1.5 percent of all listed companies in the world.

Capital Markets and Portfolio Investment

Norway has a highly-computerized banking system that provides a full range of banking services, including internet banking. There are no significant impediments to the free market-determined flow of financial resources.

Foreign and domestic investors have access to a wide variety of credit instruments. The financial regulatory system is transparent and consistent with international norms. The Oslo Stock Exchange facilitates portfolio investment and securities transactions in general.

Money and Banking System

Norwegian banks are generally considered to be on a sound financial footing, and the banking sector holds an estimated USD 530 billion in assets. Conservative asset/liquidity requirements limited the exposure of banks to the global financial crisis in 2008/9. The Ministry of Finance reduced the requirement for banks’ countercyclical capital buffer from 2.5% to 1% on March 12, 2020 as part of the government’s economic response to COVID-19.  This lower capital requirement is expected to help banks provide more liquidity to struggling businesses. Foreign banks have been permitted to establish branches in Norway since 1996.

Foreign Exchange and Remittances

Foreign Exchange

Norway’s currency is the Krone. Dividends, profits, interest on loans, debentures, mortgages, and repatriation of invested capital are freely and fully remissible, subject to Central Bank reporting requirements. Ordinary payments from Norway to foreign entities can normally be made without formalities through commercial banks. Norway is a member of the Financial Action Task Force.

Remittance Policies

See above, no restrictions.

Sovereign Wealth Funds

Norway’s sovereign wealth fund, the Government Pension Fund Global (GPFG), was established in 1990 and was valued at NOK 10,088 billion (USD 1.148 trillion) at year-end 2019. The management mandate requires the fund to be widely diversified, outside Norway. Petroleum revenues are invested in global stocks and bonds, and the current portfolio includes over 9,200 companies and approximately 1.5 percent of global stocks. The fund is invested across four asset classes. The fund aims to invest in most markets, countries, and currencies to achieve broad exposure to global economic growth. Close to 40 percent of the fund’s investments are in the United States, which is its single largest market. The fund tries to play an active role in its investments and aims at voting in almost all general shareholder meetings.

In 2004, Norway adopted ethical guidelines for GPFG investments that prohibit investment in companies engaged in various forms of weapons production, environmental degradation, tobacco production, human rights violations, and what it terms “other particularly serious violations of fundamental ethical norms.” In March 2019 the GON announced that companies classified by index provider FTSE Russell as being in the subsector “0533 Exploration & Production” in the sector “0001 Oil & Gas” no longer would be part of the GPFG portfolio. Current holdings in these companies will be phased out over time. More broadly-focused energy companies, which have investments in renewable and sustainable energy sources as well as oil & gas divisions, may still be included. The fund currently has over 100 companies on its exclusion list, at least 24 of which are U.S. companies. The ethical guidelines also highlight three focus areas in term of sustainability: children’s rights, climate change, and water management.

The fund adheres to the Santiago Principles and is a member of the IMF-hosted International Working Group on Sovereign Wealth Funds.

The government continues to play a strong role in the Norwegian economy through its ownership or control of many of the country’s leading commercial firms. The public sector accounts for nearly 60 percent of GDP. The Norwegian government is the largest owner in Norway, with ownership stakes in a range of key sectors (e.g., energy, transportation, finance, and communications). About 70 State-Owned Enterprises (SOEs) are managed directly by the relevant government ministries, and approximately 35 percent of the stock exchange’s capitalization is in government hands. State ownership in companies can be used as a means of ensuring Norwegian ownership and domicile for these firms.

Norway is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) and a signatory to all relevant annexes. SOEs are thus covered under the agreement.

Successive Norwegian governments have sustained stable levels of strong, transparent, and predictable government ownership. The previous center-left government increased its stake in companies like Equinor (formerly Statoil) ASA, Kongsberg Gruppen AS, and Yara International ASA, while selling off other holdings. The current center-right government has taken some limited steps to reduce ownership stakes.

The GON publishes the annual state ownership report, available in English here: https://www.regjeringen.no/en/topics/business-and-industry/state-ownership/statens-eierberetning-2013/the-state-ownership-report/id2395364/ 

Privatization Program

Norway has no current plans to privatize any SOEs.

Business is generally conducted “above the table” in Norway, and Norway ranks 7 out of 180 countries on Transparency International’s 2019 Corruption Perceptions Index. Corrupt activity by Norwegian or foreign officials is a criminal offense under Norway’s Penal Code. Norway’s anti-corruption laws cover illicit activities overseas, subjecting Norwegian nationals/companies who bribe officials in foreign countries to criminal penalties in Norwegian courts. In 2008, the Ministry of Foreign Affairs launched an anti-corruption initiative, focused on limiting corruption in international development efforts.

Norway is a member of the Council of Europe’s anti-corruption watchdog Group of States against Corruption (GRECO) and ratified the Criminal Law Convention on Corruption in 2004, without any reservations.  Norway has ratified the UN Anticorruption Convention (2006) and is a signatory of the OECD Convention on Combating Bribery.

Resources to Report Corruption

The Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (ØKOKRIM)
Address: Postboks 8193 Dep, 0034 Oslo
Telephone: +47 23 29 10 00
Email: post.okokrim@politiet.no

Contact at “watchdog” organization:

Guro Slettemark
Secretary General
Transparency International Norge
PB 582 Sentrum
0106 Oslo
slettemark@transparency.no
+47 90 87 46 26

Norway is a vibrant, stable democracy. Violent political protests or incidents are extremely rare, as are politically motivated attacks on foreign commercial projects or property. However, on July 22, 2011, a Norwegian individual motivated by extreme anti-Islam ideology carried out twin attacks on Oslo’s government district and on the Labor Party’s youth summer camp in Utøya, killing 77 people. The individual, now in prison, operated alone and this incident is not generally considered an indicator of increased political violence in the future.

Policies Towards Foreign Direct Investment

Oman actively seeks foreign direct investment and is in the process of improving the regulatory framework to encourage such investments.  The new FCIL allows 100 percent foreign ownership in most sectors and removed the minimum capital requirement. The law effectively provides all foreign investors with an open market in Oman, privileges already extended to U.S. nationals due to the provisions in the U.S.-Oman Free Trade Agreement (FTA), although the FTA goes further in providing American companies with national treatment.

The Government of Oman’s (GoO) “In-Country Value” (ICV) policy seeks to incentivize companies, both Omani and foreign, to procure local goods and services and provide training to Omani national employees.  The GoO includes bidders’ demonstration of support for ICV as one factor in government tender awards.  While the GoO initially applied ICV primarily to oil and gas contracts, the principle is now embedded in government tenders in all sectors, including transportation and tourism.  New-to-market foreign companies, including U.S. firms, may find the bid requirements related to ICV prohibitive.

Limits on Foreign Control and Right to Private Ownership and Establishment

With the implementation of the United States-Oman FTA in 2009, U.S. firms may establish and fully own a business in Oman without a local partner.  Although U.S. investors are provided national treatment in most sectors, Oman has an exception in the FTA for legal services, limiting U.S. ownership in a legal services firm to no more than 70 percent.  The government has a “negative list” that restricts foreign investment to safeguard national security interests.  The list includes some services related to radio and television transmission as well as air and internal waterway transportation.

With the implementation of the United States-Oman FTA in 2009, U.S. firms may establish and fully own a business in Oman without a local partner.  Although U.S. investors are provided national treatment in most sectors, Oman has an exception in the FTA for legal services, limiting U.S. ownership in a legal services firm to no more than 70 percent.  The government has a “negative list” that restricts foreign investment to safeguard national security interests.  The list includes some services related to radio and television transmission as well as air and internal waterway transportation.

The new FCIL also contained a “negative list” of 37 additional sectors. The Ministry of Commerce and Industry (MOCI) is applying the new law on a reported case-by-case basis, and it remains uncertain whether a 100 percent foreign-owned company can now undertake an activity which is not on the negative list.

Under the old law, foreign nationals seeking to own 100 percent shares in local companies had to seek MOCI’s approval, which required a detailed business plan highlighting the capital investment and the projected benefits to the Omani economy, including the number of local jobs to be created; the old law also required a minimum of two shareholders and two directors and minimum capital of one million Omani rials (approximately $2.6 million).

Over the past year, Oman has banned non-Omani ownership of real estate and land in various governorates and other areas the government deems necessary to restrict under Royal Decree 29/2018.  However, Oman has allowed the establishment of real estate investment funds (REIF) in order to encourage new inflows of capital into Oman’s property sector.  The new regulations permit foreign investors, as well as expatriates in Oman, to own units in REIFs.  In January, Oman’s first REIF (Aman) launched an initial private offering valued at $26 million for Omani and non-Omani investors.

Other Investment Policy Reviews

Oman has not undergone any third-party investment policy reviews in the past six years.  The last WTO Trade Policy Review was in April 2014  (Link to 2014 report: https://www.wto.org/english/tratop_e/tpr_e/tp395_e.htm .)

Business Facilitation

The GoO has tasked the Public Authority for Investment Promotion and Export Development (Ithraa) with attracting foreign investors and smoothing the path for business formation and private sector development.  Ithraa works closely with government organizations and businesses based in Oman and abroad to provide a comprehensive range of business support.  Ithraa also offers a comprehensive range of business investor advice geared exclusively to support foreign companies looking to invest in Oman, based on company-specific needs and key target sectors identified under the country’s diversification program. In November 2019, Ithraa launched a new “Invest in Oman” portal with some information about investment opportunities.

The GoO has tasked the Public Authority for Investment Promotion and Export Development (Ithraa) with attracting foreign investors and smoothing the path for business formation and private sector development.  Ithraa works closely with government organizations and businesses based in Oman and abroad to provide a comprehensive range of business support.  Ithraa also offers a comprehensive range of business investor advice geared exclusively to support foreign companies looking to invest in Oman, based on company-specific needs and key target sectors identified under the country’s diversification program. In November 2019, Ithraa launched a new “Invest in Oman” portal with some information about investment opportunities.

MOCI has an online business registration site, known as “Invest Easy” (business.gov.om ), and businesses can obtain a Commercial Registration certificate from MOCI in approximately three or four days.  However, commercial registration and licensing decisions often require the approval of multiple ministries, slowing down the process in many cases.  In 2019, MOCI set up the Investment Services Center (ISC) to integrate as many as 75 government agencies and private sector service providers into its “Invest Easy” portal in 2020 so it can serve as a single window for businesses in Oman. The various investment promotion entities and online portals appear to have overlapping and possibly redundant roles.

Outward Investment

The government neither promotes nor provides incentives for outward investment but does not restrict its citizens from investing abroad.

Capital Markets and Portfolio Investment

There are no restrictions in Oman on the flow of capital and the repatriation of profits.  Foreigners may invest in the Muscat Securities Market (MSM) so long as they do so through an authorized broker.  Access to Oman’s limited commercial credit and project financing resources is open to Omani firms with foreign participation.  At this time, there is not sufficient liquidity in the market to allow for the entry and exit of sizeable amounts of capital.  According to the 2017 annual report on exchange arrangements and exchange restrictions of the IMF, Article VIII practices are reflected in Oman’s exchange system.

The Commercial Companies Law requires the listing of joint stock companies with capital in excess of $5.2 million.  The law also requires companies to existence for two years before their owners can float them for public trading.  Publicly traded firms in Oman are still a relatively rare phenomenon; the majority of businesses are private family enterprises.

Money and Banking System

The banking system is sound and well-capitalized with low levels of non-performing loans and generally high profits.  Oman’s banking sector includes eight local banks, nine foreign banks, two Islamic banks, and two specialized banks.  Bank Muscat, the largest domestic bank operating in Oman, has $28.1 billion in assets.  The Central Bank of Oman (CBO) is responsible for maintaining the internal and external value of the national currency.  It is also the single integrated regulator of Oman’s financial services industry.  The CBO issues regulations and guidance to all banks operating within Oman’s borders.  Foreign businesspeople must have a residence visa or an Omani commercial registration to open a local bank account.  There are no restrictions for foreign banks to establish operations in the country as long as they comply with CBO instructions.

Foreign Exchange and Remittances

Foreign Exchange

Oman does not have restrictions or reporting requirements on private capital movements into or out of the country.  The Omani rial (RO) is pegged at a rate of RO 0.3849 to $1, and there is no difficulty in obtaining exchange.  In general, all other currencies are first converted to dollars, then to the desired currency; national currency rates fluctuate, therefore, as the dollar fluctuates.  The government has consistently stated publicly that it is committed to maintaining the current peg.  The government has stated publicly that it will not join a proposed GCC common currency.  There is no delay in remitting investment returns or limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains returns on intellectual property, or imported inputs.

Remittance Policies

Oman does not restrict the remittance abroad of equity or debt capital, interest, dividends, branch profits, royalties, management and service fees, and personal savings, but it does apply withholding tax to many of these transfers at a rate of 10 percent.  Because Oman’s currency is pegged to the dollar, the GoO is unable to engage in currency manipulation tactics.  Investors can remit through legal parallel markets utilizing convertible, negotiable instruments.  There are no surrender requirements for profits earned overseas.

The GCC, of which Oman is a member, is a member of the Financial Action Task Force (FATF) and its regional body.  In February 2019, Oman hosted a workshop on combating money laundering and terrorism in cooperation with FATF.  The level of compliance of Oman’s anti-money laundering and counter-terrorist financing regime with the FATF Recommendations is comparatively high for the region, and the legal framework is sound.  However, the government has not yet fully addressed a number of gaps, including completing the certification procedures for anti-money laundering/countering the financing of terrorism (AML/CFT), issuing AML/CFT regulations to the sectors identified in Oman’s CFT law, and designating wire transfer amounts for customer due diligence procedures.  Statistics regarding suspicious transaction reports, investigations, and convictions are not widely available.

Sovereign Wealth Funds

The State General Reserve Fund (SGRF) is Oman’s principal Sovereign Wealth Fund.  The SGRF joined the International Forum of Sovereign Wealth Funds in 2015 as a full member and follows the Santiago Principles.  Omani law does not require sovereign wealth funds to publish an annual report or submit their books for an independent audit.  Many of the smaller wealth funds and pension funds actively invest in local projects.

The SGRF focuses on two main investment categories: Public Markets Assets (tradable) that include global equity, fixed income bonds and short-term assets, and Private Markets Assets (non-tradable) which includes private investments in real estate, logistics, services, commercial, and industrial projects.

State-Owned Enterprises (SOE) are active in many sectors in Oman, including oil and gas extraction, oil and gas services, oil refining, liquefied natural gas processing and export, manufacturing, telecommunications, aviation, infrastructure development, and finance.  The government does not have a standard definition of an SOE, but tends to limit its working definition to companies wholly owned by the government and more frequently refers to companies with partial government ownership as joint ventures.  The government does not have a complete, published list of companies in which it owns a stake.

In theory, the government permits private enterprises to compete with public enterprises under the same terms and conditions with access to markets, and other business operations, such as licenses and supplies, except in sectors deemed sensitive by the Omani government such as mining, telecom and information technology. SOEs purchase raw materials, goods, and services from private domestic and foreign enterprises.  Public enterprises, however, have comparatively better access to credit.  Board membership of SOEs is composed of various government officials, with a cabinet-level senior official usually serving as chairperson.

SOEs receive operating budgets, but, like budgets for ministries and other government entities, the budgets are flexible and not subject to hard constraints.  The information that the GoO published about its 2020 budget did not include allocations to and earnings from most SOEs.

Privatization Program

The GoO has indicated that it hopes to reduce its budget deficits by privatizing or partially privatizing some government-owned companies.  Although the plan for privatization is not publicly available, the GoO has already begun to reorganize its some of its holdings for public offerings.

In March, State Grid Corporation of China (SGCC) acquired a 49 per cent stake in Nama Holding, a government-owned holding company for five electricity transmission and distribution companies. The government’s divestment of a portion of its ownership in telecommunications firm Omantel is one example of a past partial privatization.  In this case, the government offered Omantel stock on the Muscat Securities Market, but only to Omani investors.

The government allows foreign investors to participate fully in some privatization programs, even in drafting public-private partnership frameworks.  In July 2019, Oman established the Public Authority for Privatization and Partnership (PAPP), which is reportedly examining 38 public-private partnership projects for implementation. Forthcoming executive regulations for the new Privatization law reportedly will clarify the role of PAPP in public-private partnerships.

U.S. businesses do not identify corruption as one of the top concerns of operating in Oman.

The Sultanate has the following legislation in place to address corruption in the public and private sectors:

1) The Law for the Protection of Public Funds and Avoidance of Conflicts of Interest (the “Anti-Corruption Law” promulgated by Royal Decree 112/2011).  The Law predominantly concerns employees working within the public sector.  It is also applicable to private sector companies if the government holds at least 40 percent shares in the company or in situations where the private sector company has punishable dealings with government bodies and officials.

2) The Omani Penal Code (promulgated by Royal Decree 7/2018).  In January 2018, the GoO issued a new penal code that completely replaced Oman’s 1974 penal code.  Minimum sentencing guidelines for public officials guilty of embezzlement increased from three months to three years.  The definition of “public officials” expanded to include officers of parastatal corporations in which the GoO has at least a 40 percent controlling interest.  The new penal code may make Oman seem more investment-friendly, by virtue of modern references to corporations as legal entities, as an example.  However, its language on money laundering is still ambiguous and descriptions of licit and illicit banking are unclear, potentially contributing to confusion about investment regulations.

A lack of domestic whistleblower protection legislation in Oman has resulted in the private sector taking the lead in enacting internal anti-bribery and whistleblowing programs.  Omani and international companies doing business in Oman that plan on implementing anti-corruption measures will likely find it difficult to do so without also putting in place an effective whistleblower protection program and a culture of zero tolerance.

Ministers are not allowed to hold offices in public shareholding companies or serve as the chairperson of a closely held company.  However, many influential figures in government maintain private business interests and some are also involved in public-private partnerships.  These activities either create or have the potential to create conflicts of interest.  In 2011, the Tender Law (Royal Decree No. 36/2008) was updated to preclude Tender Board officials from adjudicating projects involving interested relatives to “the second degree of kinship.”

It is not yet clear if Sultan Haitham will prioritize rooting out corruption. The late Sultan dismissed several ministers and senior government officials for corruption during his reign. In response to public protests in 2011, a royal decree expanded the powers of the State Financial and Administrative Audit Institution (SFAAI).

Oman has stiff laws, regulations, and enforcement against corruption, and authorities have pursued several high profile cases.  In March 2019, local press and social media focused intensely on an embezzlement scandal and the subsequent arrest of employees at the Ministry of Education. The Courts have signaled that corruption will not be tolerated.

In an extra attempt to prevent and eradicate corruption in the Sultanate of Oman, Oman joined the United Nations Convention Against Corruption (the “UNCAC”) in 2013.  Oman is not a party to the OECD Convention on Combating Bribery.

Resources to Report Corruption

State Audit Institution
http://www.sai.gov.om/en/Complain.aspx   
Phone number: +968 8000 0008

There are no “watchdog” organizations operating in Oman that monitor corruption.

Oman is stable, and politically-motivated violence is rare.  Incidents of violence were associated with Arab Spring-related demonstrations in 2011, including several demonstrations that resulted in blocked pedestrian and vehicle access to the Port of Sohar. Omani law provides for limited freedom of assembly, and the government allows some peaceful demonstrations to occur.  The transition to power of Sultan Haitham on January 11, 2020 was peaceful, smooth, and well orchestrated.

Policies Towards Foreign Direct Investment

Pakistan seeks greater foreign direct investment in order to boost its economic growth, particularly in the energy, agriculture, information and communications technology, and industrial sectors.  Since 1997, Pakistan has established and maintained a largely open investment regime.  Pakistan introduced an Investment Policy in 2013 that further liberalized investment policies in most sectors to attract foreign investment, and signed an economic co-operation agreement with China, the China Pakistan Economic Corridor (CPEC), in April 2015.  CPEC Phase I, which concluded in late 2019, focused primarily on infrastructure and energy production.  Foreign investors continue to advocate for Pakistan to improve legal protections for foreign investments, protect intellectual property rights, and establish clear and consistent policies for upholding contractual obligations and settlement of tax disputes.

Incentives introduced through the 2015-18 Strategic Trade Policy Framework (STPF) and Export Enhancement Packages (EEP) remain in place.  These incentives are largely industry-specific and include tax breaks, tax refunds, tariff reductions, the provision of dedicated infrastructure, and investor facilitation services.  A new STPF policy has been approved by the Prime Minister but must be submitted to the Economic Coordination Committee and then the cabinet for final approval.  The new STPF reportedly envisages incentivizing 26 non-traditional sectors to boost exports and plans to improve the tax refund process.

The Foreign Private Investment Promotion and Protection Act, 1976, and the Furtherance and Protection of Economic Reforms Act, 1992, provide legal protection for foreign investors and investment in Pakistan.  The Foreign Private Investment Promotion and Protection Act stipulates that foreign investments will not be subject to higher income taxes than similar investments made by Pakistani citizens.  All sectors and activities are open for foreign investment unless specifically prohibited or restricted for reasons of national security and public safety.  Specified restricted industries include arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol.  There are no restrictions or mechanisms that specifically exclude U.S. investors.

The specialized investment promotion agency of Pakistan is the Board of Investment (BOI).   BOI is responsible for the promotion of investment, facilitating local and foreign investor implementation of projects, and enhancing Pakistan’s international competitiveness.  BOI assists companies and investors who intend to invest in Pakistan and facilitates the implementation and operation of their projects.  BOI is not a one-stop shop for investors, however.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners, except Indian and Israeli citizens/businesses, can establish and own, operate, and dispose of interests in most types of businesses in Pakistan, except those involved in arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol.  There are no restrictions or mechanisms that specifically exclude U.S. investors.  There are no laws or regulations authorizing private firms to adopt articles of incorporation discriminating against foreign investment.  The 2013 Investment Policy eliminated minimum initial capital investment requirements across sectors so that no minimum investment requirement or upper limit on the share of foreign equity is allowed, with the exception of investments in the airline, banking, agriculture, and media sectors.  Foreign investors in the services sector may retain 100 percent equity, subject to obtaining permission, a no objection certificate, or license from the concerned agency, as well as fulfilling the requirements of the respective sectoral policy.  In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed, while in the agricultural sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed.  Small-scale mining valued at less than PKR 300 million (roughly USD 2.6 million) is restricted to Pakistani investors.

Foreign banks can establish locally incorporated subsidiaries and branches, provided they have USD 5 billion in paid-up capital or belong to one of the regional organizations or associations to which Pakistan is a member (e.g., Economic Cooperation Organization (ECO) or the South Asian Association for Regional Cooperation (SAARC)).  Absent these requirements, foreign banks are limited to a 49-percent maximum equity stake in locally incorporated subsidiaries.

There are no restrictions on payments of royalties and technical fees for the manufacturing sector, but there are restrictions on other sectors, including a USD 100,000 limit on initial franchise investments and a cap on subsequent royalty payments of 5 percent of net sales for five years.  Royalties and technical payments are subject to remittance restrictions listed in Chapter 14, section 12 of the SBP Foreign Exchange Manual (http://www.sbp.org.pk/fe_manual/index.htm).

Pakistan maintains investment screening mechanisms for inbound foreign investment.  The BOI is the lead organization for such screening.  Pakistan blocks foreign investments if the screening process determines the investment could negatively affect Pakistan’s national security.

Other Investment Policy Reviews

Pakistan has not undergone any third-party investment policy reviews over the last three years.

Business Facilitation

The government works with the World Bank to improve Pakistan’s business climate.  The government has simplified pre-registration and registration facilities and automated land records to simplify property registration, eased requirements for obtaining construction permits and utilities, introduced online/electronic tax payments, and facilitated cross-border trade by improving electronic submissions and processing of trade documents.  Starting a business in Pakistan normally involves 5 procedures and takes at least 16.5 days.  Pakistan ranked 108 out of 190 countries in the World Bank Doing Business 2020 report’s “Starting a Business” category.  Pakistan ranked 28 out of 190 for protecting minority investors.

The Securities and Exchange Commission of Pakistan (SECP) manages company registration, which is available to both foreign and domestic companies.  Companies first provide a company name and pay the requisite registration fee to the SECP.  They then supply documentation on the proposed business, including information on corporate offices, location of company headquarters, and a copy of the company charter.  Both foreign and domestic companies must apply for national tax numbers with the Federal Board of Revenue (FBR) to facilitate payment of income and sales taxes.  Industrial or commercial establishments with five or more employees must register with Pakistan’s Federal Employees Old-Age Benefits Institution (EOBI) for social security purposes.  Depending on the location, registration with provincial governments may be required.  The SECP website (www.secp.gov.pk) offers a Virtual One Stop Shop (OSS) where companies can register with the SECP, FBR, and EOBI simultaneously.  The OSS is also available for foreign investors.

Outward Investment

Pakistan does not promote or incentivize outward investment.  Although the cumbersome government approval process can discourage potential investors, larger Pakistani corporations have made major investments in the United States in recent years.

Capital Markets and Portfolio Investment

Foreign portfolio investment halted its decline and increased in the last three months of 2019 and into early 2020 as investor confidence increased due to improvement in Pakistan’s current account deficit, relatively high interest rates, and the initiation of Pakistan’s most recent IMF program, according to the SBP.  Prior to the COVID-19 pandemic, indicators had pointed to improved inflows of foreign investment.  The full impact of COVID-19 on foreign portfolio investment remains to be seen.

Pakistan’s three stock exchanges (Lahore, Islamabad, and Karachi) merged to form the Pakistan Stock Exchange (PSE) in January 2016.  As a member of the Federation of Euro-Asian Stock Exchanges and the South Asian Federation of Exchanges, PSE is also an affiliated member of the World Federation of Exchanges and the International Organization of Securities Commissions.  Per the Foreign Exchange Regulations, foreign investors can invest in shares and securities listed on the PSE and can repatriate profits, dividends, or disinvestment proceeds.  The investor must open a Special Convertible Rupee Account with any bank in Pakistan in order to make portfolio investments.  In 2017, the government modified the capital gains tax and imposed 15 percent on stocks held for less than 12 months, 12.5 percent on stocks held for more than 12 but less than 24 months, and 7.5 percent on stocks held for more than 24 months. The 2012 Capital Gains Tax Ordinance appointed the National Clearing Company of Pakistan Limited to compute, determine, collect, and deposit the capital gains tax.

The free flow of financial resources for domestic and foreign investors is supported by financial sector policies, with the SBP and SECP providing regulatory oversight of financial and capital markets.  Interest rates depend on the reverse repo rate (also called the policy rate).  Interest rates reached a high of 13.25 percent in July 2019 but by May 2020 had decreased to eight percent.

Pakistan has adopted and adheres to international accounting and reporting standards – including IMF Article VIII, with comprehensive disclosure requirements for companies and financial sector entities.

Foreign-controlled manufacturing, semi-manufacturing (i.e. goods that require additional processing before marketing), and non-manufacturing concerns are allowed to borrow from the domestic banking system without regulated limits.  Banks are required to ensure that total exposure to any domestic or foreign entity should not exceed 25 percent of banks’ equity with effect from December 2013.  Foreign-controlled (minimum 51 percent equity stake) semi-manufacturing concerns (i.e., those producing goods that require additional processing for consumer marketing) are permitted to borrow up to 75 percent of paid-up capital, including reserves.  For non-manufacturing concerns, local borrowing caps are set at 50 percent of paid-up capital. While there are no restrictions on private sector access to credit instruments, few alternative instruments are available beyond commercial bank lending.  Pakistan’s domestic corporate bond, commercial paper and derivative markets remain in the early stages of development.

Money and Banking System

The State Bank of Pakistan (SBP) is the central bank of Pakistan.

According to the most recent statistics published by the SBP, only 23 percent of the adult population uses formal banking channels to conduct financial transactions while 24 percent are informally served by the banking sector; women are financially excluded at higher rates than men.  The remaining 53 percent of the adult population do not utilize formal financial services.

Pakistan’s financial sector has been recognized by international banks and lenders for performing well in recent years.  According to the latest review of the banking sector conducted by SBP in December 2018, improving asset quality, stable liquidity, robust solvency and slow pick-up in private sector advances were noted.  The asset base of the banking sector expanded by 11.7 percent during 2019.  The five largest banks, one of which is state-owned, control 50.4 percent of all banking sector assets.  The risk profile of the banking sector remained satisfactory and moderation in profitability and asset quality improved as non-performing loans as a percentage of total loans (infection ratio) was recorded at 8.6 percent at the end of December 2019.  In 2019, total assets of the banking industry were estimated at USD 140.1 billion.  As of December 2019, net non-performing bank loans totaled approximately USD 900.3 million – 1.7 percent of net total loans.

The penetration of foreign banks in Pakistan is low, having minimal contribution to the local banking industry and the overall economy.  According to a study conducted by the World Bank Group in 2018, the share of foreign bank assets to GDP stood at 3.5 percent while private credit by deposit to GDP stood at 15.4 percent.  Foreign banks operating in Pakistan include Standard Chartered Bank, Deutsche Bank, Samba Bank, Industrial and Commercial Bank of China, Bank of Tokyo, and the newly established Bank of China.  International banks are primarily involved in two types of international activities: cross-border flows, and foreign participation in domestic banking systems through brick-and-mortar operations.  SBP requires that foreign banks hold at minimum $300 million in capital reserves at their Pakistan flagship location, and maintain at least an eight percent capital adequacy ratio.  In addition, foreign banks are required to maintain the following minimum capital requirements, which vary based on the number of branches they are operating:

1 to 5 branches: USD 28 million in assigned capital;

6 to 50 branches: USD 56 million in assigned capital;

Over 50 branches: USD 94 million in assigned capital.

Foreigners require proof of residency – a work visa, company sponsorship letter, and valid passport – to establish a bank account in Pakistan.  There are no other restrictions to prevent foreigners from opening and operating a bank account.

Foreign Exchange and Remittances

Foreign Exchange

As a prior action of its July 2019 IMF program, Pakistan agreed to a flexible market-determined exchange rate.  The SBP regulates the exchange rate and monitors foreign exchange transactions in the open market, with interventions limited to safeguarding financial stability and preventing disorderly market conditions.  Other government entities can influence SBP decisions through their membership on the SBP’s board; the Finance Secretary and the Board of Investment Chair currently sit on the board.

Banks are required to report and justify outflows of foreign currency.  Travelers leaving or entering Pakistan are allowed to physically carry a maximum of $10,000 in cash.  While cross-border payments of interest, profits, dividends, and royalties are allowed without submitting prior notification, banks are required to report loan information so SBP can verify remittances against repayment schedules.  Although no formal policy bars profit repatriation, U.S. companies have faced delays in profit repatriation due to unclear policies and coordination between the SBP, the Ministry of Finance and other government entities.  Mission Pakistan has provided advocacy for U.S. companies which have struggled to repatriate their profits.  Exchange companies are permitted to buy and sell foreign currency for individuals, banks, and other exchange companies, and can also sell foreign currency to incorporated companies to facilitate the remittance of royalty, franchise, and technical fees.

There is no clear policy on convertibility of funds associated with investment in other global currencies.  The SBP opts for an ad-hoc approach on a case-by-case basis.

Remittance Policies

The 2001 Income Tax Ordinance of Pakistan exempts taxes on any amount of foreign currency remitted from outside Pakistan through normal banking channels.  Remittance of full capital, profits, and dividends over USD 5 million are permitted while dividends are tax-exempt.  No limits exist for dividends, remittance of profits, debt service, capital, capital gains, returns on intellectual property, or payment for imported equipment in Pakistani law.  However, large transactions that have the potential to influence Pakistan’s foreign exchange reserves require approval from the government’s Economic Coordination Committee.  Similarly, banks are required to account for outflows of foreign currency.  Investor remittances must be registered with the SBP within 30 days of execution and can only be made against a valid contract or agreement.

Sovereign Wealth Funds

Pakistan does not have its own sovereign wealth fund (SWF) and no specific exemptions for foreign SWFs exist in Pakistan’s tax law.  Foreign SWFs are taxed like any other non-resident person unless specific concessions have been granted under an applicable tax treaty to which Pakistan is a signatory.

The second round of the Government of Pakistan’s extensive 15-year privatization campaign came to an abrupt halt after 2006 when the Supreme Court reversed a proposed deal for the privatization of Pakistan Steel Mills, setting a precedent for future offerings.  As a result, large and inefficient state-owned enterprises (SOEs) retain monopolistic powers in a few key sectors, requiring the government to provide annual subsidies to cover SOE losses.  There are 197 SOEs in the power, oil and gas, banking and finance, insurance, and transportation sectors.  Some are profitable; others are loss-making.  They provide stable employment and other benefits for more than 420,000 workers.  According to the IMF, in 2019, Pakistan’s total debts and liabilities for SOEs exceeded USD 7 billion, or 2.3 percent of GDP – a 22 percent increase since 2016, but roughly the same since 2017.  Some SOEs have governing boards, but they are not effective.

Three of the country’s largest SOEs include:  Pakistan Railways (PR), Pakistan International Airlines (PIA), and Pakistan Steel Mills (PSM).  According to the IMF, the total debt of SOEs now amounts to 2.3 percent of GDP – just over USD 7 billion in 2019.  The IMF required audits of PIA and PSM by December 2019 as part of Pakistan’s IMF Extended Fund Facility.  PR is the only provider of rail services in Pakistan and the largest public sector employer with approximately 90,000 employees.  PR has received commitments for USD 8.2 billion in CPEC loans and grants to modernize its mail rail lines.  PR relies on monthly government subsidies of approximately USD 2.8 million to cover its ongoing obligations.  In 2019, government payments to PR totaled approximately USD 248 million.  In 2019, the Government of Pakistan extended bailout packages worth USD 89 million to PIA.  Established to avoid importing foreign steel, PSM has accumulated losses of approximately USD 3.77 billion per annum.  The company loses USD 5 million a week, and has not produced steel since June 2015, when the national gas company cut its power supplies due to over USD 340 million in outstanding bills.

SOEs competing in the domestic market receive non-market based advantages from the host government.  Two examples include PIA and PSM, which operate at a loss but continue to receive financial bailout packages from the government.  Post is not aware of any negative impact to U.S firms in this regard.

The Securities and Exchange Commission of Pakistan (SECP) introduced corporate social responsibility (CSR) voluntary guidelines in 2013.  Adherence to the OECD guidelines is not known.

Privatization Program

Terms to purchase public shares of SOEs and financial institutions for both foreign and local investors are the same.  The government announced plans to carry out a privatization program but postponed plans due to significant political resistance.  Even though the government is still publicly committed to privatizing its national airline (PIA), the process has been stalled since early 2016 when three labor union members were killed during a violent protest in response to the government’s decision to convert PIA into a limited company, a decision which would have allowed shares to be transferred to a non-government entity and pave the way for privatization.  A bill passed by the legislature requires that the government retain 51 percent equity in the airline in the event it is privatized, reducing the attractiveness of the company to potential investors.  The Privatization Commission claims the privatization process to be transparent, easy to understand, and non-discriminatory.  The privatization process is a 17-step process available on the Commission’s website under this link http://privatisation.gov.pk/?page_id=88 .

The following links provides details of the Government of Pakistan’s privatized transactions over the past 18 years since 1991:.  http://privatisation.gov.pk/?page_id=125 

Pakistan ranked 120 out of 180 countries on Transparency International’s 2019 Corruption Perceptions Index.  The organization noted that corruption problems persist due to the lack of accountability and enforcement of penalties, followed by the lack of merit-based promotion, and relatively low salaries.

Bribes are criminal acts punishable by law but are widely perceived to exist at all levels of government.  Although high courts are widely viewed as more credible, lower courts are often considered corrupt, inefficient, and subject to pressure from prominent wealthy, religious, and political figures.  Political involvement in judicial appointments increases the government’s influence over the court system.

The National Accountability Bureau (NAB), Pakistan’s anti-corruption organization, suffers from insufficient funding and staffing and is viewed by political opposition as a tool for score-settling by the government in power.  Like NAB, the CCP’s mandate also includes anti-corruption authorities, but its effectiveness is also hindered by resource constraints.

Resources to Report Corruption 

Justice (R) Javed Iqbal
Chairman
National Accountability Bureau
Ataturk Avenue, G-5/2, Islamabad
+92-51-111-622-622
chairman@nab.gov.pk

Sohail Muzaffar
Chairman
Transparency International
5-C, 2nd Floor, Khayaban-e-Ittehad, Phase VII, D.H.A., Karachi
+92-21-35390408-9
ti.pakistan@gmail.com

Despite improvements to the security situation in recent years, the presence of foreign and domestic terrorist groups within Pakistan continues to pose some threat to U.S. interests and citizens.  Terrorist groups commit occasional attacks in Pakistan, though the number of such attacks has declined steadily over the last decade.  Terrorists have in the past targeted transportation hubs, markets, shopping malls, military installations, airports, universities, tourist locations, schools, hospitals, places of worship, and government facilities.  Many multinational companies operating in Pakistan employ private security and risk management firms to mitigate the significant threats to their business operations.  There are greater security resources and infrastructure in the major cities, particularly Islamabad, and security forces in these areas may be more readily able to respond to an emergency compared to other areas of the country.

The BOI, in collaboration with Provincial Investment Promotion Agencies, has coordinated airport-to-airport security and secure lodging for foreign investors.  To inquire about this service, investors can contact the BOI for additional information.

Post is not aware of any damage to projects and/or installations. Abductions/kidnappings of foreigners for ransom remains a concern.

While security challenges exist in Pakistan, the country has not grown increasingly politicized or insecure in the past year.

Policies Towards Foreign Direct Investment

Panama depends heavily on foreign investment and has worked to make the investment process attractive and simple.  With few exceptions, the Government of Panama makes no distinction between domestic and foreign companies for investment purposes.  Panama benefits from stable and consistent economic policies, a dollarized economy, and a government that consistently supports trade and open markets.

In 2019, the United States ran a $7.26 billion trade in goods surplus multi-billion dollar trade surplus with Panama.  Both countries signed a Trade Promotion Agreement (TPA) that entered into force in October 2012.  The U.S.-Panama TPA has significantly liberalized trade in goods and services, including financial services.  The TPA also includes sections on customs administration and trade facilitation, sanitary and phyto-sanitary measures, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, and labor and environmental protection.

Panama has one of the few Latin American economies that is predominantly services-based. Services represent nearly 80 percent of Panama’s GDP.  The TPA has improved U.S. firms’ access to Panama’s services sector and gives U.S. investors better access than other WTO members under the General Agreement on Trade in Services.  All services sectors are covered under the TPA, except where Panama has made specific exceptions.  Under the agreement, Panama has provided improved access in sectors like express delivery, and granted new access in certain areas that had previously been reserved for Panamanian nationals.  In addition, Panama is a full participant in the WTO Information Technology Agreement.

The office of Panama’s Vice Minister of International Trade within the Ministry of Foreign Affairs is the principal entity responsible for promoting and facilitating foreign investment and exports.  Through its ProPanama service (http://propanama.mire.gob.pa/sobre-propanama ) the government provides investors with information, expedites specific projects, leads investment-seeking missions abroad, and supports foreign investment missions to Panama.  In some cases, other government offices may work with investors to ensure that regulations and requirements for land use, employment, special investment incentives, business licensing, and other requirements are met.  Panama also has a Minister Counselor for Investment, part of the presidency.  While there is no formal investment screening by Panama, the government monitors large foreign investments, especially in the energy sector.

Panama passed a Private Public Partnership (PPP) law in 2019, as an incentive for private investment, social development, and job creation.  This law was developed as a first-level legal framework that orders and formalizes the formula for the private sector to invest, with the prospect of reasonable profitability, in public initiative projects, expanding the State’s options to meet social needs.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Panamanian government imposes some limitations on foreign ownership in the retail and media sectors where, in most cases, ownership must be Panamanian.  However, foreign investors can continue to use franchise arrangements to own retail within the confines of Panamanian law (under the TPA, direct U.S. ownership of consumer retail is allowed in limited circumstances).  There are also limits on the number of foreign workers in some foreign investment structures.

In addition to limitations on ownership, approximately 55 professions are reserved for Panamanian nationals.  Medical practitioners, lawyers, accountants, and customs brokers must be Panamanian citizens.  The Panamanian government also instituted a regulation requiring that ride share platforms use drivers that possess commercial licenses, which are available only to Panamanian nationals.  The Panamanian government also requires foreigners in some sectors to obtain explicit permission to work.

With the exceptions of retail trade, the media, and several professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity.  Foreigners need not be legally resident or physically present in Panama to establish corporations or to obtain local operating licenses for a foreign corporation.  Business visas (and even citizenship) are readily obtainable for significant investors.

Other Investment Policy Reviews

N/A

Business Facilitation

Procedures regarding how to register foreign and domestic businesses, as well as how to obtain a notice of operation, can be found at the Ministry of Commerce and Industry’s website (https://www.panamaemprende.gob.pa/ ) where one may register a foreign company, create a branch of a registered business, or register as an individual trader from any part of the world.  Corporate applicants must submit notarized documents to the Mercantile Division of the Public Registry, the Ministry of Commerce and Industry and the Social Security Institute.  Panamanian government statistics show that applications for foreign businesses typically take between one to six days to process.

The process for online business registration is clear and available to foreign companies.  Panama is ranked 51 out of 190 countries for starting a business and 88 out of 190 for protecting minority investors, according to the 2019 World Bank’s Doing Business Report (http://www.doingbusiness.org/en/data/exploreeconomies/panama#DB_rp ).

Outward Investment

Capital Markets and Portfolio Investment

Government policy and law with respect to access to credit treat Panamanian and foreign investors equally.  Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc), plus a country-risk premium.

Some private companies, including multinational corporations, have issued bonds in the local securities market.  Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights.  Investor demand is generally limited because of the small pool of qualified investors.  While some Panamanians may hold overlapping interests in various businesses, there is not an established practice of having cross-shareholding or stable shareholder arrangements, designed to restrict foreign investment through mergers and acquisitions.

Money and Banking System

Panama’s 2008 Banking Law regulates the country’s financial sector.  The law concentrates regulatory authority in the hands of a well-financed Banking Superintendent (https://www.superbancos.gob.pa/ ).

Panama’s banking sector is developed and highly regulated.  However, some U.S. citizens and entities have had difficulty meeting the high documentary threshold for establishing legitimacy of their activities both inside and outside of Panama.  Banking officials counter these complaints by citing the need to comply with international financial transparency standards.  Several of Panama’s largest banks have gone so far as to refuse to establish banking relationships with whole sectors of the economy, such as e-commerce, in order to avoid all possible associated risks.  Private U.S. citizens have also faced difficulty opening bank accounts in Panama, due to regulatory issues.  This results in a large number of legitimate businesses excluded from banking services in Panama.

Traditional bank lending from the well-developed banking sector is relatively efficient and is the most common source of financing for both domestic and foreign investors, offering the private sector a variety of credit instruments.  The free flow of capital is actively supported by the government and is viewed as essential to Panama’s 70 banks (2 official banks, 40 domestic, 18 international plus 10 representational offices).

There are no restrictions on, nor practical measures to prevent hostile foreign investor takeovers, nor are there regulatory provisions authorizing limitations on foreign participation or control or other practices to restrict foreign participation.  There are no government or private sector rules to prevent foreign participation in industry standards setting consortia.  Financing for consumers is relatively open for mortgages, credit cards, and personal loans, even to those earning modest incomes.

Panama’s strategic geographic location, dollarized economy, status as a regional financial, trade, and logistics center, and favorable corporate and tax laws make it an attractive target for money launderers.  Money laundered in Panama is believed to come in large part from the proceeds of drug trafficking.  Tax evasion, bank fraud, and corruption are also believed to be major sources of illicit funds.  Criminals have been accused of laundering money via bulk cash smuggling and trade at airports, seaports, through shell companies, and the active free trade zones.

In 2015, Panama strengthened its legal framework, amended its criminal code, harmonized legislation with international standards, and passed an anti-money laundering/combating the financing of terrorism (AML/CFT) reform law.  Panama passed Law 18 (2015) that severely restricts the use of bearer shares; companies still using these types of shares must appoint a custodian and maintain strict controls over their use. Panama passed Law 70 (2019) that criminalizes tax evasion and defines tax evasion as a money laundering predicate offense.

The Financial Action Task Force (FATF) added Panama to its grey list of jurisdictions subject to ongoing monitoring due to strategic AML/CFT deficiencies in June 2019.  FATF cited Panama’s lack of “positive, tangible progress” in measures of effectiveness, but commended Panama’s ongoing progress, particularly in increasing effectiveness of the Financial Analysis Unit, responses and international cooperation on law enforcement requests, and strength in seizures and confiscation of assets involved in financial crimes.  Key deficiencies identified by FATF include a lack of effectiveness of the Attorney General’s office in investigating, prosecuting, and convicting money launderers; ineffective supervision of lawyers, corporate services, and offshore activities, including identification of beneficial owners; lack of effectiveness of Panama’s tax evasion law; a lack of proactive inter-institutional coordination; and ineffective penalties.  Panama agreed to an Action Plan with concrete measures to be completed in stages by May 2020 and September 2020.  Due to the COVID-19 pandemic, FATF announced in April 2020 that Panama would receive a four-month extension on its Action Plan, pushing the deadlines to September 2020 and January 2021.

Panama is only beginning to accurately track criminal prosecutions and convictions related to money laundering.  Law enforcement needs more tools and training to conduct long-term, complex financial investigations, including undercover operations.  The criminal justice system remains at risk for corruption.

Foreign Exchange and Remittances

Foreign Exchange

Panama’s official currency is the U.S. Dollar.

Remittance Policies

Panama has customer due diligence, bulk cash, and suspicious transaction reporting requirements for money service providers (MSB) including 19 remittance companies.  In 2017, the Bank Superintendent assumed oversight of AML/CFT compliance for MSBs.  The Ministry of Commerce and Industry (MICI) grants operating licenses for remittance companies under Law 48 (2003).

Sovereign Wealth Funds

Panama started a sovereign wealth fund, called the Panama Savings Fund (FAP), in 2012 with an initial capitalization of $1.3 billion.  From 2015 onwards, the law mandates contributions to the National Treasury from the Panama Canal Authority in excess of 3.5 percent of GDP must be deposited into the Fund.  In October 2018, the accumulation rule of the savings was modified, determining that when the contributions of the Canal exceeded 2.5 percent of the GDP, half of the surplus would be destined to national savings.  President Cortizo, signed Law 139 on April 2 that allows the use of the $1.3 billion FAP assets to confront the COVID-19 health crisis.

State-owned enterprises (SOEs) are required to send a report to the Ministry of Economy and Finance, the Comptroller’s Office and the Budget Committee of the National Assembly within the first ten days of each month showing their budget implementation.  The reports detail income, expenses, investments, public debt, cash flow, administrative management, management indicators, programmatic achievements, and workload.  SOEs are also required to submit quarterly financial statements.  SOEs are audited by the Comptroller’s Office.

The National Electricity Transmission Company (ETESA) is an example of an SOE in the energy sector, and Tocumen Airport and the National Highway Company (ENA) are SOEs in the transportation sector. Financial allocations and earnings from SOEs are publicly available at the Official Digital Gazette (http://www.gacetaoficial.gob.pa/ ).

Privatization Program

Panama’s privatization framework law does not distinguish between foreign and domestic investor participation in prospective privatizations.  The law calls for pre-screening of potential investors or bidders in certain cases to establish technical viability, but nationality and Panamanian participation are not criteria.  The Government of Panama undertook a series of privatizations the mid-1990s including most of the electricity generation, distribution, ports and telecommunications sectors.  There are presently no privatization plans for any major state-owned enterprise.

Corruption is Panama’s biggest challenge.  Panama ranked 101 out of 180 countries in the 2019 Transparency International Corruption Perceptions Index.  U.S. investors allege corruption is rampant in the private sector and all levels of the Panamanian government; purchase managers and import/export businesses have been known to overbill or take percentages off purchase orders while judges, mayors, members of the National Assembly, and local representatives have reportedly accepted payments for facilitating land titling and court rulings.  The Foreign Corrupt Practice Act (FCPA) precludes U.S. companies from engaging in bribery and other activities, and U.S. companies look carefully at levels of corruption before investing or bidding on government contracts.

The process to apply for permits and titles can be opaque, and civil servants have been known to ask for payments at each step of the approval process.  The land titling process has been very troublesome for multiple U.S. companies, which have waited in some cases decades for cases to be resolved.

Panama’s government lacks strong systemic checks and balances that would serve to incentivize accountability.  Under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which in turn has led to charges of a de facto “non-aggression pact” between the branches.

In late 2016, Brazilian construction firm Odebrecht admitted to paying $59 million in bribes to win Panamanian contracts of at least $175 million between 2010 and 2014.  Odebrecht’s admission was confined to bribes paid during the previous administration.  The scandal’s reach has yet to be fully determined and Odebrecht’s activities including construction on the second metro line and the expansion of Tocumen airport have continued.

Anti-corruption mechanisms exist, such as whistleblower and witness protection and conflict-of-interest rules.  However, the general perception is that anti-corruption laws are weak, not applied rigorously, that government enforcement bodies and the courts are not effective in pursuing and prosecuting those accused of corruption, and the lack of a strong professionalized career civil service in Panama’s public sector has hindered systemic change.  The fight against corruption is also hampered by the government’s refusal to dismantle Panama’s dictatorship-era libel and contempt laws, which can be used to punish whistleblowers, while those accused of acts of corruption are seldom prosecuted and almost never jailed.

U.S. investors in Panama complain about a lack of transparency in government procurement.  The parameters of government tenders often change during the bidding process, creating confusion and the perception the government tailor-makes tenders for specific companies.  For example, the Panama NG Power project has been stalled due to legal challenges alleging the government created the terms of the tender specifically for the Chinese-led consortium.  Odebrecht, furthermore, is still doing business in Panama and actively applying for government projects

Under President Cortizo, Panama has taken some measures to improve the business climate and urge transparency.  These include a new public-private partnership (APP) law that covers construction, maintenance, and operations projects valued at more than $10 million. The law is designed to implement checks and balances and eliminate discretion in contracting, a positive step that will increase transparency and create a level playing field for investors. In addition, the public procurement law was reintroduced in the National Assembly for discussion to improve the bidding processes so that no tenders could be “made to order”. This law is currently under review in the National Assembly as of May 2020.

Panama ratified the UN’s Anti-Corruption Convention in 2005 and the Organization of American States’ Inter-American Convention Against Corruption in 1998.  However, there is a perception that Panama should more effectively implement the conventions.

Resources to Report Corruption

ELSA FERNÁNDEZ AGUILAR
Directora Nacional de Transparencia y Acceso a la Informacion (ANTAI)
Autoridad Nacional de Transparencia y Acceso a la Informacion
Ave. del Prado, Edificio 713, Balboa, Ancon, Panama, República de Panama
(507) 527-9270 / 71/72/73/74
www.antai.gob.pa 

Panama is a peaceful and stable democracy.  On rare occasions, large-scale protests can turn violent and disrupt commercial activity in affected areas.  Mining and energy projects have been sensitive, especially those that involve development in the designated indigenous areas called Comarcas.

In May 2019, Panama held national elections that international observers agreed were free and fair.  The transition to the new government was smooth.  Panama’s Constitution provides for the right of peaceful assembly, and the government respects this right.  No authorization is needed for outdoor assembly, although prior notification for administrative purposes is required.  Unions, student groups, employee associations, elected officials, and unaffiliated groups frequently attempt to impede traffic and commerce in order to force the government or business to agree to demands.

Policies Towards Foreign Direct Investment

The PNG Government remains focused on fostering an enabling environment for businesses to grow and attracting foreign direct investment.

PNG aims to increase Foreign Direct Investments (FDI) in mining and the petroleum/gas sector from USD 40.0 million in 2016 to USD 100.0 million by 2022.  FDI stock reached USD 4.2 billion in 2016.  The mining, oil, and gas sectors attract most of the FDIs.  There is a target to increase stock to USD 10.0 billion by 2022.  The government also aims to increase FDIs in the renewable sector.

The goal of the 2017-2032 PNG National Trade Policy (NTP) is to maximize trade and investment by increasing exports, reducing imports on substitute goods, and increasing Foreign Direct Investment (FDI) that generates wealth and contributes to growing the economy.  The NTP envisions a future PNG with “an internationally competitive export-driven economy that is built on and aided by an expanding and efficient domestic market.”  The 15-year trade policy outlined the following eight policy objectives:

1) To send a strong signal to the international community that PNG is open for business.

2) To expand market access, inclusive of negotiations of terms that will result in market presence for PNG’s products and services in foreign markets, thereby sustaining trade surpluses on both the merchandise and services accounts.

3) To protect consumer welfare through strengthened enforcement of intellectual property rights and ensure national standards and compliance measures are respected.

4) To create an environment in PNG that is conducive for doing business and increasing employment, by ensuring that costs are reduced and are also transparent and predictable.

5) To identify markets where PNG can receive a cost advantage for products of strategic interest and create secure, predictable market access conditions through trade agreements.

6) To advocate for the elimination of large-scale subsidies provided by trading partners that distort international trading prices on products of strategic interest to PNG.

7) To mobilize resources to finance needs of the trade and trade-related sectors.

8) To mainstream Small and Medium-sized Enterprises (SMEs) into trade deals by negotiating clear terms regulating establishment of foreign firms in PNG’s markets in sectors of strategic interest through goods and services scheduling commitments.

The policy lays out numerous legal, regulatory, and administrative measures to be adopted by the Government of PNG in furtherance of these objectives.  It also sets very ambitious economic targets, including the creation of over 100,000 new jobs, USD$10 billion in foreign investment, increased foreign exchange reserves, reduced government debt to GDP ratio, and a more diversified economy in the next five years.

PNG does not have any specific policy or law that promotes discrimination against foreign investors.  However, the Foreign Investment Regulatory Authority Bill 2018 (FIRA Bill) prompted serious concern from businesses that foreign investments would be disadvantaged. Then Minister for Commerce & Industry Mera Wori explained that the bill is intended to protect the rights of small national (Papua New Guinean) businesses in the micro-small-medium enterprise sector. The business community expressed concerns that the bill would impose restraints on foreign investment in the country, particularly by reserving investments below K10 million for Papua New Guineans and by setting an extensive reserve activity list.  Businesses also argued that the bill was developed without proper stakeholder consultation.

In response to these concerns, the government suspended the bill for further review and wider consultation.  The government maintain that the bill is not draconian but is more conducive to investments and growth of SMEs.  According to the government, the bill provided a clear demarcation of Reserved Lists of Businesses for Papua New Guineans from SMEs, with thresholds for business activities, especially in the SME space for Joint Venture Partnerships.

Some commentators see the FIRA Bill as the government’s efforts to promote local participation in economic activities and to diversify its economic base through Agriculture, Fisheries, SME, Manufacturing, Industrialization, and downstream processing of raw materials as it moves away from heavy reliance on the Extractive Sector.

Also under review are the government’s proposed amendments to the Mining Act of 1992.  The Government argued that proposed amendments will improve benefit arrangements over current practice.  The reforms would shift focus from regulating upstream mining processes to promoting downstream processing based on production sharing.  By contrast, the industry raised concerns that the amendments may deter further investments in mining projects and interrupting the operations of current mines in the country.  The industry also suggested that the government consider the impact of the proposed amendments on the broader fiscal regime.

The Marape Government stepped up its review of major petroleum resource agreements signed by the O’Neill Government as part of its use of “Take Back PNG” to steer the country to economic recovery and sustainable development.  Petroleum Minister Kerenga Kua stated that the current concession-based licensing system failed PNG in both the mining and petroleum sectors.  The government is also concerned that these agreements limited the return of export revenues to PNG, causing shortages of foreign exchange in PMG.  To remedy the situation, the Marape government will undertake legislative reforms to establish a Production Sharing Agreement or other contract-based licensing system.  The government believes that the approach would relieve the State of expensive loans and create early cash flows in all future mining and petroleum projects.

Soon after taking office in May 2019, the State Negotiation Team (SNT), led by Kua, secured additional concessions on the Papua Gas Agreement negotiated between the O’Neill Government and Total.  SNT ended negotiations, though, without an agreement with ExxonMobil PNG over investment returns for P’nyang, a major gas resource project.  In April, acting at the behest of the Mining Advisory Council, the Government ended talks with Canadian firm Barrick Gold on renewing its lease on a major gold mine, pointing to environmental problems and the displacement of local residents.  Barrick Gold expressed concern that the Government of Papua New Guinea’s position amounted to nationalization.

The Investment Promotion Authority was established by an Act of Parliament in 1992 with the mandate to promote and facilitate investment in Papua New Guinea and to regulate the business. The services provided by the Authority include: Business, registration, regulation and certification (under the Business Registration and Certification or Office of the Registrar of Companies), Investor Servicing and Export Promotion (under the Investor Services and Promotion Division), Protection of Intellectual Property Rights (under the Intellectual Property Office of PNG), and regulating capital Markets (under the Securities Commission of PNG).

The mining, petroleum, and gas sectors are key economic portfolios in PNG.  PNG’s mineral, petroleum, and gas resource projects are operated by foreign investors.  In these resource sectors, the State has the right but not the obligation to acquire up to 22.5 per cent of a participating interest in a designated gas or petroleum project, and up to 30 per cent of a mining project, at par value, or ‘sunk cost’.

Given the important role that these resource sectors play, cabinet has set up strategic teams to lead dialogue and negotiations with relevant stakeholders.  For gas resources, the State is represented by the State Negotiation Team (SNT), comprising heads of various state-owned enterprises and government agencies.  In mining, the Mining Advisory Committee, an independent committee established under the Mining Act, deliberates on the application process.

In addition, the government of PNG is an active partner in hosting regular resource sector forums that attract large numbers of international industry experts and investors.  The government co-hosts the annual Petroleum and Energy Summit in Port Moresby and supports the bi-annual PNG Mining and Petroleum Conference.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment in Papua New Guinea is facilitated, regulated and monitored by the Investment Promotion Act.

Section 37 of the Act guarantees that the property of a foreign investor shall not be nationalized or expropriated except in accordance with law, for a public purpose defined by law and in payment of compensation as defined by law.

Foreigners are not allowed to own land in PNG.  Most foreign businesses use long-term leases for land instead of direct purchases.  There are no other specific requirements.  PNG recently changed its citizenship laws to allow dual citizenship which had previously been a limiting factor for Papua New Guineans returning from overseas having naturalized elsewhere.  Additionally, it allows long-term residents to naturalize as PNG citizens with full legal rights and responsibilities.

PNG does not have any specific policy or law that promotes discrimination against foreign investors.

The Government of Papua New Guinea screens foreign direct investment. When reviewing an FDI proposal, the Investment Promotion Authority (IPA) may consider a number of factors, including the:

• Potential for positive development of human and natural resources;
• Investor’s past record in Papua New Guinea and elsewhere;
• Creation of additional employment and income-earning opportunities;
• Likelihood the proposal will generate additional government revenue and contribute to economic growth;
• Transfer of technologies and skills and the contribution to training citizens of Papua New Guinea; and

There is no specific investment level.  The IPA may, however, pursuant to Section 28(7) of the Investment Promotion Act require an applicant for Certification to deposit the prescribed amount prior to a Certificate being issued.  The prescribed amounts are per Section 6B of the Investment Promotion Regulation:

• Individual – PGK 50,000 (USD 15,340);
• Partnership – PGK 50,000 (USD 15,340) per partner; and
• Corporate Body – PGK 100,000 (USD 30,680).

The purpose of the screening mechanism is to assess the net economic benefit and alignment with national interest.  The possible outcomes of a review are prohibition, divestiture, and imposition of additional requirements.  The IPA and other regulatory bodies in their particular sectors make the decision on the outcome.

Appeal processes differ among the sectors.  For IPA-related matters, a company must submit its appeal to the Ministry of Commerce and Industry.  An accompanying fee of PGK 200 (USD 61) is required. Appeals may be lodged in response to any decision made by the IPA, including rejection of an application or the cancellation of a registration.

The Bank of Papua New Guinea, PNG’s Central Bank, approves all foreign investment proposals.  Such proposals include the issue of equity capital to a non-resident, the borrowing of funds from a non-resident investor or financial intermediary, and the supply of goods and services on extended terms by a non-resident.  In its review, the Bank is mostly concerned that the terms of the investment funds are reasonable in the context of prevailing commercial conditions and that full subscription of loan funds are promptly brought to Papua New Guinea.  A debt/equity ratio of 5:1 is generally imposed with respect to overseas borrowings and a ratio of 3:1 with respect to local borrowings.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

The Investment Promotion Authority (IPA) through the Companies Office is responsible for the administration of Papua New Guinea’s key business laws such as the Companies Act, Business Names Act, Business Groups Incorporation Act and the Associations Incorporation Act.

The services provided by the Authority include: Business, registration, regulation and certification (under the Business Registration and Certification or Office of the Registrar of Companies), Investor Servicing and Export Promotion (under the Investor Services and Promotion Division), Protection of Intellectual Property Rights (under the Intellectual Property Office of PNG), and regulating capital Markets (under the Securities Commission of PNG).

Service information is available at http://www.ipa.gov.pg/business-registration-regulation-and-certification/.

The Investment Promotion Authority (IPA) is the lead agency for PNG’s business facilitation efforts. It can be reached online at http://www.ipa.gov.pg/ .  The new “Do It Online” section allows both overseas and domestic business registration.  Previously, the processing times were substantial, but the current processing time for IPA is seven (7) days.  A foreign company must first register under the Companies Act of 1997.  Foreign companies have two options for registration in PNG: to incorporate a new company in PNG or to register an overseas company under the Companies Act of 1997.  In practice, most foreign companies incorporate a new PNG subsidiary when entering the PNG market.

Once incorporated and registered with the IPA, a newly incorporated PNG company or overseas company should also register with the Internal Revenue Commission for tax and employment purposes.  Typically, this process takes nine (9) days.

Outward Investment

Through the IPA, the government has a range of direct and indirect taxation-based incentives for large and small proposals.

There are international treaties, agreements and pacts which give Papua New Guinea’s manufactured goods preferential access to various export markets, including duty free and reduced tariff entry to some of the largest markets in the world, for example the European Union (EU) under the Cotonou Agreement, and the United States Generalized System of Preferences Program (GSP).  The GSP Program is a U.S. government arrangement that provides enhanced access to the U.S. markets, and designed to help countries grow their economies through trade.  It provides duty-free treatment for almost 3,500 products from PNG and its neighbors (Vanuatu, Solomon Islands, Kiribati, Fiji, Samoa, Tonga, Indonesia, Philippines, etc.).

The Multilateral Investment Guarantee Agency’s (MIGA) principle responsibility is promotion of investment for economic development in member countries through:

* guarantees to foreign investors against losses caused by non-commercial risks; and

* advisory and consultative services to member countries to assist them in creating a responsive investment climate and information base to guide and encourage flow of capital.

There are no explicit legal restrictions on outward investment.  The most likely barrier for this type of investment would be securing sufficient access to foreign currency.  There have been no recent large-scale outward investments originating from PNG.

Capital Markets and Portfolio Investment

Portfolio investments are unregulated and limited to the availability of stocks.

PNG has one stock market in Port Moresby, PNGX Limited (Formerly POMSoX).  Founded in 1999, it is closely aligned with the Australian Stock Exchange (ASX), and mimics its procedures.

There is no factor market, and the free flow of remission of funds offshore is subject to approval by the Central Bank (Bank of Papua New Guinea) and the International Revenue Commission.  Owing to a persistent shortage of foreign currency at the Bank of Papua New Guinea, companies have struggled to make international remissions.  In its most recent Article IV consultation, the IMF found multiple restrictions on current international payments and two multiple currency practices (MCPs) that are inconsistent with Article VIII of the IMF’s Articles of Agreement.

In its previous Article IV consultation in late 2017, the IMF found no restrictions on current international payments and no multiple currency practices (MCPs) that are inconsistent with Article VIII of the IMF’s Articles of Agreement.

Credit is allocated on market terms, and foreign investors are able to get credit on the local market, much more so than in previous years due to the liberalization of policies, provided that foreign investors have a good credit history. Credit instruments are limited to leasing and bank finance.

Money and Banking System

PNG’s commercial banking sector comprises four commercial banks. Two are Australian institutions, Westpac and Australian and New Zealand Group (ANZ) banks, with local banks Bank of South Pacific (BSP) and Kina Bank.

BSP is both the largest bank and non-mining taxpayer in PNG. BSP operates 79 branches, 52 sub-branches, 351 agents, 499 ATMs, 11,343 electronic funds transfer at point of sale (EFTPOS) units and 4261 employees.

Official government sources indicate that much remains to be done in terms of financial inclusion, with nearly three quarters of PNG’s population do not have access to formal financial services and most of those excluded represent the low income population in rural areas, urban settlements, with women particularly excluded.

There are both domestic and international banks in PNG and all have reported profits in their most recent reporting. Based on the Oxford Business Group business update issue of 2018, assets in the commercial sector have recorded exponential growth since 2002, with the Bank of PNG reporting that total commercial banking assets rose from PGK3.9bn ($1.2bn) in that year to reach PGK20.3bn ($6.3bn) in 2011. Growth has been slower in recent years, however, with total assets rising from PGK22.7bn ($7.1bn) in2012 to a high of PGK29.8 million.

According to BSP’s official figures, total assets of the bank at the end of 2019 are at K21.891 billion.  Loans and advances to customers has a net growth of K587.3 million to K11.820 billion which has been mainly in PNG, Fiji and Samoa.  Customer deposits picked up in 2019 with growth of K1.023 billion to K17.982 billion.

BSP operates in PNG, Fiji, Solomon Islands, Samoa, Tonga, Cook Islands, Vanuatu and Cambodia. The Bank reported that across the region, most economies in which it operates maintained reasonable levels of growth.

The banking system in Papua New Guinea is sound.

The Bank of Papua New Guinea acts as the central bank for Papua New Guinea.  The Central Banking Act of 2000 outlines the powers, functions, and objectives of the Bank.

Foreigners are required to show documentation either of their employment or their business along with proof of a valid visa in order to register for a bank account.

PNG’s commercial banking sector comprises four commercial banks. Two are Australian institutions, Westpac and Australian and New Zealand Group (ANZ) banks, with local banks Bank of South Pacific (BSP) and Kina Bank.  They are listed on the Australian Stock Exchange are subject to the prudential measures and regulations of the Exchange.

Foreign Exchange and Remittances

Foreign Exchange

While there are no legal restrictions on such activities, a lack of available foreign exchange makes such conversions, transfers, and repatriations time consuming.

Bank of Papua New Guinea requires that all funds held in PNG be held in PNG kina (PGK).  This rule was announced with little notice and caught many businesses off-guard in 2016.  While there was an appeal process for businesses that wished to keep non-PGK accounts, none of the appeals were granted.

On June 4, 2014, the Central Bank introduced measures which have effectively pegged the kina at levels that led to foreign exchange shortages.  While the kina does fluctuate somewhat in value, it only trades in a tight band as allowed by the central bank (Bank of Papua New Guinea).  Recently, the central bank has allowed PGK to slowly depreciate against the USD and other currencies.

Remittance Policies

There have been no recent changes or plans to change remittance policies.  Remittance is done only through direct bank transfers.  All remittances overseas in excess of PGK 50,000 (USD 15,340) per year require a tax clearance certificate issued by the Internal Revenue Commission (IRC). In addition, approval of PNG’s Central Bank – the Bank of Papua New Guinea – is required for annual remittances overseas in excess of PGK 500,000 (USD 153,420).  Remittances related to the payment of trade-related goods are not taken into account.  There are no specific restrictions on the repatriation of capital owned by or due to non-residents.  The Central Bank’s principal objectives in assessing applications for capital repayments are to ensure that the funds are due and payable to a non-resident and that Papua New Guinea assets are not sold at an artificial value.

While there are no legal time limitations on remittances, foreign companies have waited many months for large transfers or performed transfers in small increments over time due to a shortage of foreign exchange.

Sovereign Wealth Funds

A Sovereign Wealth Fund Bill was passed in Parliament on July 30, 2015.  However, falling commodity prices have severely impacted government revenues.  Plans for the SWF have been put on hold indefinitely.

SOEs in PNG continue to dominate critical public utilities ranging from electricity, water and sewerage, transport, and telecommunications.  PNG’s total state assets stand at K9.3 billion with staff strength of 7,000 employees.  Papua New Guinea’s nine SOEs altogether comprise 4.8 percent of GDP with a total revenue of K3 billion.

The SOEs operate and provide services in aviation, mobile services and telecommunications, water and sewerage, motor vehicle insurance, development banking and finance, petroleum sector, data service, port services, electricity, and postal and logistics services.  Each SOE has an independent board that is appointed by the cabinet which then reports to the Minister of State-Owned Enterprises.

Recent reports highlighted the rapid growth in the assets of the nine largest SOEs.  Asset use, however, has been inefficient and with their profitability steadily declining since 2005.

Structural reform in 2015 established Kumul Consolidated Holdings (KCH).  Purpose of the reform was to give SOEs greater autonomy and accountability, but this is still lacking in day-to-day operations.  The main hindrance is that, under the Kumul Consolidated Holdings Act 2015, the cabinet can appoint SOE directors, grant approvals for corporate plans, remuneration levels, tenders, engagement of consultants, and other powers, thereby reducing the autonomy of the SOE. It has also been reported that the Act allows the cabinet to direct governance control over the SOEs, a responsibility normally reserved for SOE boards. This increases the risk of political considerations overriding commercial targets.  PNG’s SOEs generally lack transparency, accountability, autonomy and a robust legal framework that requires the SOEs to operate as viable commercial entities. Most SOEs in PNG continue to fail to produce financial accounts in a timely manner to allow for more informed government and legislative decision-making. This includes KCH’s failure to publicly report its audited financial statements to date.

A list of SOEs in PNG can be found at:  http://www.kch.com.pg/portfolio/ 

Privatization Program

There is no privatization program in place and thus no guidelines or structure on when and how foreign investors are allowed to participate in privatization programs.  The government has funding available for privatization and is currently using the Public Private Partnership (PPP) structure as a model for privatization.  The trend has been towards growing SOEs.  The cumulative asset value of SOEs grew from USD1.58 billion in 2012 to USD6.32 billion by the end of 2015.

Corruption is widespread in Papua New Guinea, particularly the misappropriation of public funds, “skimming” of inflated contracts, and nepotism.

Giving or accepting a bribe is a criminal act.  Penalties differ for Members of Parliament (MPs), public officials, and ordinary citizens.  For MPs the penalty is imprisonment for no more than seven years; for public officials the penalty is imprisonment for no more than seven years and a fine at the discretion of the court; for ordinary citizens the penalty is a fine not exceeding PGK 400 (USD 123) or imprisonment of no more than one year.  A bribe by a local company or individual to a foreign official is a criminal act.  A local company cannot deduct a bribe to a foreign official from taxes.

The government encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.

However, overall enforcement of existing laws is insufficient.

Most of the larger domestic companies and international firms from Europe, North America, Japan, Australia, and New Zealand have effective internal controls, ethics, and compliance programs to detect and prevent bribery.  Many firms from elsewhere in East and Southeast Asia, particularly those in the resource extraction sectors, lack such programs.

Papua New Guinea has signed and ratified the UN Convention against Corruption. Papua New Guinea is not a party to the UN Convention against Transnational Organized Crime or the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

No specific protections are provided to NGOs involved in investigating corruption.  PNG’s Ombudsman Commission and the Police Fraud & Anti-Corruption Directorate are generally the main avenues to report and seek protection to matters pertinent to investigating corruption.  The Ombudsman Commission is mandated to investigate and recommend to concerned authorities to take action while the Police Fraud & Anti-Corruption Directorate has the powers to prosecute.

U.S. firms routinely identify corruption as a challenge to foreign direct investment. Some critical areas in which corruption is pervasive include budget management, forestry, fisheries, and public procurement.  In addition, the findings from the recent business survey, “Results of the 2017 Survey of Businesses in Papua New Guinea,” highlighted that “corruption is becoming an increasing problem with most firms reporting that they make ‘irregular payments’ to government officials.”  A considerable number of those surveyed indicated that problems lay in either Lands or Customs/Finance/Tax institutions.

Resources to Report Corruption

Twain Pambuai
Director of Corporate Services
Ombudsman Commission
Tower Building
Douglas Street
+675 308 2618
Twain.pambuai@ombudsman.gov.pg

Arianne Kassman
Executive Director
Transparency International
P.O. Box 591, Port Moresby, NCD
+675 320 2188
exectipng@gmail.com

Lawrence Stephens
Chairman
Transparency International
P.O. Box 591, Port Moresby, NCD
+675 320 2188
taubadasaku@gmail.com

Periodic tribal conflicts occur, particularly in the Highlands and Sepik regions of the country, and election-related violence broke out following the 2017 national elections.  While foreign investors/interests have not been the target of these often-violent confrontations, project infrastructure can occasionally be inadvertently damaged, or their operations disrupted due to the prevailing security situation.

Incidents of damage to projects and/or installations over the past few years have not been specifically politically motivated.  Most of the disruption and damage caused to projects is due to disputes between landowners and the central government, which are fueled by a perception in certain cases that the central government has failed to uphold its financial commitments to landowners.  Landowners in these disputes have taken out their frustration with the central government by damaging the infrastructure or disrupting the operations of foreign projects in their regions.

The central bureaucracy is increasingly politicized, which has eroded the capacity of government departments and allowed nepotism/political cronyism to thrive in parts the public service. Civil disturbances have been triggered by the government’s failure to deliver financial and development commitments, particularly to landowners in the resource project areas. They have also occurred in major urban areas based on disputes between long-term residents and newly arrived migrants and/or between competing criminal networks.

Rampant political interference in the appointment process of the executive management and boards of state-owned enterprises (SOEs) have resulted in most SOEs suffering from poor management. The awarding process of government procurement contracts continues to lack competitive bidding processes due to excessive political influence.  In addition, the lack of proper consultation by the government on legislative and policy reforms have raised serious concern on the independence and effectiveness of due process.

Policies Towards Foreign Direct Investment

The Paraguayan government publicly encourages private foreign investment, but U.S. companies often struggle with practices that inhibit or slow their activities. Paraguay guarantees equal treatment of foreign investors and permits full repatriation of capital and profits. Paraguay has historically maintained the lowest tax burden in the Latin American region, with a 10 percent corporate tax rate and a 10 percent value added tax (VAT) on most goods and services. Despite these policies, U.S. companies continue to have difficulty with investments in Paraguay, including seemingly frivolous legal entanglements taking multiple years to resolve, non-payment and delayed payments from Paraguayan government customers, and opaque permitting processes that slow project execution.

REDIEX provides useful information for foreign investors, including business opportunities in Paraguay, registration requirements, laws, rules, and procedures.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities may establish and own business enterprises. Foreign businesses are not legally required to be associated with Paraguayan nationals for investment purposes, though this is strongly recommended, on an unofficial basis, by national authorities.

There is no restriction on repatriation of capital and profits. Private entities may freely establish, acquire, and dispose of business interests.

Under the Investment Incentive Law (60/90) and the maquila program, the government has an approval mechanism for foreign investments that seeks to estimate the proposed investment’s economic impact in areas including employment, incorporation of new technologies, and economic diversification.

Other Investment Policy Reviews

The WTO conducted an Investment Policy Review in 2017. Please see following website: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=240507,87161,40418,27051&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=False&HasSpanishRecord=False 

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=240507,87161,40418,27051&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=False&HasSpanishRecord=False 

Business Facilitation

Paraguay has responded to complaints about its traditionally onerous business registration process — previously requiring new businesses to register with a host of government entities one-by-one — by creating a portal in 2007 that provides one-stop service. The Sistema Unificado de Apertura y Cierre de Empresas – SUACE (www.suace.gov.py ) — is the government’s single window for registering a company.  The process takes about 35 days.

On January 8, 2020, President Abdo Benitez signed law 6480 to facilitate the creation of SMEs. A new registration process allows individuals to complete the required forms online and at no cost . The approval process will take between 24 and 72 hours. This new registration process is expected to be operational by mid-2020.

Outward Investment

There are no restrictions to Paraguayans investing abroad. The Paraguayan government does not incentivize or promote outward investment.

Capital Markets and Portfolio Investment

Credit is available but expensive. Banks frequently charge from 30 percent to 37 percent interest on consumer loans, with the vast majority favoring repayment horizons of one year. Loans for up to 10 years are available at higher interest rates. High collateral requirements are generally imposed. Private banks, in general, avoid mortgage loans. Because of the difficulty in obtaining bank loans, Paraguay has seen growth in alternative and informal lending mechanisms, such as “payday” lenders. These entities can charge up to 85 percent interest on short-term loans according to banking contacts. The high cost of capital makes the stock market an attractive, although underdeveloped option. Paraguay has a relatively small capital market that began in 1993. As of March 2020, the Asuncion Stock exchange consisted of 102 companies. Many family-owned enterprises fear losing control, dampening enthusiasm for public offerings. Paraguay passed a law in 2017 abolishing anonymously held businesses, requiring all holders of “bearer shares” to convert them. Foreign banks and branches are allowed to establish operations in country, as such Paraguay currently has three foreign bank branches and four majority foreign-owned banks.

The Paraguayan government issued Paraguay’s first sovereign bonds in 2013 for USD 500 million to accelerate development in the country. Since then, Paraguay has issued bonds each year and recently in 2020 for USD 450million. Proceeds are expected to finance key infrastructure development programs designed to promote economic and social development and job creation. Commercial banks also issue debt to fund long-term investment projects.

Paraguay became an official member of the IMF in December 1945 and its Central Bank respects IMF Article VIII related to the avoidance of restrictions on current payments.

Money and Banking System

Paraguay’s banking system includes 17 banks with an approximate total USD 21.5 billion in assets and USD 15.5 billion in deposits. The banking system is generally sound but remains overly liquid. Long-term financing for capital investment projects is scarce. Most lending facilities are short-term. Banks and finance companies are regulated by the Banking Superintendent, which is housed within, and is under the direction of, the Central Bank of Paraguay.

The Paraguayan capital markets are essentially focused on debt issuances. As the listing of stock is limited, with the exception of preferred shares, Paraguay does not have clear rules regarding hostile takeovers and shareholder activism.

Paraguay has a high percentage of unbanked citizens. Seven out of 10 adults do not have bank accounts. Many Paraguayans use alternative methods to save and transfer money. In recent years, the use of e-wallets has grown considerably to fill this void. According to the Central Bank of Paraguay, the number of transactions increased by 11 percent, from 18.9 million transactions in 2018 to 21 million in 2019 totaling USD 526 million or around USD 25 per transaction. This growth made the Central Bank publish regulations on e-wallets in February 2020 to expand their “know your customer” (KYC) and other requirements to match those of traditional bank operations.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment (e.g. remittances of investment capital, earnings, loan or lease payments, royalties). Funds associated with any form of investment can be freely converted into any world currency. Paraguay has a flexible exchange rate system making the national currency rate fluctuate according to the foreign-exchange market mechanisms.

Remittance Policies

There are currently no plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances. There are no time limitations on remittances. Paraguay is a member of the GAFILAT, a Financial Action Task Force (FATF)-style regional body. GAFILAT initiated a review of Paraguay’s work and measures taken against money laundering in December 2019. The final assessment was initially scheduled for December 2020 but will likely be delayed due to COVID-19 pandemic.

Sovereign Wealth Funds

Paraguay does not have a sovereign wealth fund.

Paraguay has seven major state-owned enterprises (SOEs), active in the petroleum distribution, cement, electricity (distribution and generation), water, aviation, river navigation, and cellular telecommunication sectors. Paraguay has another two minor SOEs, one dedicated to the production of alcoholic beverages through raw sugar cane and another, essentially inactive, focused on railway services. In general, SOEs are monopolies with no private sector participation. Most operate independently but maintain an administrative link with the Ministry of Public Works & Communications. SOEs have audited accounts, and the results are published online. Public information and audited accounts from 2018 indicate SOEs employ over 17,000 people and have assets for $4.2 billion. Net incomes of all SOEs are approximately $118 million.

SOEs’ corporate governances are weak. SOEs operate with politically appointed advisors and executives and are often overstaffed and an outlet for patronage, resulting in poor administration and services. Some SOEs burden the country’s fiscal position, running deficits most years. SOEs are not required to have an independent audit. The Itaipu and Yacyreta bi-national hydroelectric dams, which are considered semi-autonomous entities administered by joint bilateral government commissions (since they are on shared international borders), have a board of directors.

Link to all SOEs: https://www.economia.gov.py/index.php/dependencias/direccion-general-de-empresas-publicas/direccion-general-de-empresas-publicas 

Privatization Program

Paraguay does not have a privatization program.

Paraguayan law provides criminal penalties for official corruption; however, impunity impedes effective implementation. Historically, officials in all branches and at all levels of government have engaged in corrupt practices. Judicial insecurity and corruption mar Paraguay’s investment climate. Many investors find it difficult to enforce contracts and are frustrated by lengthy bureaucratic procedures, limited transparency and accountability, and impunity. A recent trend is for private companies to insist on arbitration for dispute resolution and bypass the judicial system completely.

The Paraguayan government has taken several steps in recent years to increase transparency and accountability, including the creation of an internet-based government procurement system, the disclosure of government payroll information, the appointment of nonpartisan officials to key posts, and increased civil society input and oversight. Notwithstanding, corruption and impunity continue to affect the investment climate.

The constitution requires all public employees, including elected officials and employees of independent government entities, to disclose their income and assets at least 15 days after taking office and again within 15 days after finishing their term or assignment, but at no point in between, which is problematic for congressional representatives that are re-elected numerous times. Public employees are required to include information on the assets and income of spouses and dependent children. Officials are not required to file periodically when changes occur in their holdings.

UN Anticorruption Convention, OECD Convention on Combating Bribery:

Paraguay signed and ratified the UN Anti-corruption Convention in 2005.

Resources to Report Corruption:

General Auditors Office
Bruselas 1880, Asuncion, Paraguay
+ 595 21 620 0260
atencion@contraloria.gov.py

Public Ministry
Nuestra Señora de la Asunción c/ Haedo, Asuncion, Paraguay
+ 595 21 454 611
http://www.ministeriopublico.gov.py/direccion-de-denuncias-penales 

Anti-Corruption Secretariat
El Paraguayo Independiente esquina Río Ypané, Asunción, Paraguay
+ 595 21 450-001/2
http://www.senac.gov.py/ 

Seeds for Democracy
Roma 1055 casi Colón, Asuncion, Paraguay
+ 595 21 420 323
semillas@semillas.org.py

While Paraguay has not traditionally been affected by political violence, this streak was broken in March 2017 when approximately 2,500 protesters stormed and partially burned the congressional assembly building. Protesters also damaged and vandalized storefronts, parked cars, and additional government offices in the downtown area. The police response resulted in the death on one protester and numerous injuries. The protests erupted in response to senators passing a bill approving a constitutional amendment to allow former President Cartes and other former presidents to run for re-election.

Paraguay has been spared the large number of kidnappings that occur in neighboring Latin American countries, but a few high profile cases have occurred in recent years, most of them attributed to suspected members of the organized criminal group Paraguayan People’s Army (EPP). The Paraguayan government has responded to the EPP threat with combined military and police operations. Land invasions, marches, and organized protests occur, mostly by rural and indigenous communities making demands on the government, but these events have rarely turned violent.

Policies Towards Foreign Direct Investment

Peru seeks to attract investment — both foreign and domestic — in nearly all sectors of the economy. The country reported $2.8 billion in Foreign Direct Investment (FDI) in 2019. The government seeks increased investment for 2020-2021 and has prioritized $5.5 billion in public-private partnership projects in transportation infrastructure, electricity, mining, broadband expansion, gas distribution, health and sanitation.

The 1993 Constitution grants national treatment for foreign investors and permits foreign investment in almost all economic sectors. Under the Peruvian Constitution, foreign investors have the same rights as national investors to benefit from investment incentives, such as tax exemptions. In addition to the 1993 Constitution, Peru has several laws governing FDI including the Foreign Investment Promotion Law (Legislative Decree (DL) 662 of September 1991) and the Framework Law for Private Investment Growth (DL 757 of November 1991). Other important laws include the Private Investment in State-Owned Enterprises Promotion Law (DL 674), the Private Investment in Public Services Infrastructure Promotion Law (DL 758), and specific laws related to agriculture, fisheries and aquaculture, forestry, mining, oil and gas, and electricity. Article 6 of Supreme Decree No. 162-92-EF (the implementing regulations of DLs 662 and 757) authorizes private investors to enter all industries except investments within natural protected areas and manufacturing of weapons.

Peru and the United States benefit from the United States-Peru Free Trade Agreement (PTPA), which entered into force on February 1, 2009. The PTPA established a secure, predictable legal framework for U.S. investors operating in Peru. The PTPA protects all forms of investment. U.S. investors enjoy the right to establish, acquire, and operate investments in Peru on an equal footing with local investors in almost all circumstances.

The GOP created the investment promotion agency ProInversion in 2002. ProInversion has completed both privatizations and concessions of state-owned enterprises and natural resource-based industries. The agency regularly organizes international roadshow events, including in the United States, to attract investors and manages the GOP’s public-private investment project portfolio. Major recent concession areas include ports, water treatment plants, power generation facilities, mining projects, electrical transmission lines, oil and gas distribution, and telecommunications. Project opportunities are available on ProInversion’s Project Portfolio page at: http://www.proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=1&prf=2&jer=5892&sec=30 .

The GOP passed legislative decrees in July 2018 to attract and facilitate investment. These include measures to reform the Public-Private Partnership (PPP) process. The reforms establish the Economy and Finance Ministry (MEF) as the PPP policymaking authority and allows government entities to contract out PMO services throughout all stages of the PPP process, including through the GOP promotion investment agency ProInversion. The GOP announced on January 2020 a new narrowed focus for ProInversion to place it as a center of excellence for project structuring and a credible PPP project investment pipeline source. The GOP also established an investment research portal within the public investment online database (https://www.mef.gob.pe/es/aplicativos-invierte-pe?id=5455  ).

To spur infrastructure projects and close the $110 billion infrastructure gap, the government published a National Infrastructure Plan (https://www.mef.gob.pe/contenidos/inv_privada/planes/PNIC_2019.pdf  ) in July 2019, with 52 infrastructure projects keyed to critical sectors outlined in a National Competitiveness Plan. Priority projects include two Lima metro lines, an expansion of Jorge Chavez International Airport, and regional rail lines. In January 2020 Peru passed a law allowing the use of Building Information Modelling (BIM) and New Engineering Contract (NEC) mechanisms for public investment projects, institutionalizing international key best practices in infrastructure.

Although Peruvian administrations since the 1990s have supported private investments, Peru occasionally passes measures that some observers regard as a contravention of its open, free market orientation. In December 2011, Peru signed into law a 10-year moratorium on the entry of live genetically modified organisms (GMOs) for cultivation. Peru also implemented two sets of rules for importing pesticides, one for commercial importers, which requires importers to file a full dossier with technical information, and another for end-user farmers, which only requires a written affidavit.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Constitution (Article 6 under Supreme Decree No. 162-92-EF) authorizes foreign investors to carry out any economic activity provided investors comply with all constitutional precepts, laws, and treaties. Exceptions exist, including exclusion of foreign investment activities in natural protected reserves and manufacturing of military weapons, pursuant to Article 6 of Legislative Decree No. 757. While long-term concessions are granted, the law states Peruvians must maintain majority ownership in certain strategic sectors: media; air, land and maritime transportation infrastructure; and private security surveillance services.

Prior approval is required in the banking and defense-related sectors. Foreigners are legally prohibited from owning a majority interest in radio and television stations in Peru; nevertheless, foreigners have, in practice, owned controlling interests in such companies. Under the Constitution, foreign interests cannot “acquire or possess under any title, mines, lands, forests, waters, or fuel or energy sources” within 50 kilometers of Peru’s international borders. However, foreigners can obtain concessions and rights within the restricted areas with the authorization of a supreme resolution approved by the Cabinet and the Joint Command of the Armed Forces.

The GOP does not screen, review, or approve FDI outside of those sectors that require a governmental waiver.

Other Investment Policy Reviews

The World Trade Organization (WTO) published a Trade Policy Review on Peru in October 2019. The WTO commented that foreign investors receive the same legal treatment as local investors in general, although foreign investment on property at the country’s borders, air transport, and broadcasting is restricted. The report also noted that the previous foreign investment restriction on maritime services was resolved by a GOP Legislative Decree issued in September 2108 that lifted the restrictions on the provision of cabotage transport services. The report highlights the continuous government efforts to promote PPPs and strengthen its legal framework incorporating the Organization for Economic Cooperation and Development (OECD) principles on PPPs. The report notes that Peru maintains a regime open to domestic and foreign investment that fosters competition and equal treatment.

Report available at: https://www.wto.org/english/tratop_e/tpr_e/tp493_e.htm

Peru aspires to become a member of the OECD. Peru launched an OECD Country Program on December 8, 2014, comprising policy reviews and capacity building projects, and allowing it to participate in substantive work of OECD’s specialized committees. An 18-month OECD review identified economic, social, and political obstacles that could hamper Peru’s OECD membership aspirations. The government noted that the study would act as a “roadmap” for Peru’s goal to achieve membership by 2021. The OECD published the Initial Assessment of its Multi-Dimensional Review in October 2015, finding that, in spite of economic growth, Peru “still faces structural challenges to escape the middle-income trap and consolidate its emerging middle class.” In every year since this study was published, Peru has enacted and implemented dozens of governance reforms to modernize its governance practices in line with OECD recommendations.

Report: www.oecd.org/countries/peru/multi-dimensional-review-of-peru-9789264243279-en.htm 

Peru has not had any third-party investment policy review through the OECD, or UNCTAD in the past three years.

Business Facilitation

The GOP does not have a regulatory system to facilitate business operations but INDECOPI (the Antitrust, Unfair Competition, Intellectual Property Protection, Consumer Protection, Dumping, Standards and Elimination of Bureaucratic Barriers Agency) regulates the enactment of new regulations by government entities that can place burdens on business operations. INDECOPI has the authority to block any new business regulation. In addition, the GOP approved a “sunset law” in 2016 that requires a review of existing regulations by government agencies to reduce paperwork. The Prime Minister’s Office created a Secretary of Public Management (https://sgp.pcm.gob.pe/ ) in order to improve and upgrade public management. INDECOPI has also a Commission for Elimination of Bureaucratic Barriers (https://www.indecopi.gob.pe/web/eliminacion-de-barreras-burocraticas/presentacion  ).

Peru allows foreign business ownership, provided that a company has at least two shareholders and that its legal representative is a Peruvian resident. The process is described in the GOP’s digital platform (https://www.gob.pe/269-ministerio-de-la-produccion-registrar-o-constituir-una-empresa ). Incorporating a company involves the following steps: (1) Process to incorporate a company (Legal person); (2) Name search and reservation; (3) Incorporation Act (Minute); (4) Public Deed preparation; (5) Public Record registration; (6) Tax ID Number (RUC) registration for the legal entity. An entrepreneur must reserve the company name through the national registry, SUNARP (www.sunarp.gob.pe ), and prepare a deed of incorporation through a Citizen and Business Services Portal (http://www.serviciosalciudadano.gob.pe/ ). After a deed is signed, entrepreneurs must file with a Public Notary, pay notary fees of up to one percent of a company’s capital, and submit the deed to the Public Registry. The company’s legal representative must obtain a Certificate of Registration and tax identification number from the National Tax Authority SUNAT (www.sunat.gob.pe). Finally, the company must obtain a license from the municipality of the jurisdiction in which it is located. Depending on the core business, companies might need to obtain further government approvals such as: sanitary, environmental, or educational authorizations.

An entrepreneur must reserve the company name through the national registry, SUNARP (www.sunarp.gob.pe ), and prepare a deed of incorporation through a Citizen and Business Services Portal (http://www.serviciosalciudadano.gob.pe/ ). After a deed is signed, entrepreneurs must file with a Public Notary, pay notary fees of up to one percent of a company’s capital, and submit the deed to the Public Registry. The company’s legal representative must obtain a Certificate of Registration and tax identification number from the National Tax Authority SUNAT (www.sunat.gob.pe). Finally, the company must obtain a license from the municipality of the jurisdiction in which it is located. Depending on the core business, companies might need to obtain further government approvals such as: sanitary, environmental, or educational authorizations.

Companies should register all foreign investments with ProInversion. The agency helps potential investors navigate investment regulations and provides sector-specific information on the investment process.

Outward Investment

The GOP promotes outward investment by Peruvian entities through the Ministry of Foreign Trade and Tourism (MINCETUR). Trade Commission Offices of Peru (OCEX), under the supervision of Peru’s export promotion agency (PromPeru), are located in numerous countries, including the United States, and promote the export of Peruvian goods and services and inward foreign investment. The GOP does not restrict domestic investors from investing abroad.

Capital Markets and Portfolio Investment

Peru allows foreign portfolio investment and does not place restrictions on international transactions. The private sector has access to a variety of credit instruments. Mutual funds managed $10.7 billion in December 2019. Private pension funds managed a total of $52.7 billion in December 2019.

The stock market, the Lima Stock Exchange (Bolsa de Valores de Lima or BVL), is a member of the Integrated Latin American Market (MILA), which includes the stock markets from Pacific Alliance countries (Peru, Chile, Colombia, and Mexico) and seeks to integrate their stock exchanges to develop their capital markets. In December 2017, the GOP implemented a capital markets promotion law that enables mutual funds registered in Pacific Alliance countries to trade in the Lima Stock Exchange starting in July 2018. In July 2018 the Securities Market Superintendence published implementing regulations to enable the trade of funds in Pacific Alliance countries.

The Securities Market Superintendence (SMV) is the GOP entity charged with regulating the securities and commodities markets. SMV’s mandate includes controlling securities market participants, maintaining a transparent and orderly market, setting accounting standards, and publishing financial information about listed companies. SMV requires stock issuers to report events that may affect the stock, the company, or any public offerings. This requirement promotes market transparency, and aims to prevent fraud. Trading on insider information is a crime, with some reported prosecutions in past years. SMV must vet all firms listed on the Lima Stock Exchange or the Public Registry of Securities. SMV also maintains the Public Registry of Securities and Stock Brokers. SMV is studying ways to improve the regulatory system to encourage and facilitate portfolio investment.

Morgan Stanley Capital International (MSCI) maintained the Emerging Market status of the Lima Stock Exchange (BVL), which was under review for reclassification to Frontier status in 2017. London Stock Exchange Group FTSE Russell reclassified Peru from Secondary Emerging Market to Frontier status in March 2020. In a statement, the BVL stated that the decision is not necessarily replicable among the other index providers adding that MSCI, which is considered a main benchmark for emerging markets, is not expected to reconsider the BVL’s status.

Money and Banking System

Economic opening since the 1990s, coupled with competition, has led to banking sector consolidation. Fifteen commercial banks comprise the system, with assets accounting for 89 percent of Peru’s financial system. In 2019, three banks accounted for 71 percent of local loans and 70 percent of deposits among commercial banks. Of $150 billion in total banking assets at the end of December 2019, assets of the three largest commercial banks amounted to $88.32 billion.

The banking system is considered generally sound, thanks to lessons learned during the 1997-1998 Asian financial crisis, and continues to revamp operations, increase capitalization, and reduce costs. Non-performing bank loans accounted for three percent of gross loans as of December 2019, down from a high of 11 percent in early 2001. Strong bank supervision coupled with robust GDP growth over the last decade also helped banks weather the 2008-2009 global financial crises. The COVID-19 pandemic is likely to have a negative impact on banking loan portfolios. The fast implementation of the $9 billion BCRP loan guarantee will attenuate loan default risk, but banks will still feel an impact on credit operations from sensitive sectors such as tourism, services, and retail, which will take much longer to recover.

The Central Reserve Bank of Peru (BCRP) is an independent institution, free to manage monetary policy to maintain financial stability. The BCRP’s primary goal is to maintain price stability via inflation targeting. Inflation at year-end in Peru reached 0.2 percent in 2009, 2.1 percent in 2010, 4.7 percent in 2011, 2.6 percent in 2012, 2.9 percent in 2013, 3.2 percent in 2014, 4.4 percent in 2015, 3.2 percent in 2016, 1.4 percent in 2017, 2.2 percent in 2018, and 1.9 percent in 2019. Peru’s target inflation range is 1 to 3 percent.

Under the PTPA, U.S. financial service suppliers have full rights to establish subsidiaries or branches for banks and insurance companies.

Peruvian law and regulations do not authorize or encourage private firms to adopt articles of incorporation or association to limit or restrict foreign participation. There are no private or public sector efforts to restrict foreign participation in industry standards-setting organizations. However, larger private firms often use “cross-shareholding” and “stable shareholder” arrangements to restrict investment by outsiders — not necessarily foreigners — in their firms. As close families or associates generally control ownership of Peruvian corporations, hostile takeovers are practically non-existent. In the past few years, several companies from the region, China, North America, and Europe have begun actively buying local companies in power transmission, retail trade, fishmeal production, and other industries. While foreign banks are allowed to freely establish banks in the country, they are subject to the supervision of Peru’s Superintendent of Banks and Securities (SBS).

The country has not explored or made announcements on its intention to implement or allow the implementation of blockchain technologies in banking transactions.

Peru’s financial system has 10 specialized institutions (“financieras”), 28 thriving micro-lenders and savings banks (although several large banks also lend to small enterprises), one leasing institution, two state-owned banks, and one state-owned development bank. In 2019, the Economist Intelligence Unit again ranked Peru number two worldwide, after Colombia, as one of the countries with the best microfinance business environment because of its competitive microfinance sector, market entry, and credit portfolio for middle and low income customers. In January 2019, Peru established regulations to require SBS supervision of savings and loan associations and 437 saving and loan cooperatives are registered with the SBS for supervision.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no reported difficulties in obtaining foreign exchange. Under Article 64 of the 1993 Constitution, the GOP guarantees the freedom to hold and dispose of foreign currency. The GOP has eliminated all restrictions on remittances of profits, dividends, royalties, and capital, although foreign investors are advised to register their investments with ProInversion to ensure these guarantees. Exporters and importers are not required to channel foreign exchange transactions through the Central Bank and can conduct transactions freely on the open market. Anyone may open and maintain foreign currency accounts in Peruvian commercial banks. U.S. firms have reported no problems or delays in transferring funds or remitting capital, earnings, loan repayments or lease payments since Peru’s economic reforms of the early 1990s. Under the PTPA, portfolio managers in the United States are able to provide portfolio management services to both mutual funds and pension funds in Peru, including funds that manage Peru’s privatized social security accounts.

The 1993 Constitution guarantees free convertibility of currency. However, limited capital controls still exist as private pension fund managers (AFPs) are constrained by how much of their portfolio can be invested in foreign securities. The maximum limit is set by law (currently 50 percent since July 2011), but the BCRP sets the operating limit AFPs can invest abroad. Over the years, the BCRP has gradually increased the operating limit. Peru reached the 50 percent limit in September 2018.

The foreign exchange market mostly operates freely. Funds associated with any form of investment can be freely converted into any world currency. To quell “extreme variations” of the exchange rate, the BCRP intervenes through purchases and sales in the open market without imposing controls on exchange rates or transactions. Since 2014, the BCRP has pursued de-dollarization to reduce dollar denominated loans in the market and purchased U.S. dollars to mitigate the risk that spillover from expansionary U.S. monetary policy might result in over-valuation of the Peruvian Sol relative to the U.S. dollar. U.S. dollars account for a decreasing share of banking system transactions, according to the Bank Supervisory Authority (SBS). In 2001, U.S. dollars accounted for 82 percent of loans and 73 percent of deposits. In December 2019, dollar-denominated loans reached 26 percent, and deposits 33 percent. The U.S. Dollar averaged PEN 3.34 per $1 in 2019.

The U.S. Dollar averaged PEN 3.34 per $1 in 2019.

Remittance Policies

There have not been any new developments related to investment remittance policies.

Peruvian law grants foreign investors the following rights: freedom to buy shares from national investors; free remittance of earnings and dividends; free capital repatriation; unrestricted access to local credits; freedom to hire technology and to pay back royalties; freedom to hire investment insurance abroad; possibility to sign juridical stability agreements for their investments in Peru with the Peruvian state.

Article 7 of the Legislative Decree N° 662 provides that foreign investors may send, in freely convertible currencies, remittances of the entirety of their capital derived from investments, including the sale of shares, stocks or rights, capital reduction or partial or total liquidation of companies, the entirety of their dividends or proven net profit derived from their investments, and any considerations for the use or enjoyment of assets that are physically located in Peru, as registered with the competent national entity, without a prior authorization from any national government department or decentralized public entities, or regional or municipal Governments, after having paid all the applicable taxes.

Sovereign Wealth Funds

Peru’s Ministry of Economy and Finance (MEF) manages the Fiscal Stabilization Fund. The fund had a balance of $5.5 billion at the end of 2019 and consists of treasury surplus, concessional fees, and privatization proceeds, with a cap of four percent of GDP. The MEF released investment guidelines for the Fiscal Stabilization Fund in December 2015. The guidelines permit investment in demand deposits, variable and fixed interest rate time deposits, and seven currencies including the U.S. dollar. The Fund is not a party to the IMF International Working Group or a signatory to the Santiago Principles. The fund serves as a buffer for the GOP’s fiscal accounts in the event of adverse economic conditions, such as the economic impact of the global COVID-19 crisis.

Several electricity, water and sewage, bank, and oil companies remain state-owned and state-operated. Peru wholly owns 35 SOE’s, 34 of which are under the parastatal conglomerate FONAFE. The list of SOEs under FONAFE can be found here: https://www.fonafe.gob.pe/empresasdelacorporacion . The most notable area of SOE activity pertains to the petroleum sector, where the state-owned petroleum company PetroPeru refines oil, operates Peru’s main oil pipeline, and maintains a stake in select concessions. Over the last two decades, PetroPeru has experienced significant attrition in managerial and technical expertise. This, coupled with limited financial resources, cast into doubt the company’s ability to complete its long-held plans to expand and upgrade its aging Talara refinery.

Peru is not party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization.

The GOP’s role as an enterprise owner is specified through several publicly available laws and regulations. Ownership practices are generally consistent with OECD guidelines, although not all guideline subsections are specifically addressed. Central entity FONAFE (http://www.fonafe.gob.pe/ ) exercises ownership of SOEs with the exception of those considered intangible under the Peruvian constitution (including public university services). FONAFE appoints an independent board of directors for each SOE using a transparent selection process. There is no notable third party analysis on SOEs’ ties to the government.

Privatization Program

The GOP initiated an extensive, but imperfect and not yet complete, privatization program in 1991, in which foreign investors were encouraged to participate. Since 2000, the GOP has promoted multi-year concessions as a means of attracting investment in major projects, including 30-year concession to a private group (Lima Airport Partners) to operate the Lima airport in 2000 and in 2006 a 30-year concession to Dubai Ports World to improve and operate a new container terminal in the Port of Callao.

The PPP procurement processes in Peru is challenging for U.S. and other international companies interested in bidding on large infrastructure projects. ProInversion, the government agency responsible for structuring and procuring PPP concession projects, has come under considerable criticism over the years for offering projects that are not adequately prepared and presenting processes with unrealistic timetables. Despite the criticism, ProInversion is actively working to improve “project readiness” and the PPP process.  The agency hired the law firm Hogan Lovells to develop a standard contract and KPMG to develop a guide for financial structuring. It is also working to streamline its processes to ensure better project management.  ProInversion re-designed its website to provide project listings in both Spanish and English and is holding outreach events to increase competition.

Project opportunities are available on ProInversion’s Project Portfolio page at  ProInversion Projects: http://www.proyectosapp.pe/modulos/JER/PlantillaProyectoEstadoSector.aspx?are=1&prf=2&jer=5892&sec=30 .

It is illegal in Peru for a public official or employee to accept any type of outside remuneration for the performance of his or her official duties. The law extends to family members of officials and to political parties. Regulations published in March 2017 aim to limit conflicts of interest. In 2019, Peru made the irregular financing of political campaigns a crime, carrying penalties up to eight years jail time.

Peru has ratified both the UN Convention against Corruption and the Organization of American States Inter-American Convention against Corruption. Peru has signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and has adopted OECD public sector integrity standards through the GOP’s National Integrity and Anticorruption Plan. The Public Auditor (Contraloria) is the responsible government agency for overseeing proper procedures in public administration. In January 2017, the GOP passed legislative decrees extending the scope of civil penalties for domestic acts of bribery, including by NGOs, corporate partners, board members, and parent companies if its subsidiaries acted under authorization.  Penalties include an indefinite exclusion from government contracting and substantially increased fines. The Public Auditor also began implementing audits of reconstruction projects that run in parallel to the project, rather than after project implementation, in an effort to improve transparency. It is also running parallel audits to the different government actions at all levels (central, regional, and local) to combat the COVID-19 crisis.

U.S. firms have reported problems resulting from corruption, usually in government procurement processes and in the judicial sector, with defense and police procurement generally considered among the most problematic in spite of the PTPA’s stipulations and Peru’s Government Procurement Law (Legislative Decree No. 1017, DL 1017, one of several laws passed with the specific intention to implement PTPA). Transparency International lowered Peru’s ranking to 101st out of 180 countries in its 2019 Corruption Perceptions Index from 105th in 2018.

During the January 2020 congressional elections, 74 candidates had ongoing criminal proceedings for alleged corruption (Andina). Of the 25 regional governors elected in 2018 regional elections, at least five were under preliminary investigation or had been convicted of corruption-related charges. Eleven of the elected Congress representatives have completed sentences for various crimes and seven had judicial investigations pending for corruption-related crimes. A study published in August 2017 counted 395 investigations of corruption or trials against current or former governors, with 30 percent of the cases in the regions of Pasco, Tumbes, and Ucayali. It also identified 1,052 investigations of corruption or trials against 530 current or former mayors, with Lima leading the list with 109 cases (10.4 percent of the total). https://plataformaanticorrupcion.pe/wp-content/uploads/2017/07/INFORME-CORRUPCION-SOBRE-GOBERNADORES-Y-ALCALDES.pdf 

Corruption in Peru is widespread and systematic, affecting all levels of government and the whole of society, which, until recently, had developed a high tolerance to corruption. Cases of grand corruption have significantly increased in recent years, including embezzlement, collusion, bribery, extortion or fraud in the justice system, politics and public works, involving high level authorities or key public officers who abuse their public power for private gain. Corruption has become more rampant, malign and pervasive in public procurement, due to weak control and risk management systems, lack of ethical or integrity values in some public officials (and society), lack of transparency and accountability in procurement processes, social tolerance of corruption, with little or no enforcement. This has led to Peruvian participation in regional cases like Odebrecht, but also in public and private sector corruption related to conflict of interests, nepotism, abuse of discretion, favoritism, and illegal contributions, as well as illicit financing of political interests, candidates and processes. This embedded dynamic has eroded trust, credibility and integrity of public entities and engendered mistrust in the private sector. As a result, Peru has increasingly become home to criminal and transnational enterprises such as drug trafficking, money laundering, illegal logging and mining, and human trafficking, among others.

collusion, bribery, extortion or fraud in the justice system, politics and public works, involving high level authorities or key public officers who abuse their public power for private gain. Corruption has become more rampant, malign and pervasive in public procurement, due to weak control and risk management systems, lack of ethical or integrity values in some public officials (and society), lack of transparency and accountability in procurement processes, social tolerance of corruption, with little or no enforcement. This has led to Peruvian participation in regional cases like Odebrecht, but also in public and private sector corruption related to conflict of interests, nepotism, abuse of discretion, favoritism, and illegal contributions, as well as illicit financing of political interests, candidates and processes. This embedded dynamic has eroded trust, credibility and integrity of public entities and engendered mistrust in the private sector. As a result, Peru has increasingly become home to criminal and transnational enterprises such as drug trafficking, money laundering, illegal logging and mining, and human trafficking, among others.

In December 2016, Brazilian company Odebrecht admitted in a settlement with the United States, Brazil, and Switzerland that it had paid $29 million in bribes in Peru between 2004 and 2015. In 2017, the Peruvian Government issued an emergency decree restricting the sale of Odebrecht assets to ensure payment of corruption-related reparations. In May 2018, the Peruvian Government formally filed a request with the United States to extradite former President Alejandro Toledo (2001-2006) who resides in the United States, for allegedly laundering over $20 million in Odebrecht bribes in exchange for facilitating Odebrecht’s winning bid to build the Inter-Oceanic Highway. High-ranking officials from the last four Peruvian administrations have also been investigated in connection with the Odebrecht scandal, including former presidents. Under Odebrecht-related investigations, local giant Credicorp also confessed irregularly financing the 2011 campaign of Keiko Fujimori, including through illicit cash above amounts allowed by law.

The future of President Vizcarra’s signature political and anti-corruption reform agenda, which was opposed by the last congress in 2019 leading to its dissolution and new legislative elections, looks uncertain. With limited support in congress, a growing economic crisis, and challenges to flattening the COVID-19 curve, and the distraction of upcoming general campaigns in April 2021, Vizcarra can expect a difficult road ahead to push forward his agenda. Though he remains popular, Vizcarra has reiterated he will not stand for reelection and the field potential presidential candidates is wide open. The handoff to a new administration remains on schedule for July 2021.

Resources to Report Corruption

Susana Silva Hasenbank
Secretary of Public Integrity of the Prime Minister Office and General Coordinator
High Commission to Fight Corruption (CAN)
Jr. Carabaya Cdra. 1 S/N – Lima,
(51) (1) 219-7000, ext. 7118
ssilva@pcm.gob.pe

General Comptroller’s Office

Jr. Camilo Carrillo 114, Jesus Maria, Lima
(51) (1) 330-3000
contraloria@contraloria.gob.pe

Contact at “watchdog” organization (international, regional, local, or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

Samuel Rotta
Executive Director
ProEtica, the Peruvian chapter of Transparency International
Calle Manco Capac 816, Miraflores, Lima
(51) (1) 446-8581, 446-8941, 446-8943
srotta@proetica.org.pe

According to the Ombudsman, there were 137 active social conflicts in Peru as of March 2020, of which 65 affected mining projects. Although political violence against investors is rare, protests, sometimes violent, have taken place in or near communities with extractive industry operations. Environmental and service delivery concerns were often the reason cited. In many cases, protestors sought public services not provided by the government. Ideological opposition to foreign mining firms, not opposition to mining itself, often leads to protests incited by NGOs. Protests related to extractives activities stopped operations of Peru’s northern oil pipeline for nearly two months in 2018 and effectively closed Peru’s second largest copper mine, Las Bambas for a month in early 2019. In October 2019, protests erupted in the mining province of Arequipa over Peru’s approval of a construction license for Mexico-based Southern Copper Corporation’s planned $1.4 billion Tia Maria copper mine. Protestors main grievances centered on environmental concerns. In response, Peru established a commission comprised of the private sector, academia, and NGOs, in September 2019 to provide mining reform recommendations. The commission delivered its final report in February 2020, including non-binding recommendations on community relations and land use; environmental management; tax framework; artisanal and illegal mining; and regulatory conditions. The final report incorporated USG recommendations related to regulatory reform and regional natural resource planning.

Peru issued the Prior Consultation Law in 2011, approving implementing regulations in 2012. The law requires the GOP to consult with indigenous communities before enacting any legislation, administrative measures, or development projects that could affect communities’ rights of territorial demarcation. There have been several successful prior consultation processes related to the extractive industry, but the law remains controversial. Critics believe it creates burdensome processes and results in delays. The National Society of Mining, Electricity and Petroleum (SNMPE) and the government have become involved in assisting local governments to access the extractive industry “canon” (tax revenue-sharing scheme with funding for public works projects) as a way to both stimulate local development and prevent conflicts. Although these efforts have been effective in some mining regions, in others, conflicts have continued or expanded.

Violence remains a concern in coca-growing regions. The Shining Path (Sendero Luminoso, “SL”) narco-terrorist organization continued to conduct a limited number of attacks in its base of operations in the Valley of the Apurimac, Ene, and Mantaro Rivers (VRAEM) emergency zone, which includes parts of Ayacucho, Cusco, Huancavelica, Huanuco, and Junin regions. Estimates vary, but most experts and Peruvian security services assess SL membership numbers between 250 and 300 members, including 60 to 150 armed fighters. SL collects “revolutionary taxes” from those involved in the drug trade and, for a price, provides security and transportation services for drug trafficking organizations to support its terrorist activities. In November 2016, the Department of State designated Victor Quispe Palomino, Jorge Quispe Palomino, and Tarcela Loya Vilchez as Specially Designated Global Terrorists (SDGTs) under Executive Order (E.O.) 13224, which imposes sanctions on foreign persons and groups determined to have committed, or pose a significant risk of committing, acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the United States. Son of an SL founder, Victor Quispe Palomino allegedly oversees all MPCP illicit activities, including extortion, murder, and drug trafficking. A State Department reward offers up to $5 million for information leading to his arrest and/or conviction. The Department of Defense offers an additional $1 million for the capture or neutralization of Quispe Palomino.

At present, there is little government presence in the remote coca-growing zones of the VRAEM, although President Vizcarra has pledged to “pacify” the VRAEM by Peru’s bicentennial in 2021. Despite protests and violence from coca farmers, Peru initiated coca eradication in the VRAEM for the first time in November 2019. The GOP’s national anti-narcotics strategy also includes alternative and sustainable development, drug supply reduction, drug demand reduction, and assistance from the international community. The U.S. Embassy in Lima restricts visits by official personnel to these areas because of the threat of violence by narcotics traffickers and columns of the Shining Path. Information about insecure areas and recommended personal security practices can be found at http://www.osac.gov  or http://travel.state.gov.

The Philippines seeks foreign investment to generate employment, promote economic development, and contribute to inclusive and sustained growth. The Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA) are the country’s lead investment promotion agencies (IPAs). They provide incentives and special investment packages to investors. Noteworthy advantages of the Philippine investment landscape include free trade zones, including economic zones, and a large, educated, English-speaking, and relatively low-cost Filipino workforce. Philippine law treats foreign investors the same as their domestic counterparts, except in sectors reserved for Filipinos by the Philippine Constitution and the Foreign Investment Act (see details under Limits on Foreign Control section). Additional information regarding investment policies and incentives are available on the BOI (http://boi.gov.ph) and PEZA (http://www.peza.gov.ph) websites.

Restrictions on foreign ownership, inadequate public investment in infrastructure, and lack of transparency in procurement tenders hinder foreign investment. The Philippines’ regulatory regime remains ambiguous in many sectors of the economy, and corruption is a significant problem. Large, family-owned conglomerates, including San Miguel, Ayala, Aboitiz Equity Ventures, and SM Investments, dominate the economic landscape, crowding out other smaller businesses.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners are prohibited from fully owning land under the 1987 Constitution, although the 1993 Investors’ Lease Act allows foreign investors to lease a contiguous parcel of up to 1,000 hectares (2,471 acres) for a maximum of 75 years. Dual citizens are permitted to own land.

The 1991 Foreign Investment Act (FIA) requires the publishing every two years of the Foreign Investment Negative List (FINL), which outlines sectors in which foreign investment is restricted. The latest FINL was released in October 2018. The FINL bans foreign ownership/participation in the following investment activities: mass media (except recording and internet businesses); small-scale mining; private security agencies; utilization of marine resources, including the small-scale use of natural resources in rivers, lakes, and lagoons; cooperatives; cockpits; manufacturing of firecrackers and pyrotechnic devices; and manufacturing, repair, stockpiling and/or distribution of nuclear, biological, chemical and radiological weapons, and anti-personnel mines. With the exception of the practices of law, radiologic and x-ray technology, and marine deck and marine engine officers, other laws and regulations on professions allow foreigners to practice in the Philippines if their country permits reciprocity for Philippine citizens, these include medicine, pharmacy, nursing, dentistry, accountancy, architecture, engineering, criminology, teaching, chemistry, environmental planning, geology, forestry, interior design, landscape architecture, and customs brokerage. In practice, however, language exams, onerous registration processes, and other barriers prevent this from taking place.

The Philippines limits foreign ownership to 40 percent in the manufacturing of explosives, firearms, and military hardware. Other areas that carry varying foreign ownership ceilings include the following: private radio communication networks (40 percent); private employee recruitment firms (25 percent); advertising agencies (30 percent); natural resource exploration, development, and utilization (40 percent, with exceptions); educational institutions (40 percent, with some exceptions); operation and management of public utilities (40 percent); operation of commercial deep sea fishing vessels (40 percent); Philippine government procurement contracts (40 percent for supply of goods and commodities); contracts for the construction and repair of locally funded public works (40 percent with some exceptions); ownership of private lands (40 percent); and rice and corn production and processing (40 percent, with some exceptions).

Retail trade enterprises with capital of less than USD 2.5 million, or less than USD 250,000, for retailers of luxury goods, are reserved for Filipinos. The Philippines allows up to full foreign ownership of insurance adjustment, lending, financing, or investment companies; however, foreign investors are prohibited from owning stock in such enterprises, unless the investor’s home country affords the same reciprocal rights to Filipino investors.

Foreign banks are allowed to establish branches or own up to 100 percent of the voting stock of locally incorporated subsidiaries if they can meet certain requirements. However, a foreign bank cannot open more than six branches in the Philippines. A minimum of 60 percent of the total assets of the Philippine banking system should, at all times, remain controlled by majority Philippine-owned banks. Ownership caps apply to foreign non-bank investors, whose aggregate share should not exceed 40 percent of the total voting stock in a domestic commercial bank and 60 percent of the voting stock in a thrift/rural bank.

Other Investment Policy Reviews

The World Trade Organization (WTO) and the Organization for Economic Co-operation and Development (OECD) conducted a Trade Policy Review of the Philippines in March 2018 and an Investment Policy Review of the Philippines in 2016, respectively. The reviews are available online at the WTO website (https://www.wto.org/english/tratop_e/tpr_e/tp468_e.htm) and OECD website (http://www.oecd.org/daf/oecd-investment-policy-reviews-philippines-2016-9789264254510-en.htm ).

Business Facilitation

Business registration in the Philippines is cumbersome due to multiple agencies involved in the process. It takes an average of 33 days to start a business in Quezon City in Metro Manila, according to the 2020 World Bank’s Ease of Doing Business report. Touted as one of the Duterte Administrations’ landmark laws, the Republic Act No. 11032 or the Ease of Doing Business and Efficient Government Service Delivery Act amends the Anti-Red Tape Act of 2007, and legislates standardized deadlines for government transactions, a single business application form, a one-stop-shop, automation of business permits processing, a zero contact policy, and a central business databank.

The law was passed in May 2018, and it creates an Anti-Red Tape Authority (ARTA – http://arta.gov.ph/) under the Office of the President to carry out the mandate of business facilitation. ARTA is governed by a council that includes the Secretaries of Trade and Industry, Finance, Interior and Local Governments, and Information and Communications Technology. The Department of Trade and Industry serves as interim Secretariat for ARTA. The implementing rules and regulations were issued in late 2019 and are expected to provide more compliance and increased transparency (http://arta.gov.ph/pages/IRR.html).

The Revised Corporation Code, a business-friendly amendment that encourages entrepreneurship, improves the ease of business and promotes good corporate governance. This new law amends part of the four-decade-old Corporation Code and allows for existing and future companies to hold a perpetual status of incorporation, compared to the previous 50-year term limit which required renewal. More importantly, the amendments allow for the formation of one-person corporations, providing more flexibility to conduct business; the old code required all incorporation to have at least five stockholders and provided less protection from liabilities.

Outward Investment

There are no restrictions on outward portfolio investments for Philippine residents, defined to include non-Filipino citizens who have been residing in the country for at least one year; foreign-controlled entities organized under Philippine laws; and branches, subsidiaries, or affiliates of foreign enterprises organized under foreign laws operating in the country. However, outward investments funded by foreign exchange purchases above USD 60 million or its equivalent per investor per year require prior notification to the Central Bank.

Capital Markets and Portfolio Investment

The Philippines welcomes the entry of foreign portfolio investments, including local and foreign-issued equities listed on the Philippine Stock Exchange (PSE ). Investments in certain publicly listed companies are subject to foreign ownership restrictions specified in the Constitution and other laws. Non-residents are allowed to issue bonds/notes or similar instruments in the domestic market with prior approval from the Central Bank; in certain cases, they may also obtain financing in Philippine pesos from authorized agent banks without prior Central Bank approval.

Although growing, the PSE (with fewer than 271 listed firms as of the end of 2019) lags behind many of its neighbors in size, product offerings, and trading activity. The securities market is growing but remains dominated by government bills and bonds. Hostile takeovers are uncommon because most companies’ shares are not publicly listed and controlling interest tends to remain with a small group of parties. Cross-ownership and interlocking directorates among listed companies also decrease the likelihood of hostile takeovers.

Credit is generally granted on market terms and foreign investors are able to obtain credit from the liquid domestic market. However, some laws require financial institutions to set aside loans for preferred sectors (e.g. agriculture, agrarian reform, and MSMEs). To help promote lending at competitive rates to MSMEs, the government has fully operationalized a centralized credit information system that uses financial statements to predict firms’ credit worthiness. The government has also implemented the 2018 Personal Property Security law, which aims to spur lending to MSMEs by allowing non-traditional collateral (e.g., movable assets like machinery and equipment and inventories).

Money and Banking System

The Bangko Sentral ng Pilipinas (BSP/Central Bank) is a highly respected institution that oversees a stable banking system. The Central Bank has pursued regulatory reforms promoting good governance and aligning risk management regulations with international standards. Capital adequacy ratios are well above the 8 percent international standard and the Central Bank’s 10 percent regulatory requirement. The non-performing loan ratio was at 2.0 percent as of the end of 2019, and there is ample liquidity in the system, with the liquid assets-to-deposits ratio estimated at about 48 percent. Commercial banks constitute more than 90 percent of the total assets of the Philippine banking industry. The five largest commercial banks represented about 60 percent of the total resources of the commercial banking sector as of 2019. Twenty-six of the 46 commercial banks operating in the country are foreign branches and subsidiaries, including three U.S. banks (Citibank, Bank of America, and JP Morgan Chase). Citibank has the largest presence among the foreign bank branches and currently ranks 13th overall in terms of assets.

Foreign residents and non-residents may open foreign and local currency bank accounts. Although non-residents may open local currency deposit accounts, they are limited to the funding sources specified under Central Bank regulations. For non-residents who wish to convert their local deposits to foreign currency, sales of foreign currencies are limited up to the local currency balance. Non-residents’ foreign currency accounts cannot be funded from foreign exchange purchases from banks and banks’ subsidiary/affiliate foreign exchange corporations.

Foreign Exchange and Remittances

Foreign Exchange

The Bangko Sentral ng Pilipinas (Central Bank) has actively pursued reforms since the 1990s to liberalize and simplify foreign exchange regulations. As a general rule, the Central Bank allows residents and non-residents to purchase foreign exchange from banks, banks’ subsidiary/affiliate foreign exchange corporations, and other non-bank entities operating as foreign exchange dealers and/or money changers and remittance agents to fund legitimate foreign exchange obligations, subject to provision of information and/or supporting documents on underlying obligations. No mandatory foreign exchange surrender requirement is imposed on exporters, overseas workers’ incomes, or other foreign currency earners; these foreign exchange receipts may be sold for pesos or retained in foreign exchange in local and/or offshore accounts. The Central Bank follows a market-determined exchange rate policy, with scope for intervention to smooth excessive foreign exchange volatility.

Remittance Policies

The Central Bank does not restrict payments and transfers for current international transactions, in accordance with the country’s acceptance of International Monetary Fund Article VIII obligations of September 1995. Purchase of foreign currencies for trade and non-trade obligations and/or remittances requires submission of a foreign exchange purchase application form if the foreign exchange is sourced from banks and/or their subsidiary/affiliate foreign exchange corporations and falls within specified thresholds (currently USD 500,000 for individuals and USD 1 million for corporates/other entities). Purchases above the thresholds are also subject to the submission of minimum documentary requirements but do not require prior Central Bank approval. A person may freely bring foreign currencies with a value of up to USD 10,000 into or out of the Philippines; more than this threshold requires submission of a foreign currency declaration form.

Foreign exchange policies do not require approval of inward foreign direct and portfolio investments unless the investor will purchase foreign currency from banks to convert its local currency proceeds or earnings for repatriation or remittance. Registration of foreign investments with the Central Bank or custodian banks is generally optional. Duly registered foreign investments are entitled to full and immediate repatriation of capital and remittance of dividends, profits, and earnings.

As a general policy, government-guaranteed private sector foreign loans/borrowings (including those in the form of notes, bonds, and similar instruments) require prior Central Bank approval. Although there are exceptions, private sector loan agreements should also be registered with the Central Bank if serviced through the purchase of foreign exchange from the banking system.

The Philippines is pushing for amendments to the Anti-Money Laundering Act and Human Security Act to meet the Asia Pacific Group 2019 Mutual Evaluation Report recommendations ahead of the 2020 Financial Action Task Force’s (FATF) review. Proposed amendments include the addition of tax evasion, terrorism-related offenses, and corruption to the list of predicate crimes; the inclusion of real estate developers and brokers as covered persons; and the expansion of Anti-Money Laundering Council’s investigative powers and financial sanctions authority. In 2013, the FATF removed the Philippines from its “grey list” of countries with strategic deficiencies in countering money laundering and the financing of terrorism. The Philippines has a restrictive regime for accessing bank accounts to detect or prosecute financial crimes, which is a significant impediment to enforcing laws against corruption, tax evasion, smuggling, laundering, and other economic crimes.

Sovereign Wealth Funds

The Philippines does not presently have sovereign wealth funds.

State-owned enterprises, known in the Philippines as government-owned and controlled corporations (GOCC), are predominantly in the power, transport, infrastructure, communications, land and water resources, social services, housing, and support services sectors. There were 105 operational and functioning GOCCs as of April 2020; a list is available on the Governance Commission for GOCC [GCG] website  (https://gcg.gov.ph). GOCCs are required to remit at least 50 percent of their annual net earnings (e.g. cash, stock, or property dividends) to the national government.

Private and state-owned enterprises generally compete equally. The Government Service Insurance System (GSIS ) is the only agency, with limited exceptions, allowed to provide coverage for the government’s insurance risks and interests, including those in build-operate-transfer (BOT) projects and privatized government corporations. Since the national government acts as the main guarantor of loans, stakeholders report GOCCs often have an advantage in obtaining financing from government financial institutions and private banks. Most GOCCs are not statutorily independent, but attached to cabinet departments, and, therefore, subject to political interference.

The Philippines is not an OECD member country. The 2011 GOCC Governance Act addresses problems experienced by GOCCs, including poor financial performance, weak governance structures, and unauthorized allowances. The law allows unrestricted access to GOCC account books and requires strict compliance with accounting and financial disclosure standards; establishes the power to privatize, abolish, or restructure GOCCs without legislative action; and sets performance standards and limits on compensation and allowances. The GCG  formulates and implements GOCC policies. GOCC board members are limited to one-year term and subject to reappointment based on a performance rating set by GCG, with final approval by the Philippine President.

Privatization Program

The Philippine Government’s privatization program is managed by the Privatization Management Office (PMO) under the Department of Finance (DOF). The privatization of government assets undergoes a public bidding process. Apart from restrictions stipulated in FINL, no regulations discriminate against foreign buyers and the bidding process appears to be transparent. Additional information is available on the PMO website (http://www.pmo.gov.ph/index.htm).

Corruption is a pervasive and long-standing problem in both the public and private sectors. The country’s ranking in Transparency International’s Corruption Perceptions Index declined to the 113th spot (out of 180), its worst score in over seven years. The Philippines was 99th in 2018, and the lack of progress in tackling public corruption resulted in a lower score for 2019. Various organizations, including the World Economic Forum, have cited corruption among the top problematic factors for doing business in the Philippines. The Bureau of Customs is still considered to be one of the most corrupt agencies in the country, having fired and replaced five customs commissioners over the past six years.

The Philippine Development Plan 2017-2022 outlines strategies to reduce corruption by streamlining government transactions, modernizing regulatory processes, and establishing mechanisms for citizens to report complaints. A front line desk in the Office of the President, the Presidential Complaint Center, or PCC (https://op-proper.gov.ph/contact-us/), receives and acts on corruption complaints from the general public. The PCC can be reached through its complaint hotline, text services (SMS), and social media sites.

The Philippine Revised Penal Code, the Anti-Graft and Corrupt Practices Act, and the Code of Ethical Conduct for Public Officials all aim to combat corruption and related anti-competitive business practices. The Office of the Ombudsman investigates and prosecutes cases of alleged graft and corruption involving public officials, with more information available on its website . Cases against high-ranking officials are brought before a special anti-corruption court, the Sandiganbayan, while cases against low-ranking officials are filed before regional trial courts.

The Office of the President can directly investigate and hear administrative cases involving presidential appointees in the executive branch and government-owned and controlled corporations. Soliciting, accepting, and/or offering/giving a bribe are criminal offenses punishable by imprisonment, a fine, and/or disqualification from public office or business dealings with the government. Government anti-corruption agencies routinely investigate public officials, but convictions by courts are limited, often appealed, and can be overturned. Recent positive steps include the creation of an investors’ desk at the Ombudsman’s Office, and corporate governance reforms of the Securities and Exchange Commission.

The Philippines ratified the United Nations Convention against Corruption in 2003. It is not a signatory to the OECD Convention on Combating Bribery.

Resources to Report Corruption

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

Office of the Ombudsman
Ombudsman Building, Agham Road, North Triangle
Diliman, Quezon City
Hotline:  (+632) 8926.2662
Telephone:  (+632) 8479.7300
Email/Website: pab@ombudsman.gov.ph / http://www.ombudsman.gov.ph /

Presidential Complaint Center
Gama Bldg., Minerva St. corner Jose Laurel St.
San Miguel, Manila
Telephone: (+632) 8736.8645, 8736.8603, 8736.8606
Email: pcc@malacanang.gov.ph / https://op-proper.gov.ph/presidential-action-center/

Contact Center ng Bayan
Text:  (+63) 908 881.6565
Call:  1-6565
Email/Website: email@contactcenterngbayan.gov.ph / contactcenterngbayan.gov.ph 

Terrorist groups and criminal gangs operate in some regions. The Department of State publishes a consular information sheet and advises all Americans living in or visiting the Philippines to review the information periodically. A travel advisory is in place for those U.S. citizens contemplating travel to the Philippines.

Terrorist groups, including the ISIS-Philippines affiliated Abu Sayyaf Group (ASG), the Maute Group, Ansar al-Khalifa Philippines (AKP) and elements of the Bangsamoro Islamic Freedom Fighters (BIFF), periodically attack civilian targets, kidnap civilians – including foreigners – for ransom, and engage in armed attacks against government security forces. These groups have mostly carried out their activities in the western and central regions of Mindanao, including the Sulu Archipelago and Sulu Sea. They are also capable of operating in some areas outside Sulu, as evidenced by the 2015 kidnapping of four hostages from Samal Island, just outside Davao City. Groups affiliated with ISIS-Philippines continued efforts to recover from battlefield losses, recruiting and training new members, and staging suicide bombings and attacks with improvised explosive devices (IEDs) and small arms that targeted security forces and civilians.

In 2017, ISIS-affiliated groups in Mindanao occupied and held siege to Marawi City for five months, prompting President Duterte to declare martial law over the entire Mindanao region – approximately one-third of the country’s territory. After granting multiple extensions of over two and a half years, Congress, with support from the government, allowed martial law to lapse on December 31, 2019. In expressing its support for the decision, the military cited improvement in the security climate in Mindanao, but also noted that Proclamation 55, a national state of emergency declaration, remained in effect and would be used as necessary.

The New People’s Army (NPA), the armed wing of the Communist Party of the Philippines (CPP), is responsible in some parts of the country, mostly Mindanao, for civil disturbances through assassinations of public officials, sporadic attacks on military and police forces, bombings, and attacks on infrastructure, such as power generators and telecommunications towers. The NPA relies on extortionist revolutionary taxes from local and some foreign businesses to fund its operations. The Philippine government ended a unilateral ceasefire with the CPP/NPA in 2017 and announced that it had designated the group as a terrorist organization under domestic law.

The Philippines’ most significant human rights problems were killings allegedly undertaken by vigilantes, security forces, and insurgents; cases of apparent governmental disregard for human rights and due process; official corruption; and a weak and overburdened criminal justice system notable for slow court procedures, weak prosecutions, and poor cooperation between police and investigators.

President Duterte’s administration continued a nationwide campaign, led primarily by the Philippine National Police (PNP), to eliminate illegal narcotics. The ongoing operation continues to receive worldwide attention for its harsh tactics.

Policies Towards Foreign Direct Investment

Poland welcomes foreign investment as a source of capital, growth, and jobs, and as a vehicle for technology transfer, research and development (R&D), and integration into global supply chains.  The government’s Strategy for Responsible Development identifies key goals for attracting investment, including improving the investment climate, a stable macroeconomic and regulatory environment, and high-quality corporate governance, including in state-controlled companies.  By the end of 2018, according to IMF and National Bank of Poland data, Poland attracted around USD 228.5 billion (cumulative) in foreign direct investment (FDI), principally from Western Europe and the United States.  In 2018, reinvested profits again dominated the net inflow of FDI to Poland.  The greatest reinvestment of profits occurred in services and manufacturing, reflecting the change of Poland’s economy to a more service-oriented and less capital-intensive structure.

Foreign companies generally enjoy unrestricted access to the Polish market.  However, Polish law limits foreign ownership of companies in selected strategic sectors, and limits acquisition of real estate, especially agricultural and forest land.  Additionally, the current government has expressed a desire to increase the percentage of domestic ownership in some industries such as banking and retail which have large holdings by foreign companies and has employed sectoral taxes and other measures to advance this aim.  In March 2018, Sunday trading ban legislation went into effect, which is gradually phasing out Sunday retail commerce in Poland, especially for large retailers.  In 2019, stores operated an average of one Sunday a month, and in 2020 a total ban will be in effect (with the exception of seven Sundays).  In 2019, the government introduced a draft bill requiring producers and importers of sugary and sweetened beverages to pay a fee.  Polish authorities have also publicly favored introducing a digital services tax.  Because no draft has been released, the details of such a tax are unknown, but it would presumably affect mainly foreign digital companies.

There is a variety of agencies involved in investment promotion:

• The Ministry of Development has two departments involved in investment promotion and facilitation: the Investment Development and the Trade and International Relations Departments.  The Deputy Minister supervising the Investment Development Department was appointed in 2019 to be ombudsman for foreign investors.   https://www.gov.pl/web/przedsiebiorczosc-technologia/ 
• The Ministry of Foreign Affairs (MFA) promotes Poland’s foreign relations including economic relations, and along with the Polish Chamber of Commerce (KIG), organizes missions of Polish firms abroad and hosts foreign trade missions to Poland.   https://www.msz.gov.pl/ ; https://kig.pl/ 
• The Polish Investment and Trade Agency (PAIH) is the main institution responsible for promotion and facilitation of foreign investment. The agency is responsible for promoting Polish exports, for inward foreign investment and for Polish investments abroad.  The agency operates as part of the Polish Development Fund, which integrates government development agencies.  PAIH coordinates all operational instruments, such as commercial diplomatic missions, commercial fairs and programs dedicated to specific markets and sectors.  The Agency has opened offices abroad including in the United States (San Francisco and Washington, D.C, Los Angeles, Chicago, Houston and New York).  PAIH’s services are available to all investors.  https://www.paih.gov.pl/en 

• The American Chamber of Commerce has established the American Investor Desk – an investor-dedicated know-how gateway providing comprehensive information on investing in Poland and investing in the USA https://amcham.pl/american-investor-desk 

Limits on Foreign Control and Right to Private Ownership and Establishment

Poland allows both foreign and domestic entities to establish and own business enterprises and engage in most forms of remunerative activity per the Entrepreneurs’ Law which went into effect on April 30, 2018.  Forms of business activity are described in the Commercial Companies Code.  Poland does place limits on foreign ownership and foreign equity for a limited number of sectors.  Polish law limits non-EU citizens to 49 percent ownership of a company’s capital shares in the air transport, radio and television broadcasting, and airport and seaport operations sectors.  Licenses and concessions for defense production and management of seaports are granted on the basis of national treatment for investors from OECD countries.

Pursuant to the Broadcasting Law, a television broadcasting company may only receive a license if the voting share of foreign owners does not exceed 49 percent and if the majority of the members of the management and supervisory boards are Polish citizens and hold permanent residence in Poland.  In 2017, a team comprised of officials from the Ministry of Culture and National Heritage, the National Broadcasting Council (KRRiT) and the Office of Competition and Consumer Protection (UOKiK) was created in order to review and tighten restrictions on large media, and limit foreign ownership of the media.  While no legislation has been introduced, there is concern that possible future proposals may limit foreign ownership of media sector as suggested by governing party politicians.

In the insurance sector, at least two management board members, including the chair, must speak Polish.  The Law on Freedom of Economic Activity (LFEA) requires companies to obtain government concessions, licenses, or permits to conduct business in certain sectors, such as broadcasting, aviation, energy, weapons/military equipment, mining, and private security services.  The LFEA also requires a permit from the Ministry of Development for certain major capital transactions (i.e., to establish a company when a wholly or partially Polish-owned enterprise has contributed in-kind to a company with foreign ownership by incorporating liabilities in equity, contributing assets, receivables, etc.).  A detailed description of business activities that require concessions and licenses can be found here:  https://www.paih.gov.pl/publications/how_to_do_business_in_Poland 

Polish law restricts foreign investment in certain land and real estate.  Land usage types such as technology and industrial parks, business and logistic centers, transport, housing plots, farmland in special economic zones, household gardens and plots up to two hectares are exempt from agricultural land purchase restrictions.  Since May 2016, foreign citizens from European Economic Area member states, Iceland, Liechtenstein, and Norway, as well as Switzerland, do not need permission to purchase any type of real estate including agricultural land.  Investors from outside of the EEA or Switzerland need to obtain a permit from the Ministry of Internal Affairs and Administration (with the consent of the Defense and Agriculture Ministries), pursuant to the Act on Acquisition of Real Estate by Foreigners, prior to the acquisition of real estate or shares which give control of a company holding or leasing real estate.  The permit is valid for two years from the day of issuance, and the ministry can issue a preliminary document valid for one year.  Permits may be refused for reasons of social policy or public security.  The exceptions to this rule include purchases of an apartment or garage, up to 0.4 hectares of undeveloped urban land, and “other cases provided for by law” (generally: proving a particularly close connection with Poland).  Laws to restrict farmland and forest purchases (with subsequent amendments) came into force April 30, 2016 and are addressed in more detail in Section 6: Real Property.

Since September 2015, the Act on the Control of Certain Investments has provided for the national security-related screening of acquisitions in high-risk sectors including: energy generation and distribution; petroleum production, processing and distribution; telecommunications; media and mining; and manufacturing and trade of explosives, weapons and ammunition.  Poland maintains a list of strategic companies which can be amended at any time, but is updated at least once a year, usually in late December.  The national security review mechanism does not appear to constitute a de facto barrier for investment and does not unduly target U.S. investment.  According to the Act, prior to the acquisition of shares of strategic companies (including the acquisition of proprietary interests in entities and/or their enterprises) the purchaser (foreign or local) must notify the controlling government body and receive approval.  The obligation to inform the controlling government body applies to transactions involving the acquisition of a “material stake” in companies subject to special protection.  The Act stipulates that failure to notify carries a fine of up to PLN 100,000,000 (approx. USD 25,000,000) or a penalty of imprisonment between six months and five years (or both penalties together) for a person acting on behalf of a legal person or organizational unit that acquires a material stake without prior notification.

The governing Law and Justice party formed a new treasury ministry to consolidate the government’s control over state-owned enterprises.  The government dissolved Poland’s energy ministry, transferring that agency’s mandate to the new State Assets Ministry.  The Deputy Prime Minister and Minister of State Assets announced that he would seek to consolidate state-owned companies with similar profiles, including merging Poland’s largest state-owned firm Orlen with state-owned Energa.  At the same time, the government is working on changing the rules of governing state-owned companies to have better control over the firms’ activities.  A new government plenipotentiary for the reform of ownership oversight will be appointed.

As part of the COVID-19 anti-crisis shield, the Ministry of Development plans to offer two-year takeover protection for Polish firms with a minimum of EUR 10 million (almost $10 million) in turnover.  The bill creates “a temporary complex framework of control over actions which could threaten the safety, order, and public health by entities from outside the EU and EEA,” according to authors of an impact study.  Qualifications are extended for public firms, or firms from a variety of specified fields.  The State Assets Ministry is preparing similar and more permanent measures.

Other Investment Policy Reviews

The 2018 OECD Economic Survey of Poland can be found here:

http://www.oecd.org/eco/surveys/economic-survey-poland.htm 

Additionally, the OECD Working Group on Bribery has provided recommendations on the implementation of the OECD Anti-Bribery Convention in Poland:  http://www.oecd.org/daf/anti-bribery/poland-oecdanti-briberyconvention.htm 

In March 2018, the OECD published a Rural Policy Review on Poland.  According to this review, Poland has seen impressive growth in recent years, and yet regional disparities in economic and social outcomes remain large by OECD standards.  The review is available at: http://www.oecd.org/poland/oecd-rural-policy-reviews-poland-2018-9789264289925-en.htm 

Business Facilitation

The Polish government has continued to implement reforms aimed at improving the investment climate with a special focus on the SME sector and innovations.  Poland reformed its R&D tax incentives with new regulations and changes encouraging wider use of the R&D tax breaks.  As of January 1, 2019, a new mechanism reducing the tax rate on income derived from intellectual property rights (IP Box) was introduced.  Please see Section 5 of this report for more information.

A package of five laws referred to as the “Business Constitution”—intended to facilitate the operation of small domestic enterprises—was gradually introduced in 2018.  The main principle of the Business Constitution is the presumption of innocence of business owners in dealings with the government.

Poland made enforcing contracts easier by introducing an automated system to assign cases to judges randomly.  Despite these reforms and others, some investors have expressed serious concerns regarding over-regulation, over-burdened courts and prosecutors, and overly burdensome bureaucratic processes.  The way tax audits are performed has changed considerably.  For instance, in many cases the appeal against the findings of an audit now must be lodged with the authority that issued the initial finding rather than a higher authority or third party.  Poland also enabled businesses to get electricity service faster by implementing a new customer service platform that allows the utility to better track applications for new commercial connections.

In Poland, business activity may be conducted in the forms of a sole proprietor, civil law partnership, as well as commercial partnerships and companies regulated in provisions of the Commercial Partnerships and Companies Code.  Sole proprietor and civil law partnerships are registered in the Central Registration and Information on Business (CEIDG), which is housed by the Ministry of Development:

https://prod.ceidg.gov.pl/CEIDG.CMS.ENGINE/?D;f124ce8a-3e72-4588-8380-63e8ad33621f 

Commercial companies are classified as partnerships (registered partnership, professional partnership, limited partnership, and limited joint-stock partnership) and companies (limited liability company and joint-stock company).  A partnership or company is registered in the National Court Register (KRS) and kept by the competent district court for the registered office of the established partnership or company.  Local corporate lawyers report that starting a business remains costly in terms of time and money, though KRS registration in the National Court Register averages less than two weeks according to the Ministry of Justice and four weeks according to the World Bank’s 2020 Doing Business Report.  A 2018 law introduced a new type of company—PSA (Prosta Spółka Akcyjna – Simple Joint Stock Company).  PSAs are meant to facilitate start-ups with simpler and cheaper registration procedures.  The minimum initial capitalization is 1 PLN (approx. USD 0.26) while other types of registration require 5,000 PLN (approx. USD 1,315) or 50,000 PLN (approx. USD 13,158).  A PSA has a board of directors, which merges the responsibilities of a management board and a supervisory board.  The provision for PSAs will enter into force in March 2021.

New provisions of the Public Procurement Law (“PPL”) transposing provisions of EU directives coordinating the rules of public procurement came into force on October 18, 2018.  These regulations apply to proceedings concerning contracts with a value equal to or exceeding the EU thresholds.

Polish lawmakers are gradually digitalizing the services of the KRS.   The first change, which entered into force on March 15, 2018, was the obligation to file financial statements with the Repository of Financial Documents via the Ministry of Finance website.  There is also a new requirement for representatives and shareholders of companies to submit statements on their addresses.  A requirement to file financial statements exclusively in electronic form entered into force on October 1, 2018, and, beginning in March 2021, all applications will have to be filed with the commercial register electronically.  A certified e-signature may be obtained from one of the commercial e-signature providers listed on the following website: https://www.nccert.pl/ 

• General information, National Court Register (KRS): https://ms.gov.pl/en/national-registers/national-court-register/general-information-on-the-national-court-register/ 
• Forms in English, National Court Register (KRS):https://ms.gov.pl/en/national-registers/national-court-register/application-forms-used-in-krs/ ;
• Electronic KRS access: https://ms.gov.pl/en/national-registers/national-court-register/electronic-access-to-the-national-court-register/ 

Agencies with which a business will need to file in order to register in the KRS: Central Statistical Office to obtain a business identification number (REGON) for civil-law partnership http://bip.stat.gov.pl/en/regon/subjects-and-data-included-in-the-register/ 

ZUS – Social Insurance Agency http://www.zus.pl/pl/pue/rejestracja 

Ministry of Finance http://www.mf.gov.pl/web/bip/wyniki-wyszukiwania/?q=business percent20registration 

Both registers are available in English and foreign companies may use them.

Poland’s Single Point of Contact site for business registration and information is:  https://www.biznes.gov.pl/en/ 

and an online guide to choose a type of business registration is: https://www.biznes.gov.pl/poradnik/-/scenariusz/REJESTRACJA_DZIALALNOSCI_GOSPODARCZEJ 

Outward Investment

The Polish Agency for Investment and Trade (PAIH), under the umbrella of the Polish Development Fund (PFR), plays a key role in promoting Polish investment abroad.  More information on PFR can be found in Section 7 and at its website: https://pfr.pl/ 

The Minister of Foreign Affairs and the Minister of Development (formerly called the Minister of Entrepreneurship and Technology) have significantly reformed Poland’s economic diplomacy.  The Polish Information and Foreign Investment Agency (PAIiIZ) was reformed in February 2017 to become the Polish Agency for Investment and Trade (PAIH).  Trade and Investment Promotion Sections in embassies and consulates around the world have been replaced by PAIH offices.  These 70 offices worldwide constitute a global network and include six in the United States.

PAIH assists entrepreneurs with administrative and legal procedures related to specific projects as well as helps develop legal solutions and find suitable locations, and reliable partners and suppliers.

The Agency implements pro-export projects such as “the Polish Tech Bridges” dedicated to expansion of innovative Polish SMEs.

Poland is a founding member of the Asian Infrastructure Investment Bank (AIIB).  Poland co-founded and actively supports the Three Seas Initiative, which seeks to improve north-south connections in road, energy, and telecom infrastructure in 12 countries on NATO’s and the EU’s eastern flank.

Under the Government Financial Support for Exports Program, the national development bank BGK (Bank Gospodarstwa Krajowego) grants foreign buyers financing for the purchase of Polish goods and services.  The program provides the following financing instruments:  credit for buyers granted through the buyers’ bank; credit for buyers granted directly from BGK; the purchase of receivables on credit from the supplier under an export contract; documentary letters of credit post-financing; the discounting of receivables from documentary letters of credit; confirmation of documentary letters of credit; and export pre-financing.  In May 2019, BGK and the Romanian development bank EximBank founded the Three Seas Fund, a commercial initiative to support the development of transport, energy and digital infrastructure in Central and Eastern Europe.  In July 2019, BGK, the European Investment Bank, and four other development banks (French Deposits and Consignments Fund, Italian Deposits and Loans Fund, the Spanish Official Credit Institute and German Credit Institute for Reconstruction), began the implementation of the “Joint Initiative on Circular Economy” (JICE), the goal of which is to eliminate waste, prevent its generation and increase the efficiency of resource management.  BGK also opened two international offices in 2019:  London and Frankfurt.

PFR TFI S.A, an entity under the umbrella of the state-owned financial group PFR, supports Polish investors planning to or already operating abroad. PFR TFI also manages the Foreign Expansion Fund (FEZ), which provides loans, on market terms, to foreign entities owned by Polish entrepreneurs.  https://www.pfrtfi.pl/  and https://pfr.pl/en/offer/foreign-expansion-fund.html 

Capital Markets and Portfolio Investment

The Polish regulatory system is effective in encouraging and facilitating portfolio investment.  Both foreign and domestic investors may place funds in demand and time deposits, stocks, bonds, futures, and derivatives.  Poland’s equity markets facilitate the free flow of financial resources.  Poland’s stock market is the largest and most developed in Central Europe.  In September 2018, it was reclassified as developed market status by FTSE Russell’s country classification report.  The stock market’s capitalization amounts to around 48 percent of GDP.  Although the Warsaw Stock Exchange (WSE) is itself a publicly traded company with shares listed on its own exchange after its partial privatization in 2010, the state retains a significant percentage of shares which allows it to control the company.  WSE has become a hub for foreign institutional investors targeting equity investments in the region.

In addition to the equity market, Poland has a wholesale market dedicated to the trading of treasury bills and bonds (Treasury BondSpot Poland).  This treasury market is an integral part of the Primary Dealers System organized by the Finance Ministry and part of the pan-European bond platform.  Wholesale treasury bonds and bills denominated in PLN and some securities denominated in Euros are traded on the Treasury BondSpot market.  Non-government bonds are traded on Catalyst, a WSE managed platform.  The capital market is a source of funding for Polish companies.  While securities markets continue to play a subordinate role to banks in the provision of finance, the need for medium-term financial support for the modernization of the electricity and gas sectors is likely to lead to an increase in the importance of the corporate bond market.  The Polish government acknowledges the capital market’s role in the economy in its development plan.  Foreigners may invest in listed Polish shares, but they are subject to some restrictions in buying large packages of shares.  Liquidity remains tight on the exchange.

The Capital Markets Development Strategy, published in 2018, identifies 20 key barriers and offers 60 solutions.  Some key challenges include low levels of savings and investment, insufficient efficiency, transparency and liquidity of many market segments, and lack of taxation incentives for issuers and investors.  The primary aim of the strategy is to improve access of Polish enterprises to financing.  The strategy focuses on strengthening trust in the market, improving the protection of individual investors, the stabilization of the regulatory and supervisory environment and the use of competitive new technologies.  The strategy is not a law, it sets the direction for further regulatory proposals.  Poland is one of the most rigorously supervised capital markets in Europe according to the European Commission.

The Employee Capital Plans program (PPK)—which is designed to increase household saving to augment individual incomes in retirement—could provide a boost to Poland’s capital markets and reduce dependence on foreign saving as a source for investment financing.  The program has been halted due to the outbreak of the COVID-19 pandemic.

High-risk venture capital funds are becoming an increasingly important segment of the capital market.  The market is still shallow, however, and one major transaction may affect the value of the market in a given year.  The funds remain active and Poland is a leader in this respect in Central and Eastern Europe.

Poland provides full IMF Article VIII convertibility for current transactions.  Banks can and do lend to foreign and domestic companies.  Companies can and do borrow abroad and issue commercial paper, but the market is less robust than in Western European countries or the United States.  The Act on Investment Funds allows for open-end, closed-end, and mixed investment funds, and the development of securitization instruments in Poland.  In general, no special restrictions apply to foreign investors purchasing Polish securities.

Credit allocation is on market terms.  The government maintains some programs offering below-market rate loans to certain domestic groups, such as farmers and homeowners.  Foreign investors and domestic investors have equal access to Polish financial markets.  Private Polish investment is usually financed from retained earnings and credits, while foreign investors utilize funds obtained outside of Poland as well as retained earnings.  Polish firms raise capital in Poland and abroad.

Recent changes in the governance structure of the Polish Financial Supervisory Authority (KNF) are aimed at increasing cross governmental coordination and a better-targeted response in case of financial shocks, while achieving greater institutional effectiveness through enhanced resource allocation.  KNF’s supplementary powers have increased, allowing it to authorize the swift acquisition of a failing or likely to fail lender by a stronger financial institution.

Money and Banking System

The banking sector plays a dominant role in the financial system, accounting for about 70 percent of financial sector assets.  The sector is mostly privately owned, with the state controlling about 40 percent of the banking sector and the biggest insurance company.  Poland had 30 locally incorporated commercial banks at the end of December 2019, according to KNF.  The number of locally-incorporated banks has been declining over the last five years.  Poland’s 538 cooperative banks play a secondary role in the financial system, but are widespread.  The state owns eight banks.  Over the last few years, growing capital requirements, lower prospects for profit generation and uncertainty about legislation addressing foreign currency mortgages has pushed banks towards mergers and acquisitions.  KNF welcomes this consolidation process, seeing it as a “natural” way to create an efficient banking sector.

The Polish National Bank (NBP) is Poland’s central bank.  At the end of 2019, the banking sector was overall well capitalized and solid.  Poland’s banking sector meets European Banking Authority regulatory requirements.  The share of non-performing loans is close to the EU average and recently has been falling.  In December 2019, non-performing loans were 6.6 percent of portfolios.  According to the S&P Rating Agency, Poland’s central bank is willing and able to provide liquidity support to the banking sector, in local and foreign currencies, if needed.

The banking sector is liquid, profitable and major banks are well capitalized, although disparities exist among banks.  This was confirmed by NBP’s Financial Stability Report and stress tests conducted by the central bank.  Profitability increased 12.5 percent in 2019 as a result of solid GDP growth, a pickup in investments and low provisioning costs, and remained at a reasonable level (ROE at 7.0 percent in 2019).  Nevertheless, profits remain under pressure due to low interest rates, the issue of conversion of Swiss francs mortgage portfolios into PLN, and a special levy on financial institutions (0.44 percent of the value of assets excluding equity and Polish sovereign bonds).  The ECJ issued a judgement in October 2019 on mortgages in Swiss francs, taking the side of borrowers.  The ECJ annulled the loan agreements, noting an imbalance between the parties and the use of prohibited clauses.  An additional financial burden for banks resulted from the necessity to return any additional fees they charged customers who repaid loans ahead of schedule.

Since 2015, the Polish government established an active campaign aiming to increase the market share of national financial institutions.  Since 2017, Polish investors’ share in the banking sector’s total assets exceeds the foreign share in the sector.  The State controls around 40 percent of total assets, including the two largest banks in Poland.  These two lenders control about one third of the market.  Rating agencies warn that an increasing state share in the banking sector might impact competitiveness and profits in the entire financial sector. There is concern that lending decisions at state-owned banks could come under political pressure.  Nevertheless, Poland’s strong fundamentals and the size of its internal market mean that many foreign banks will want to retain their positions.

The financial regulator has restricted the availability of loans in euros or Swiss francs in order to minimize the banking system’s exposure to exchange risk resulting from fluctuations.  Only individuals who earn salaries denominated in these currencies continue to enjoy easy access to loans in foreign currencies.

In 2019, NBP had relationships with 26 commercial and central banks and was not concerned about losing any of them.

Foreign Exchange and Remittances

Foreign Exchange

Poland is not a member of the Eurozone; its currency is the Polish zloty.  The current government has shown little desire to adopt the Euro (EUR).  The Polish zloty (PLN) is a floating currency; it has largely tracked the EUR at approximately PLN 4.2-4.3 to EUR 1 in recent years and PLN 3.7 – 3.8 to USD 1.  Foreign exchange is available through commercial banks and exchange offices.  Payments and remittances in convertible currency may be made and received through a bank authorized to engage in foreign exchange transactions, and most banks have authorization.  Foreign investors have not complained of significant difficulties or delays in remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties, or management fees.  Foreign currencies can be freely used for settling accounts.

Poland provides full IMF Article VIII convertibility for currency transactions.  The Polish Foreign Exchange Law, as amended, fully conforms to OECD Codes of Liberalization of Capital Movements and Current Invisible Operations.  In general, foreign exchange transactions with the EU, OECD, and European Economic Area (EEA) are accorded equal treatment and are not restricted.

Except in limited cases which require a permit, foreigners may convert or transfer currency to make payments abroad for goods or services and may transfer abroad their shares of after-tax profit from operations in Poland.  In general, foreign investors may freely withdraw their capital from Poland, however, the November 2018 tax bill included an exit tax.  Full repatriation of profits and dividend payments is allowed without obtaining a permit.  A Polish company (including a Polish subsidiary of a foreign company), however, must pay withholding taxes to Polish tax authorities on distributable dividends unless a double taxation treaty is in effect, which is the case for the United States.  Changes to the withholding tax in the 2018 tax bill increased the bureaucratic burden for some foreign investors (see Section 2).  The United States and Poland signed an updated bilateral tax treaty in February 2013 that the United States has not yet ratified.  As a rule, a company headquartered outside of Poland is subject to corporate income tax on income earned in Poland, under the same rules as Polish companies.

Foreign exchange regulations require non-bank entities dealing in foreign exchange or acting as a currency exchange bureau to submit reports electronically to NBP at http://sprawozdawczosc.nbp.pl .  An exporter may open foreign exchange accounts in the currency the exporter chooses.

Remittance Policies

Poland does not prohibit remittance through legal parallel markets utilizing convertible negotiable instruments (such as dollar-denominated Polish bonds in lieu of immediate payment in dollars).  As a practical matter, such payment methods are rarely, if ever, used.

Sovereign Wealth Funds

The Polish Development Fund (PFR) is often referred to as Poland’s Sovereign Wealth Fund.   PFR is an umbrella organization pooling resources of several governmental agencies and departments, including EU funds.  A strategy for the Fund was adopted in September 2016, and it was registered in February 2017.  PFR supports the implementation of the Responsible Development Strategy.

The PFR operates as a group of state-owned banks and insurers, investment bodies, and promotion agencies.  The budget of the PFR Group initially reached PLN 14 billion (USD 3.5 billion), which managers estimate is sufficient to raise capital worth PLN 90-100 billion (USD 22-25 billion).  Various actors within the organization can invest through acquisition of shares, through direct financing, seed funding, and co-financing venture capital.  Depending on the instruments, PFR expects different rates of return.

In July 2019, the President of Poland signed the Act on the System of Development Institutions.  Its main goal is to formalize and improve the cooperation of institutions that make up the PFR Group, strengthen the position of the Fund’s president and secure additional funding from the Finance Ministry.  The group will have one common strategy.  The introduction of new legal solutions will increase the efficiency and availability of financial and consulting instruments.  An almost four-fold increase in the share capital will enable PFR to significantly increase the scale of investment in innovation and infrastructure and will help Polish companies expand into foreign markets.  While supportive of overseas expansion by Polish companies, the Fund’s mission is domestic.

PFR plans to invest PLN 2.2 billion (USD 520 million) jointly with private-equity and venture-capital firms and PLN 600 million (USD 140 million) into a so-called fund of funds intended to kickstart investment in midsize companies.

Since its inception, PFR has carried out over 30 capital transactions, investing a total of PLN 8.3 billion (approx. USD 2 billion) directly or through managed funds.  PFR, together with the support of other partners, has implemented investment projects with a total value of PLN 26.2 billion (approx. USD 6.5 billion).  The most significant transactions carried out together with state-controlled insurance company PZU S.A. include the acquisition of 32.8 percent of the shares of Bank Pekao S.A. (PFR’s share is 12.8 percent); the acquisition of 100 percent of the shares in PESA Bydgoszcz S.A. (a rolling stock producer); and the acquisition of 99.77 percent of the shares of Polskie Koleje Linowe S.A.  PFR has also completed the purchase, together with PSA International Ptd Ltd and IFM Investors, of DCT Gdansk, the largest container terminal in Poland (PFR’s share is 30 percent).

In April 2020, the President of Poland signed into law an amendment to the law on development institution systems, expanding the competencies of PFR as part of the government’s Anti-Crisis Shield.  The amendment expands the competences of PFR so that it can more efficiently support businesses in the face of the coronavirus epidemic.  The fund will provide PLN 100 billion (USD 25 billion), in financial support for companies, known as the Financial Shield.

State-owned enterprises (SOEs) exist mainly in the defense, energy, transport, banking and insurance sectors.  The main Warsaw stock index is dominated by state-controlled companies. The government intends to keep majority share ownership and/or state-control of economically and strategically important firms and is expanding the role of the state in the economy, particularly in the banking and energy sectors.  Some U.S. investors have expressed concern that the government favors SOEs by offering loans from the national budget as a capital injection and unfairly favoring SOEs in investment disputes.  Since Poland’s EU accession, government activity favoring state-owned firms has received careful scrutiny from Brussels.  Since the Law and Justice government came to power in 2015, there has been a considerable increase in turnover in managerial positions of state-owned companies (although this has also occurred in previous changes of government, but to a lesser degree) and increased focus on building national champions in strategic industries to be able to compete internationally.  SOEs are governed by a board of directors and most pay an annual dividend to the government, as well as prepare and disclose annual reports.

List of companies classified as “important for the economy” is at this link:  https://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa 

Among them are companies of “strategic importance” whose shares cannot be sold, including:  Grupa Azoty S.A., Grupa LOTOS S.A., KGHM Polska Miedz S.A., and Energa S.A.

The government sees SOEs as drivers and leaders of its innovation policy agenda.  For example, several energy SOEs established a company to develop electro mobility.  The performance of SOEs has remained strong overall and broadly similar to that of private companies.  International evidence suggests, however, that a dominant role of SOEs can pose fiscal, financial, and macro-stability risks.

As of April 2020, there were over 370 companies in partnership with state authorities.  Among them there are companies under bankruptcy proceedings and in liquidation and in which the State Treasury held residual shares.  Here is a link to the list of companies, including under the control of which ministry they fall: http://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa . 

The Ministry of State Assets, established after the October 2019 post-election cabinet reshuffle, has control over 200 enterprises.  Their aggregate value reaches several dozens of billions of Polish zlotys.  Among these companies are the largest chemical, energy, and mining groups; firms in the banking and insurance sectors; the Warsaw Stock Exchange; Poczta Polska (the national postal operator); and transport companies.  This list does not include state-controlled public media, which are under the supervision of the Ministry of Culture or the State Securities Printing Company (PWPW) supervised by the Interior Ministry.  Supervision over defense industry companies has been shifted from the Ministry of Defense to the Ministry of State Assets.

The value of stock owned by the state in publicly-held companies, many of which are the biggest companies in their sectors, was worth over PLN 113 billion (USD 30 billion) in 2017.  The same standards are generally applied to private and public companies with respect to access to markets, credit, and other business operations such as licenses and supplies.  Government officials occasionally exercise discretionary authority to assist SOEs.  In general, SOEs are expected to pay their own way, finance their operations, and fund further expansion through profits generated from their own operations.

On February 21, 2019, an amendment to the Act on the principles of management of state-owned property was adopted, which provides for the establishment of a new public special-purpose fund – the Capital Investment Fund.  The Fund is a source of financing for the purchase and subscription of shares in companies.  The Fund is managed by the Prime Minister’s office and financed by dividends from state-controlled companies.  In 2020, the Fund’s revenues are expected to reach PLN one billion PLN (USD 240 million).

A commission for the reform of corporate governance was established on February 10, 2020, by the Minister of State Assets.  The commission will develop recommendations regarding the introduction of a law on consortia/holdings; changes in the powers of supervisory boards and their members, with particular emphasis on the rights and obligations of parent companies’ supervisory boards; changes in the scope of information obligations of companies towards partners or shareholders; and other changes, including in the Commercial Companies Code.  According to the Deputy Minister of State Assets and Government Plenipotentiary for Reform of Ownership Supervision over State Treasury Companies, the new law will be realistic and attractive to foreign investors.

Since coming to power in 2015, the governing Law and Justice party has increased control over Poland’s banking and energy sectors.  In April 2020, it announced plans to tighten rules regarding takeovers of Polish companies by investors from outside the European Union.

OECD Guidelines on Corporate Governance of SOEs

In Poland, the same rules apply to SOEs and publicly-listed companies unless statutes provide otherwise.  The state exercises its influence through its rights as a shareholder in proportion to the number of voting shares it holds (or through shareholder proxies).  In some cases, an SOE is afforded special rights as specified in the company’s articles, and in compliance with Polish and EU laws.  In some non-strategic companies, the state exercises special rights as a result of its majority ownership but not as a result of any specific strategic interest.  Despite some of these specific rights, the state’s aim is to create long-term value for shareholders of its listed companies by adhering to the OECD’s SOE Guidelines.  State representatives who sit on supervisory boards must comply with the Commercial Companies Code and are expected to act in the best interests of the company and its shareholders.  The European Commission noted that “Polska Fundacja Narodowa” (an organization established to promote Polish culture worldwide and funded by Polish SOEs) was involved in the organization and financing of a campaign supporting the controversial judiciary changes by the government.  The commission stated this was broadly against OECD recommendations on SOE involvement in financing political activities.

SOE employees can designate two fifths of the SOE’s Supervisory Board’s members.  In addition, according to Poland’s privatization law, in wholly state-owned enterprises with more than 500 employees, the employees are allowed to elect one member of the Management Board.  SOEs are subject to a series of additional disclosure requirements above those set forth in the Company Law.  The supervising ministry prepares specific guidelines on annual financial reporting to explain and clarify these requirements.  SOEs must prepare detailed reports on management board activity, plus a report on the previous financial year’s activity, and a report on the result of the examination of financial reports.  In practice, detailed reporting data for non-listed SOEs is not easily accessible.  State representatives to supervisory boards must go through examinations to be able to apply for a board position.  Many major state-controlled companies are listed on the Warsaw Stock Exchange and are subject to the “Code of Best Practice for WSE Listed Companies.”

On September 30, 2015, the Act on Control of Certain Investments entered into force.  The law creates mechanisms to protect against hostile takeovers of companies operating in strategic sectors (gas, power generation, chemical, petrochemical and defense sectors) of the Polish economy (see Section 2 on Investment Screening), most of which are SOEs or state-controlled. In 2020, the government plans to introduce new legislation preventing hostile take overs.

The SOE governance law of 2017 (with subsequent amendments) is being implemented gradually.  The framework formally keeps the oversight of SOE supervision centralized, while transferring the responsibilities from the Ministry of the Treasury to the Prime Minister’s Office (PMO) and the Ministry of State Assets.  The Ministry of State Assets exercises ownership functions for the majority of SOEs.  A few sector-specific ministries (e.g., Culture and Maritime Economy) also exercise ownership for SOEs with public policy objectives.  The PMO oversees development agencies such as the Polish Development Fund and the Industry Development Agency.

Privatization Program

The Polish government has completed the privatization of most of the SOEs it deems not to be of national strategic importance.  With few exceptions, the Polish government has invited foreign investors to participate in major privatization projects.  In general, privatization bidding criteria have been clear and the process transparent.

The majority of SOEs classified as “economically important” or “strategically important” is in the energy, mining, media and financial sectors.  The government intends to keep majority share ownership of these firms, or to sell tranches of shares in a manner that maintains state control.  The government is currently focused on consolidating and improving the efficiency of the remaining SOEs.

Poland has laws, regulations, and penalties aimed at combating corruption of public officials and counteracting conflicts of interest.  Anti-corruption laws extend to family members of officials and to members of political parties who are members of parliament.  There are also anti-corruption laws regulating the finances of political parties.  According to a local NGO, an increasing number of companies are implementing voluntary internal codes of ethics.  In 2019, the Transparency International (TI) index of perceived public corruption ranked Poland as the 41^st (five places lower than in 2018 TI index) least corrupt among 180 countries/territories.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The Polish Central Anti-Corruption Bureau (CBA) and national police investigate public corruption.  The Justice Ministry and the police are responsible for enforcing Poland’s anti-corruption criminal laws.  The Finance Ministry administers tax collection and is responsible for denying the tax deductibility of bribes.  Reports of alleged corruption most frequently appear in connection with government contracting and the issuance of a regulation or permit that benefits a particular company.  Allegations of corruption by customs and border guard officials, tax authorities, and local government officials show a decreasing trend.  If such corruption is proven, it is usually punished.

Overall, U.S. firms have found that maintaining policies of full compliance with the U.S. Foreign Corrupt Practices Act (FCPA) is effective in building a reputation for good corporate governance and that doing so is not an impediment to profitable operations in Poland.  Poland ratified the UN Anticorruption Convention in 2006 and the OECD Convention on Combating Bribery in 2000.  Polish law classifies the payment of a bribe to a foreign official as a criminal offense, the same as if it were a bribe to a Polish official.

At its March 2018 meeting, the OECD Working Group on Bribery urged Poland to make progress on carrying out key recommendations that remain unimplemented more than four years after its Phase 3 evaluation in June 2013.

For more information on the implementation of the OECD Anti-Bribery Convention in Poland, please visit:  http://www.oecd.org/daf/anti-bribery/poland-oecdanti-briberyconvention.htm 

Resources to Report Corruption

Centralne Biuro Antykorupcyjne (Central Anti-Corruption Bureau – CBA)
al. Ujazdowskie 9, 00-583 Warszawa
+48 800 808 808
kontakt@cba.gov.pl
www.cba.gov.pl ; link: Zglos Korupcje (report corruption)

The Public Integrity Program of the Batory Foundation, which served as a non-governmental watchdog organization, has been incorporated into a broader operational program (ForumIdei) run by the Foundation.  The Batory Foundation continues to monitor public corruption, carries out research into this area and publishes reports on various aspects of the government’s transparency.  Contact information for Batory Foundation is: batory@batory.org.pl; 22 536 02 20.

Poland is a politically stable country.  Constitutional transfers of power are orderly.  The last presidential elections took place in June 2020 and parliamentary elections took place in October 2019; observers considered both elections free and fair.  Prime Minister Morawiecki’s government was re-appointed in November 2019.  Local elections took place in October 2018.  Elections to the European Parliament took place in May 2019.  The next parliamentary elections are scheduled for the fall of 2023.  There have been no confirmed incidents of politically motivated violence toward foreign investment projects in recent years.  Poland has neither insurgent groups nor belligerent neighbors.  The Overseas Private Investment Corporation (OPIC) provides political risk insurance for Poland but it is not frequently used, as competitive private sector financing and insurance are readily available.

Policies Toward Foreign Direct Investment

The Government of Portugal recognizes the importance of foreign investment and sees it as a driver of economic growth, with an overall positive attitude towards FDI.  Portuguese law is based on a principle of non-discrimination, meaning foreign and domestic investors are subject to the same rules.  Foreign investment is not subject to any special registration or notification to any authority, with exceptions for a few specific activities.

The Portuguese Agency for Foreign Investment and Commerce (AICEP) is the lead for promotion of trade and investment.  AICEP is responsible for the attraction of foreign direct investment (FDI), global promotion of Portuguese brands, and export of goods and services.  It is the primary point of contact for investors with projects over EUR 25 million or companies with a consolidated turnover of more than EUR 75 million.  For foreign investments not meeting these thresholds, AICEP will make a preliminary analysis and direct the investor to assistance agencies such as the Institute of Support to Small- and Medium- Sized Enterprises and Innovation (IAPMEI), a public agency within the Ministry of Economy that provides technical support, or to AICEP Capital Global, which offers technology transfer, incubator programs, and venture capital support.  AICEP does not favor specific sectors for investment promotion. It does, however, provide a “Prominent Clusters” guide on its website  where it advocates investment in Portuguese companies by sector.

The Portuguese government maintains regular contact with investors through the Confederation of Portuguese Business (CIP), the Portuguese Chamber of Commerce and Industry, among other industry associations.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no legal restrictions in Portugal on foreign investment.  To establish a new business, foreign investors must follow the same rules as domestic investors, including mandatory registration and compliance with regulatory obligations for specific activities.  There are no nationality requirements and no limitations on the repatriation of profits or dividends.

Non-resident shareholders must obtain a Portuguese taxpayer number for tax purposes.  EU residents may obtain this number directly with the tax administration (in person or by means of an appointed proxy); non-EU residents must appoint a Portuguese resident representative to handle matters with tax authorities.

There are national security limitations on both foreign and domestic investments with regard to certain economic activities.  Portuguese government approval is required in the following sectors: defense, water management, public telecommunications, railways, maritime transportation, and air transport.  Any economic activity that involves the exercise of public authority also requires government approval; private sector companies can operate in these areas only through a concession contract.

Portugal additionally limits foreign investment with respect to the production, transmission, and distribution of electricity, the production of gas, the pipeline transportation of fuels, wholesale services of electricity, retailing services of electricity and non-bottled gas, and services incidental to electricity and natural gas distribution.  Concessions in the electricity and gas sectors are assigned only to companies with headquarters and effective management in Portugal.

Investors wishing to establish new credit institutions or finance companies, acquire a controlling interest in such financial firms, and/or establish a subsidiary must have authorization from the Bank of Portugal (for EU firms) or the Ministry of Finance (for non-EU firms).  Non-EU insurance companies seeking to establish an agency in Portugal must post a special deposit and financial guarantee and must have been authorized for such activity by the Ministry of Finance for at least five years.

Portugal enacted a national security investment review framework in 2014, giving the Council of Ministers authority to block specific foreign investment transactions that would compromise national security.  Reviews can be triggered on national security grounds in strategic industries like energy, transportation and communication. Investment reviews can be conducted in cases where the purchaser acquiring control is an individual or entity not belonging to the European Union.  In such instances, the review process is overseen by the relevant Portuguese ministry according to the assets in question.

Other Investment Policy Reviews

In February 2019, the OECD presented its latest Economic Survey of Portugal , including an updated macro overview and a set of policy recommendations.

Business Facilitation

To combat the perception of a cumbersome regulatory environment, the Government has created a ‘cutting red tape’ website branded ‘Simplex  that details measures taken since 2005 to reduce bureaucracy, and the Empresa na Hora (“Business in an Hour”) program that facilitates company incorporation by citizens and non-citizens in less than 60 minutes.  More information is available at Empresa na Hora .

In 2007, the Government established AICEP, a promotion agency for investment and foreign trade that also manages industrial parks and provides business location solutions for investors through its subsidiary AICEP Global Parques.

Established in 2012, Portugal’s “Golden Visa” program gives fast-track residence permits to foreign investors meeting certain conditions, including making capital transfers, job creation or real estate acquisitions.  Other measures implemented to help attract foreign investment include the easing of some labor regulations to increase workplace flexibility and EU-funded programs.

Portuguese citizens can alternatively register a business online through the “Citizen’s Portal” available at Portal do Cidadão .  Companies must also register with the Directorate General for Economic Activity (DGAE), the Tax Authority (AT), and with the Social Security administration.  The government’s standard for online business registration is a two to three day turnaround but the online registration process can take as little as one day.

Portugal defines an enterprise as micro-, small-, and medium-sized based on its headcount, annual turnover, or the size of its balance sheet.  To qualify as a micro-enterprise, a company must have less than 10 employees and no more than EUR 2 million in revenues or EUR 2 million in assets.  Small enterprises must have less than 50 employees and no more than EUR 10 million in revenues or EUR 10 million in assets. Medium-sized enterprises must have less than 250 employees and no more than EUR 50 million in revenues or EUR 43 million in assets.  The Small- and Medium-Sized Enterprise (SME) Support Institute (IAPMEI)  offers financing, training, and other services for SMEs based in Portugal.

More information on laws, procedures, registration requirements, and investment incentives for foreign investors in Portugal is available at AICEP’s website .

Outward Investment

The Portuguese government does not restrict domestic investors from investing abroad.  On the contrary, it promotes outward investment through AICEP’s customer managers, export stores and its external commercial network that, in cooperation with the diplomatic and consular network, are operating in about 80 markets.  AICEP  provides support and advisory services on the best way of approaching foreign markets, identifying international business opportunities of Portuguese companies, particularly SMEs.

Capital Markets and Portfolio Investment

Portugal has a generally positive attitude toward foreign portfolio investment. The Portuguese stock exchange is managed by Euronext Lisbon, part of the NYSE Euronext Group, which allows a listed company access to a global and diversified pool of investors.  The Portuguese Stock Index-20, PSI20, is Portugal’s benchmark index representing the largest and most liquid companies listed on the exchange. The Portuguese stock exchange offers a diverse product portfolio: shares, funds, exchange traded funds, bonds, and structured products, including warrants and futures.

The Portuguese Securities Market Commission  (CMVM) supervises and regulates securities markets, and is a member of the Committee of European Securities Regulators and the International Organization of Securities Commissions. Portugal has an effective regulatory system that encourages and facilitates portfolio investment and tries to promote liquidity in the markets for investors to effectively enter and exit sizeable positions.

Portugal respects IMF Article VIII by refraining from placing restrictions on payments and transfers for current international transactions.  Credit is allocated on market terms, and foreign investors are eligible for local market financing. Private sector companies have access to a variety of credit instruments, including bonds.

Money and Banking System

Portugal has 151 credit institutions, of which 62 are banks, with a wide penetration of banking services across the country.  Portugal’s banking assets totaled €398 billion at the end of the third quarter of 2019, compared to €489 billion in 2014.

Portuguese banks sharply reduced non-performing loan portfolios since the eurozone debt crisis, leaving them in a healthier position to withstand future shocks.  Total loans stood at just above €200 billion at the end of the third quarter of 2019, with a non-performing loan ratio of 8.3 percent ratio, compared to over 17% in 2016.  Banks’ return on equity and on assets remained in positive territory in 2019.  In terms of capital buffers, the Common Equity Tier 1 ratio improved to 13.9 percent as of June 2019, from 13.2% in June 2017.

Foreign banks are allowed to establish operations in Portugal.  In terms of decision-making policy, a general ‘four-eyes policy’ with two individuals approving actions must be in place at all banks and branches operating in the country, irrespective of whether they qualify as international subsidiaries of foreign banks or local banks.  Foreign branches operating in Portugal are required to have such decision-making powers that enable them to operate in the country, but this requirement generally does not prevent them from having internal control and rules governing risk exposure and decision-making processes, as customary in international financial groups.

No restrictions exist on a foreigner’s ability to establish a bank account and both residents and non-residents may hold bank accounts in any currency.  However, any transfers of €10,000 or more must be declared to Portuguese customs authorities.

Foreign Exchange and Remittances

Foreign Exchange

Portugal has no exchange controls and there are no restrictions on the import or export of capital.  Funds associated with any form of investment can be freely converted into any world currency.

Portugal is a member of the European Monetary Union (Eurozone) and uses the euro, a floating exchange rate currency controlled by the European Central Bank (ECB).  The Bank of Portugal is the country’s central bank; the Governor of the Bank of Portugal participates on the board of the ECB.

Remittance Policies

There are no limitations on the repatriation of profits or dividends.  There are no time limitations on remittances.

Sovereign Wealth Funds

The Ministry of Labor, Solidarity, and Social Security manages Portugal’s Social Security Financial Stabilization Fund (FEFSS), with total assets of around €20 billion.  It is not a Sovereign Wealth Fund (SWF) and does not subscribe to the voluntary code of good practices (Santiago Principles), or participate in the IMF-hosted International Working Group on SWFs.  Among other restrictions, Portuguese law requires that at least 50 percent of the fund’s assets be invested in Portuguese public debt, and limits FEFSS investment in equity instruments to that of EU or OECD members.  FEFSS acts as a passive investor and does not take an active role in the management of portfolio companies.

There are currently over 40 major state-owned enterprises (SOEs) operating in Portugal in the banking, health care, transportation, water, and agriculture sectors. Portugal’s only SOE with revenues greater than one percent of GDP is the Caixa Geral de Depositos (CGD) Bank. CGD has the largest market share in customer deposits, commercial loans, mortgages, and many other banking services in the Portuguese market.

Parpublica  is a government holding company for several smaller enterprises that audits and reports on smaller SOEs. The activities and accounts of Parpublica are fully disclosed in budget documents and audited annual reports. In addition, the Ministry of Finance publishes an annual report on SOEs through a specialized monitoring unit, UTAM  that presents annual performance data by company and sector. When SOEs are wholly owned, the government appoints the board. However, when SOEs are not majority-owned, the board of executives and non-executives nomination depends on the negotiations between government and the remaining shareholders, and in some cases on negotiations with European Authorities as well.

Portuguese law stipulates that SOEs must compete under the same terms and conditions as private enterprises, subject to Portuguese and EU competition laws.

In 2008, Portugal’s Council of Ministers approved resolution no. 49/2007, which defined the Principles of Good Governance for SOEs according to OECD guidelines. The resolution requires SOEs to have a governance model that ensures the segregation of executive management and supervisory roles, to have their accounts audited by independent entities, to observe the same standards as those for companies publicly listed on stock markets, and to establish an ethics code for employees, customers, suppliers, and the public.  The resolution also requires the Ministry of Finance’s Directorate General of the Treasury and Finances to publish annual reports on SOEs’ compliance with the Principles of Good Governance. Credit and equity analysts generally tend to criticize SOEs’ over-indebtedness and inefficiency, rather than any poor governance and ties to government.

Privatization Program

Portugal launched an aggressive privatization program in 2011 as part of its EU-IMF-ECB bailout, including state-owned enterprises in the air transportation, land transportation, energy, communications, and insurance sectors.  Foreign companies have been among the most successful bidders in these privatizations since the program’s inception. The bidding process was public, transparent, and non-discriminatory to foreign investors.

U.S. firms do not identify corruption as an obstacle to foreign direct investment. Portugal has made legislative strides toward further criminalizing corruption.  The government’s Council for the Prevention of Corruption, formed in 2008, is an independent administrative body that works closely with the Court of Auditors to prevent corruption in public and private organizations that use public funds.  Transparencia e Integridade Associacao Civica, the local affiliate of Transparency International, also actively publishes reports on corruption and supports would-be whistleblowers in Portugal.

In 2010, the country adopted a law criminalizing violation of urban planning rules and increasing transparency in political party funding. In 2015, Parliament unanimously approved a revision to existing anti-corruption laws that extended the statute of limitations for the crime of trading in influence to 15 years and criminalized embezzlement by employees of state-owned enterprises with a prison term of up to eight years. The laws extend to family members of officials and to political parties.

Still, according to a 2018 report by the Council of Europe’s Group of States against Corruption (GRECO), Portugal should improve efforts to reform its legal framework to prevent corruption from MPs, judges, and prosecutors. The report concluded that Portugal has only satisfactorily implemented one of fifteen previous recommendations. Three have been partly implemented, and eleven have not yet been implemented. The situation is qualified by GRECO as “globally unsatisfactory.” GRECO, however welcomed  a reform to bolster integrity, enhance accountability and increase transparency of a wide range of public office holders, including MPs.

Portugal has laws and regulations to counter conflict-of-interest in awarding contracts or government procurement.

The Portuguese government encourages (and in some cases requires) private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.  Most private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. As described above, the Competition Authority operates a leniency program for companies that self-identify infringements of competition rules, including ethical lapses.

Portugal has ratified and complies with both the UN Convention against Corruption and the OECD Anti-Bribery Convention.

Resources to Report Corruption

Council for the Prevention of Corruption
Avenida da Republica, 65
1050-189, Lisbon, Portugal
+351 21 794 5138
Email: cp-corrupcao@tcontas.pt

Contact at “watchdog” organization:

Transparency International – Transparencia e Integridade Associacao Civica
Rua dos Fanqueiros, 65-3º A
1100-226, Lisbon, Portugal
+351 21 8873412
Email: secretariado@transparencia.pt

Since the 1974 Carnation Revolution, Portugal has had a long history of peaceful social protest.  Portugal experienced its largest political rally since its revolution in response to proposed budgetary measures in 2012. Public workers, including nurses, doctors, teachers, aviation professionals, and public transportation workers organized peaceful demonstrations periodically in protest of salary levels and other measures throughout 2018.

Policies Towards Foreign Direct Investment

In pursuit of its National Vision 2030, the government of Qatar has enacted reforms to incentivize foreign investment in the economy.  As Qatar finalizes major infrastructure developments in preparation for hosting the 2022 FIFA World Cup, the government has allocated USD 3.2 billion for new, non-oil sector projects in its 2020 budget.  The government also plans to increase LNG production by 64 percent by 2027.  Significant investment in the upstream and downstream sectors is expected.  In February 2019, national oil company Qatar Petroleum announced a localization initiative, Tawteen, which will provide incentives to local and foreign investors willing to establish domestic manufacturing facilities for oil and gas sector inputs.  Moreover, in July 2019, the Investment Promotion Agency was established to further attract inward foreign direct investment to Qatar.  These economic spending and promotion plans create significant opportunities for foreign investors.

In 2019, the government enacted a new foreign investment law (Law 1/2019) to ease restrictions on foreign investment.  The law, once executive regulations are issued, will permit full foreign ownership of businesses in most sectors with full repatriation of profits, protection from expropriation, and several other benefits.  Excepted sectors include banking, insurance, and commercial agencies, where foreign capital investment remains limited at 49 percent, barring special dispensation from the Cabinet.  The government is currently in the process of publishing regulations for the implementation of the new law.  Until its issuance, the old law requiring 51% Qatari partnership still applies (Law 13/2000).  Qatar’s primary foreign investment promotion and evaluation body is the Invest in Qatar Center within the Ministry of Commerce and Industry.  Qatar is also home to the Qatar Financial Centre, Qatar Science and Technology Park, Manateq (Qatar’s Economic Zones Company), and the Qatar Free Zones Authority, all of which offer full foreign ownership and repatriation of profits, tax incentives, and investment funds for small- and medium-sized enterprises.

When competing for government contracts, preferential treatment is given to suppliers who use local content in their bids.  To further boost local production amid an economic and political rift with neighboring Gulf countries, the government announced in October 2017 that it will favor bids that use Qatari products that meet necessary specifications and adhere to tender rules.  Participation in tenders with a value of QAR 5 million or less (USD 1.37 million) is limited to local contractors, suppliers, and merchants registered by the Qatar Chamber of Commerce and Industry.  Higher-value tenders sometimes do not require any local commercial registration to participate, but in practice certain exceptions exist.

Qatar maintains ongoing dialogue with the United States through both official and private sector tracks, including through the annual U.S.-Qatar Strategic Dialogue and official trade missions undertaken in cooperation with both nations’ chambers of commerce.  Qatari officials have repeatedly emphasized their desire to increase both American investments in Qatar and Qatari investments in the United States.

Limits on Foreign Control and Right to Private Ownership and Establishment

The government has recently reformed its foreign investment legal framework.  As noted above, full foreign ownership is now permitted in all sectors with the exception of banking, insurance and commercial agencies.  Law 1/2019 on Regulating the Investment of Non-Qatari Capital in Economic Activity (replacing Law 13/2000) stipulates that foreigners can invest in Qatar either through partnership with a Qatari investor owning 51 percent or more of the enterprise, or by applying to the Ministry of Commerce and Industry for up to 100 percent foreign ownership.  The Invest in Qatar Center within the Ministry of Commerce and Industry is the entity responsible for vetting full foreign ownership applications.  The law includes provisions on the protection of foreign investment from expropriation, the exemption of some foreign investment projects from income tax and customs duties, and the right to transfer profits and ownership without delay.

Another recent foreign investment reform is Law 16/2018 on Regulating Non-Qatari Ownership and Use of Properties, which allows foreign individuals, companies, and real estate developers freehold ownership of real estate in 10 designated zones and ‎usufructuary rights up to 99 years in 16 other zones.  Foreigners may also own villas within residential complexes, as well as retail outlets in certain commercial complexes.  Foreign real estate investors and owners will be granted residency in Qatar for as long as they own their property.  The Committee on Non-Qatari Ownership and Use of Real Estate, formed in December 2018 under the Ministry of Justice, is the regulator of non-Qatari real estate ownership and use.

There are also other FDI incentives in the country provided by the Qatar Financial Centre, the Qatar Free Zones, and the Qatar Science and Technology Park.  A draft Public-Private Partnership law to facilitate direct foreign investment in national infrastructure development (currently focused on schools, hospitals, and drainage networks) was approved by the Cabinet in April, 2019 and is pending the Amir’s final review.

U.S. investors and companies are not any more disadvantaged by ownership or control mechanisms, sector restrictions, or investment screening mechanisms relative to other foreign investors.

Other Investment Policy Reviews

N/A

Business Facilitation

Recent reforms have further streamlined the commercial registration process.  Local and foreign investors may apply for a commercial license through the Ministry of Commerce and Industry’s (MOCI) physical “one-stop shop” or online through the Invest in Qatar Center’s portal.  Per Law 1/2019, upon submission of a complete application, the Ministry will issue its decision within 15 days.  Rejected applications can be resubmitted or appealed.  In January 2020, MOCI announced it was studying the possibility of reducing the fees required to register companies, in addition to lowering tariffs and port fees to provide more incentives to the private sector.  For more information on the application and required documentation, visit:  https://invest.gov.qa 

The World Bank’s 2020 Doing Business Report estimates that registering a small-size limited liability company in Qatar takes eight to nine days.  For detailed information on business registration procedures, as evaluated by the World Bank, visit:   http://www.doingbusiness.org/data/exploreeconomies/qatar/ 

For more information on business registration in Qatar, visit:

• Ministry of Commerce and Industry’s Invest in Qatar Center:  https://invest.gov.qa 
• Qatar Financial Centre:  http://www.qfc.qa/ 
• Qatar Free Zones Authority:  https://fza.gov.qa/ 
• Qatar Science and Technology Park:  https://qstp.org.qa/ 
• Qatar Petroleum Tawteen Program:  https://www.tawteen.com.qa/ 
• Manateq: https://www.manateq.qa/ 

Outward Investment

Qatar does not restrict domestic investors from investing abroad.  According to the latest foreign investment survey from the Planning and Statistics Authority, Qatar’s outward foreign investment stock reached USD 109.9 billion in the second quarter of 2019.  In 2018, sectors that accounted for most of Qatar’s outward FDI were finance and insurance (40 percent of total), transportation, storage, information and communication (33 percent), and mining and quarrying (18 percent).  As of 2018, Qatari investment firms held investments in about 80 countries; the top destinations were the European Union (34 percent of total), the Gulf Cooperation Council (GCC, 24 percent), and other Arab countries (14 percent).

Capital Markets and Portfolio Investment

Foreign portfolio investment has been permitted since 2005.  There is no restriction on the flow of capital in Qatar.  The Qatar Central Bank (QCB) adheres to conservative policies aimed at maintaining steady economic growth and a stable banking sector.  Loans are allocated on market terms, and foreign companies are essentially treated the same as local companies.

Currently, foreign ownership is limited to 49 percent of Qatari companies listed on the Qatar Stock Exchange.  Foreign capital investment up to 100 percent is permitted in most sectors upon approval of an application submitted to the Invest in Qatar Center under the Ministry of Commerce and Industry.  Foreign portfolio investment in national oil and gas companies or companies with the right of exploration of national resources cannot exceed 49 percent.

Almost all import transactions are controlled by standard letters of credit processed by local banks and their correspondent banks in the exporting countries.  Credit facilities are provided to local and foreign investors within the framework of standard international banking practices.  Foreign investors are usually required to have a guarantee from their local sponsor or equity partner.  In accordance with QCB guidelines, banks operating in Qatar give priority to Qataris and to public development projects in their financing operations.  Additionally, single customers may not be extended credit facilities by a bank exceeding 20 percent of the bank’s capital and reserves.  QCB does not allow cross-sharing arrangements among banks.  QCB requires banks to maintain a maximum credit ratio of 90 percent.  QCB respects IMF Article VIII and does not restrict payments or transfers for international transactions.

Qatar has become an important banking and financial services center in the Gulf region.  Qatar’s monetary freedom score is 72.6 out of 100 (“mostly-free”) and it ranks 28th out of 180 countries in the 2019 Index of Economic Freedom, according to the Heritage Foundation.  Qatar is ranked third in the Middle East/North Africa region in terms of economic freedom and its overall score is above the world average.

Money and Banking System

There are 17 licensed banks in Qatar, seven of which are foreign institutions.  Qatar also has 20 exchange houses, six investment and finance companies, 16 insurance companies, and 17 investment funds.  Other foreign banks and financial institutions operate under the Qatar Financial Center’s platform, but they are not licensed by the Qatar Central Bank (QCB) and are regulated by the Qatar Financial Center Regulatory Authority.  The country is home to the Qatar National Bank, the largest financial institution in the Middle East and Africa, with total assets exceeding USD 229.1 billion.

The QCB, as the financial regulator, continues to introduce incentives for local banks to ensure a strong financial sector that is resilient during economic volatility.  The QCB manages liquidity by mandating a reserve ratio of 4.5 percent and utilizing treasury bonds, bills, and other macroprudential measures.  Banks that do not abide by the required reserve ratio are penalized.  QCB uses repurchase agreements, backed by government securities, to inject liquidity into the banks.  According to QCB data, total domestic liquidity reached USD 158.8 billion in December of 2019.  The IMF estimated that 1.7 percent of Qatar’s bank loans in 2019 were nonperforming.  International ratings agencies have expressed confidence in the financial stability of the country’s banks, given liquidity levels and strong earnings.

Cryptocurrency trading is illegal in Qatar, per a 2018 Qatar Central Bank circular.  In January 2020, the Qatar Financial Centre Regulatory Authority (QFCRA) announced that firms operating under the Qatar Finance Center are not permitted to provide or facilitate the provision or exchange of crypto assets and related services.

To open a bank account in Qatar, foreigners must present proof of residency.

Foreign Exchange and Remittances

Foreign Exchange

Due to minimal demand for the Qatari riyal outside Qatar and the national economy’s dependence on oil and gas revenues, which are priced in dollars, the government has pegged the riyal to the U.S. dollar.  The official peg is QAR 1.00 per USD 0.27 or USD 1.00 per QAR 3.64, as set by the government in June 1980 and reaffirmed by Amiri decree 31/2001.

In implementing the provisions of Law No. 20/2019 on Combating Money Laundering and Terrorism Financing and following the issuance of Cabinet Resolution No. 41/2019, starting February 27, 2020, travelers to or from Qatar are required to complete a declaration form upon entry or departure, if carrying cash, precious metals, financial instruments, or jewelry, valued at fifty thousand Qatari Riyals or more ($13,7000).

Remittance Policies

Qatar neither delays remittance of foreign investment returns nor restricts transfer of funds associated with an investment, such as return on dividends, return of capital, interest and principal payments on private foreign debt, lease payments, royalties, management fees, amounts generated from sale or liquidation, amounts garnered from settlements and disputes, and compensation from expropriation to financial institutions outside Qatar.

In accordance with Law 20/2019 on Combating Money Laundering and Terrorism Financing, the Qatar Central Bank requires financial institutions to apply due diligence prior to establishing business relationships, carrying out financial transactions, and performing wire transfers.  Executive regulations for this law were published in December 2019 and they promulgate that originator information should be secured when a wire transfer exceeds QAR 3,500 (USD 962).  Similarly, due diligence is required when a customer is completing occasional transactions in a single operation or several linked operations of an amount exceeding QAR 50,000 (USD 13,736).

Qatar is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a Financial Action Task Force-style regional body.  Qatar will undergo its next MENAFATF mutual evaluation in 2021.  In July 2017, Qatar signed a counterterrorism MOU with the United States, which includes information sharing, training, enhanced cooperation, and other deliverables related to combating money laundering and terrorism financing.

Sovereign Wealth Funds

The Qatar Investment Authority (QIA), Qatar’s sovereign wealth fund, was established by Amiri Decree 22/2005.  QIA is overseen by the Supreme Council for Economic Affairs and Investment, chaired by the Amir, and does not disclose its assets (independent analysts estimate QIA’s holdings at around USD 330 billion).  QIA pursues direct investments and favors luxury brands, prime real estate, infrastructure development, and banks.  Various QIA subsidiaries invest in other sectors, as well.

In September 2015, QIA opened an office in New York City to facilitate over USD 45 billion allocated for investments in the United States over the course of five years.  QIA’s real estate subsidiary, Qatari Diar, has operated an office in Washington, D.C. since 2014.

QIA was one of the early supporters of the Santiago Principles and among the few members who drafted the initial and final versions of the principles, and continues to be a proactive supporter of its implementation.  QIA was also a founding member of the IMF-hosted International Working Group of Sovereign Wealth Funds.  QIA fully supported the establishment of the International Forum of Sovereign Wealth Funds (IFSWF) and helped create the Forum’s constitution.

The State Audit Bureau oversees state-owned enterprises (SOEs), several of which operate as monopolies or with exclusive rights in most economic sectors.  Despite the dominant role of SOEs in Qatar’s economy, the government has affirmed support for the local private sector and encourages small and medium-sized enterprise development as part of its National Vision 2030.  The Qatari private sector is favored in bids for local contracts and generally receives favorable terms for financing at local banks.  The following are Qatar’s major SOEs:

Energy and Power:

• Qatar Petroleum (QP), its subsidiaries, and its partners operate all oil and gas activities in the country.  QP is wholly owned by the government.  Non-Qataris are permitted to invest in stock exchange listed subsidiaries, but shareholder ownership is limited to two percent and total non-Qatari ownership to 49 percent.
• Qatar General Electricity and Water Corporation (Kahramaa) oversees all water and electricity activities and is majority-owned by Qatari government entities.  Government officials signaled intentions to  privatize segments of the water and electricity sectors.  A first step in this direction occurred when the Ras Laffan Power Company, which is 55 percent owned by a U.S. company, was established in 2001.  As part of its National Vision 2030 to diversify the economy, Qatar will boost investments in renewable energy, led by Kahramaa, with a view to generate 10 GW of solar capacity annually, or the equivalent of 20 percent of Qatar’s electricity needs.

Aerospace:

• Qatar Airways is the country’s national carrier, wholly owned by the state.

Services:

• Qatar General Postal Corporation is the state-owned postal company.  Several other delivery companies are allowed to compete in the courier market:  Aramex, DHL Express, and FedEx Express.

Information and Communication:

• Ooredoo Group is a telecommunications company founded in 2013.  It is the dominant player in the Qatari telecommunications market and is 68 percent owned by Qatari government entities.  Ooredoo (previously known as Q-Tel) dominates both the mobile and fixed line telecommunications markets in Qatar.
• Vodafone Qatar, the only other telecommunications operator in Qatar at present, is owned by the semi-governmental Qatar Foundation, Qatari government entities, and Qatar-based investors.  In 2017, Vodafone Qatar announced that it achieved 21 percent market share in Qatar.

Qatari SOEs may adhere to their own corporate governance codes and are not required to follow the OECD Guidelines on Corporate Governance.  Some SOEs publish online corporate governance reports to encourage transparency, but there is no general framework for corporate governance across all Qatari SOEs.  When an SOE is involved in an investment dispute, the case is reviewed by the appropriate sector regulator.

Privatization Program

There is no ongoing official privatization program for major SOEs.  Qatar Airways executives state the government plans to take the company public within the next decade.

Corruption in Qatar does not generally affect business although the power of personal connections plays a major role in business culture.  Qatar is one of the least corrupt countries in the Middle East and North Africa, according to Transparency International’s 2019 Corruption Perceptions Index, and ranked 30 out of 180 nations globally with a score of 62 out of 100, with 100 indicating full transparency.

Qatari law imposes criminal penalties to combat corruption by public officials and the government practices these laws.  In recent years, corruption and misuse of public money has been a focus of the executive office.  Decree 6/2015 restructured the Administrative Control and Transparency Authority, granting it juridical responsibility, its own budget, and direct affiliation with the Amir’s office.  The objectives of the authority are to prevent corruption and ensure that ministries and public employees operate with transparency.  It is also responsible for investigating alleged crimes against public property or finances perpetrated by public officials.  Law 22/2015 imposes hefty penalties for corrupt officials and Law 11/2016 grants the State Audit Bureau more financial authority and independence, allowing it to publish parts of its findings (provided that confidential information is removed),which it was not previously empowered to do.

In 2007, Qatar ratified the UN Convention for Combating Corruption (through Amiri Decree 17/2007) and established a National Committee for Integrity and Transparency, (through Amiri Decree 84/2007).  The permanent committee is headed by the Chairman of the State Audit Bureau.  Qatar also opened the Anti-Corruption and Rule of Law Center in 2013 in Doha in partnership with the United Nations.  The purpose of the center is to support, promote, and disseminate legal principles to fight against corruption.

Those convicted of embezzlement and damage to the public treasury are subject to terms of imprisonment of no less than five and up to ten years.  The penalty is extended to a minimum term of seven and a maximum term of fifteen years if the perpetrator is a public official in charge of collecting taxes or exercising fiduciary responsibilities over public funds.  Investigations into allegations of corruption are handled by the Qatar State Security Bureau and Public Prosecution.  Final judgments are made by the Criminal Court.

Bribery is also a crime in Qatar and the law imposes penalties on public officials convicted of taking action in return for monetary or personal gain, or for other parties who take actions to influence or attempt to influence a public official through monetary or other means.  The current Penal Code (Law 11/2004) governs corruption law and stipulates that individuals convicted of bribery may be sentenced up to ten years imprisonment and a fine equal to the amount of the bribe but no less than USD 1,374.

The Procurement Law 24/2015 is designed to promote a fair, transparent, simple, and expeditious tendering process.  It abolishes the Central Tendering Committee and establishes a Procurement Department within the Ministry of Finance that has oversight over the majority of government tenders.  The new department has an online portal that consolidates all government tenders and provides relevant information to interested bidders, facilitating the process for foreign investors (https://monaqasat.mof.gov.qa ).

Despite these efforts, some American businesses continue to cite lack of transparency in government procurement and customs as recurring issues encountered in the Qatari market.  U.S. investors and Qatari nationals who happen to be agents of U.S. firms are subject to the provisions of the U.S. Foreign Corrupt Practices Act.

Qatar is not a party to the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials.

Resources to Report Corruption

In 2015, the Public Prosecution’s Anti-Corruption Office launched a campaign encouraging the public to report corruption and bribery cases, establishing hotlines and a tip reporting inbox and vowing to protect the confidentiality of submitted information:

Public Prosecution
Anti-Corruption Office
Hotlines:  +974-3353-1999 and +974-3343-1999
aco@pp.gov.qa

Qatar is a politically stable country with low crime rates.  There are no political parties, labor unions, or organized domestic political opposition.  The U.S government rates Qatar as medium for terrorism, which includes threats from transnational groups.

In June 2017,  Saudi Arabia, United Arab Emirates, Bahrain, and Egypt severed diplomatic and economic ties with Qatar.  This geopolitical rift did not alter the political and security environment for U.S. investors in Qatar.

U.S. citizens in Qatar are encouraged to stay in close contact with the State Department and the U.S. Embassy in Doha for up-to-date threat information.  U.S. visitors to Qatar are invited to enroll in the State Department’s Smart Traveler Enrollment Program to receive further information regarding safety conditions in Qatar:  https://step.state.gov/step/.

Policies Towards Foreign Direct Investment

The ROC government welcomes FDI in most sectors and particularly in the oil sector, which accounts for 90 percent of FDI inflows. The government has stated an urgent need to attract investment outside of the petroleum sector. In conjunction with an International Monetary Fund extended credit facility awarded in July 2019, ROC pledged to undertake legislative, regulatory, and institutional reforms to improve the investment climate.

The United States and ROC signed an investment agreement in 1994. No known laws or practices discriminate against foreign investors, including U.S. investors, by prohibiting, limiting or conditioning foreign investment in a sector of the economy.

ROC’s Agency for the Promotion of Investments (API), established in 2013, promotes economic diversification by seeking to expand the pool of external investors. API provides French-language advisory services to potential investors and maintains a database of government projects seeking private investor partners.

The government has made no significant efforts to retain foreign investments or to maintain dialogue with investors. The High Committee for Public-Private Dialogue, Le Haut Comité du Dialogue Public-Privé, established in 2012, convened two meetings in 2019.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.

ROC has no known limits on foreign ownership or control.

Foreign business entities investing in the petroleum sector must pursue a joint venture with the Congolese National Petroleum Company (SNPC). An ROC executive order of November 15, 2019 requires foreign companies in the hydrocarbons sector to employ Congolese in 80 percent of management positions and 90 percent of all employee positions. There are no other known sector-specific restrictions, limitations, or requirements applied to foreign ownership and control.

ROC has no investment screening mechanism for inbound foreign investment.

Other Investment Policy Reviews

The government has not undertaken any third-party investment policy reviews in recent years.

Business Facilitation

The ROC Agency for Business Creation, or Agence Congolaise Pour la Création des Entreprises (ACPCE), serves as a “one-stop shop” for establishing a business. ACPCE has offices in Brazzaville, Pointe-Noire, N’kayi, Ouesso, and Dolisie. To establish a business in ROC, investors must provide ACPCE with two copies of the company by-laws, two copies of capitalization documents (e.g. a bank letter or an affidavit), a copy of the company’s investment strategy, company-approved financial statements (if available), and ownership documents or lease agreements for the company’s offices in ROC.

The ACPCE has a website: http://www.acpce.cg/ which serves as an information-only website. Business registration cannot be completed through the website.

Outward Investment

The ROC government does not promote or incentivize outward investment. The ROC government does not restrict domestic investors from investing abroad.

Capital Markets and Portfolio Investment

The ROC government maintains a neutral attitude toward foreign portfolio investment and does not widely practice foreign portfolio investment.

ROC does not have a national stock exchange. ROC-based companies may seek regional listing on the Douala Stock Exchange, which merged with the Economic and Monetary Community of Central Africa (CEMAC) Zone Stock Exchange. The Bank of Central African States, BEAC, determines monetary and credit policies within the CEMAC framework to ensure the stability of the common regional currency.

Existing policies facilitate the free flow of financial resources, though complex products are not widely used.

The government and Central Bank respect IMF Article VIII in principle, however, within the last year the Bank of Central African States imposed restrictions on international payments and transfers. Mining and oil companies especially expressed concerns about the new restrictions.

In June 2019, the Bank of Central African States issued a number of directives to implement currency exchange controls previously approved by CEMAC on December 21, 2018. The CEMAC regulation provides the framework, terms, and conditions for the regulation of foreign exchange transactions in the CEMAC member States – Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and the Republic of the Congo. The new regulation increases the BEAC’s role in declaring and authorizing international transactions, the control of the compliance with the foreign exchange regulations and the interpretation of the CEMAC Regulation. The regulation entered into force on March 1, 2019.

The Bank of Central African States (BEAC) monitors credits and market terms. Foreign investors can obtain credit on the local market as long as they have a locally registered company. ROC, however, offers only a limited range of credit instruments.

Money and Banking System

Banking penetration likely remains in the 10- to 12-percent range, although a government survey conducted in 2015 estimated a rate of 25-30 percent. High intermediation costs and high collateral requirements limit the pool of customers. Microfinance banks and mobile banking remain the fastest growth areas in the banking sector.

The current economic crisis and the government’s consecutive years of fiscal deficits have additionally strained the banking sector over the past five years. Overall loan default has increased and has reached about 30 percent in the reporting period due to strained economic conditions.

Non-performing loans increased to approximately 30 percent in 2019.

Fiscal transparency issues limit any estimate of the total assets controlled by ROC’s largest banks. The assets of the largest banks have likely decreased significantly in recent years as a result of the economic crisis.

ROC participates in the Central African Economic and Monetary Community (CEMAC) zone and the Central Bank of the Central African States (BEAC) system. BEAC’s regulatory body, the Banking Commission of Central Africa (COBAC), supervises the Congolese banking sector.

Foreign banks and branches may operate in ROC and constitute the majority of banking operations in ROC. BEAC banking regulations govern foreign and domestic banks in ROC. No banks have left ROC in the past ten years.

No known restrictions exist on a foreigner’s ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

In 2019, the Bank of the Central African States (BEAC) imposed new restrictions on international payments and transfers that have negatively affected foreign exchange. CEMAC regulations require banks to record and report the identity of customers engaging in transactions valued at over USD 10,000. The BEAC recently began monitoring closely fund transfers larger than USD 100,000.

New BEAC restrictions have created difficulties obtaining foreign currencies from commercial banks. No U.S.-based banks operate in ROC but transfers directly to and from the United States are possible.

ROC and other CEMAC member states use the Central African CFA Franc (FCFA, sometimes abbreviated XAF) as a common currency. The CFA is pegged to the Euro as an intervention monetary unit at a fixed exchange rate of 1 Euro: 655.957 CFA Franc.

Remittance Policies

In 2019, the Bank of the Central African States (BEAC) imposed new restrictions on international payments and transfers that have negatively affected remittances.

In June 2019, the Central Bank of Central African States issued a number of standard operating procedures to implement currency exchange controls. Since the implementation of these regulations, the average waiting period for any fund transfer is 20 days.

Sovereign Wealth Funds

ROC maintains no formal Sovereign Wealth Fund (SWF). An ROC law envisages the establishment of an SWF at the BEAC and acquiring mostly risk-free foreign assets. The sovereign wealth fund is not operational.

As a former people’s republic, state-owned enterprises (SOEs) dominated the Congolese economy of the 1970s and 1980s. The number of SOEs remains comparatively small following a wave of privatization in the 1990s. The national oil company (SNPC), electricity company (E2C), and water supply company (LCDE) constitute the largest remaining SOEs. SOEs report to their respective ministries.

Constraints on SOEs operating in the non-oil sector appear sufficiently monitored and subject to civil society and media scrutiny. The operations of SNPC, however, continue to present transparency concerns. SOEs must publish annual reports subject to examination by the government’s supreme audit institution. In practice, these examinations do not always occur.

The government publishes no official list of SOEs.

Private companies may compete with public companies and have in some cases won contracts sought by SOEs. Government budget constraints limit SOEs’ operations.

Privatization Program

ROC has no known program for privatization.

ROC adopted a law against corruption by public officials, “Code de Transparence dans les Finances Publiques,” on March 9, 2017. The ROC government inconsistently enforces the law.

The corruption law applies to elected and appointed officials. It does not extend to family members of officials or to political parties.

No specific laws or regulations address conflict-of-interest in awarding contracts or government procurement.

ROC does not encourage or require private companies to establish internal codes of conduct that prohibit bribery of public officials.

Some private companies, multinationals in particular, use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

ROC serves as a party to the UN Anticorruption Convention.

ROC does not provide protection to non-governmental organizations (NGOs), to include NGOs investigating corruption.

U.S. companies routinely cite corruption as an impediment to investment, particularly in the petroleum sector, where corruption practices remain prolific.

Resources to Report Corruption

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

Emmanuel Ollita Ondongo
Président
Observatoire Anti-Corruption
Centre Ville, Brazzaville, République du Congo
+242 06 944 6165 or +242 05 551 2229
emmallita2007@yahoo.fr

Contact at a “watchdog” organization:

Christian Mounzeo
President
Rencontre pour la Paix et les Droits de l’Homme (RPDH, the local chapter of “Publish What You Pay” – Publiez Ce Que Vous Payez)
B.P. 939 Pointe-Noire, République du Congo
+242 05 595 52 46
http://www.rpdh-cg.org/

Congo has experienced several periods of politically-motivated violence and civil disturbance since its independence in 1960. The most recent period ended in December 2017, when anti-government forces in the Pool region – which surrounds the capital of Brazzaville – signed a ceasefire agreement with the government that has held since that signing.

There are no known examples of damage to commercial projects and/or installations in the past ten years. Civil disturbances have occasionally resulted in damage to high-profile, public places such as police stations.

The political environment is noticeably calmer since the end of the 2017 legislative elections.

Policies Towards Foreign Direct Investment

Romania actively seeks foreign direct investment, and offers a market of around 19 million consumers, a relatively well-educated workforce at competitive wages, a strategic location, and abundant natural resources.  To date, favored areas for U.S. investment include IT and telecommunications, energy, services, manufacturing – especially in the automotive sector, consumer products, and banking.  InvestRomania is the government’s lead agency for promoting and facilitating foreign investment in Romania.  InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities.

Romania’s accession to the European Union (EU) on January 1, 2007 helped solidify institutional reform.  However, legislative and regulatory unpredictability as well as weak public administration continue to negatively impact the investment climate.  As in any foreign country, prospective U.S. investors should exercise careful due diligence, including consultation with competent legal counsel, when considering an investment in Romania.  Governments in Romania have repeatedly allowed political interests or budgetary imperatives to supersede accepted business practices in ways harmful to investor interests.

The energy sector has suffered from recent changes.  In 2018, offshore natural gas companies benefited from a streamlined permitting process but were hit with a windfall profit tax that previously applied only to onshore gas production.  Additionally, in February 2018, legislation changed the reference price for natural gas royalties from the Romanian market price to the Vienna Central European Gas Hub (CEGH) price, resulting in a significant increase in royalties.  The GOR has set July 1, 2020 as the deadline for natural gas market liberalization and January 1, 2021 as the deadline for electricity market liberalization.

Investments involving public authorities can be more complicated than investments or joint ventures with private Romanian companies.  Large deals involving the government – particularly public-private partnerships and privatizations of key state-owned enterprises (SOE) – can be stymied by vested political and economic interests or bogged down due to a lack of coordination between government ministries.

The government has repeatedly reviewed Public-Private Partnership (PPP) legislation, and there are no active PPP projects under implementation to date.  In December 2017, the GOR shifted the burden of mandatory payroll deductions for pensions, healthcare, and income taxes from employers to employees.  To avoid reductions in employee net pay and retain labor in a tight market, many companies increased salaries to offset employee losses.  Other companies, wary of further possible changes, offered monthly bonuses rather than formally amending employee contracts.

The government and foreign investors have ongoing disputes over tax matters such as the “claw back tax” on pharmaceuticals, which increased from 19 percent in Q4 2017 to 28 percent in Q4 2019.  A presidential decree capping the tax at its current levels was issued in March 2020 due to concerns that further increases would impact COVID-19 medication.  Additionally, Parliament passed concurrent legislation in April 2020 that, pending a presidential signature, would create classes of medication that are taxed at separate levels:  15% for medicine produced in Romania, 20% for generics, and 25% for innovative drugs.  Pharmaceutical companies pay the claw back tax on all sales of drugs reimbursed through the public health system.  The Ministry of Health (MOH) calculates the tax to recover the cost for reimbursed drug sales in the previous quarter that exceed its budget.  Since implementation in 2009, the pharmaceutical industry has suggested numerous solutions to increase predictability and transparency in the National Health Insurance House’s computations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities are free to establish and own business enterprises, and to engage in all forms of remunerative activity.  Romanian legislation and regulation provide national treatment for foreign investors, guarantee free access to domestic markets, and allow foreign investors to participate in privatizations.  There is no limit on foreign participation in commercial enterprises.  Foreign investors are entitled to establish wholly foreign-owned enterprises in Romania (although joint ventures are more typical), and to convert and repatriate 100 percent of after-tax profits.

Romania has taken established legal parameters to resolve contract disputes expeditiously.  Mergers and acquisitions are subject to review by the Competition Council.  According to the Competition Law, the Competition Council notifies Romania’s Supreme Defense Council regarding any merger or acquisition of stocks or assets which could impact national security.  The Supreme Defense Council then reviews these referred mergers and acquisitions for potential threats to national security.  To date, the Supreme Defense Council has not blocked any merger or acquisition.  The Romanian capital account was fully liberalized in 2006, prior to gaining EU membership in 2007.  Foreign firms are allowed to participate in the management and administration of the investment, as well as to assign their contractual obligations and rights to other Romanian or foreign investors.

Other Investment Policy Reviews

Romania has not undergone any third-party investment policy reviews through multilateral organizations in over ten years.  The Heritage Foundation’s 2020 Economic Freedom Report indicates recognition of secured interests in private property, but that the property registry is inadequate and impedes investment.  The Report also notes that, for Romania to make the leap into the mostly free economic freedom category, the government must repair the weakest link in the country’s economic freedom chain: the low integrity of the government and its ineffective fight against corruption.  Inconsistency and a lack of predictability in the jurisprudence of the courts and the interpretation of the laws remain major concerns.  High levels of corruption, bribery, and abuse of power remain problems.  Legislative instability, unpredictable decision-making, and the low quality of institutions create an uphill battle for business owners.  Labor force participation is among the lowest in the EU and the labor market is heavily regulated.

According to the World Bank, economic growth rates have increased, but the benefits have not been felt by all Romanians.  Progress on implementing reforms and improving the business environment has been uneven.  The World Bank’s 2020 Doing Business Report and Doing Business in the European Union Report indicate that Romania ranks below the EU average in the ease of starting a business.

Business Facilitation

The National Trade Registry has an online service available in Romanian at https://portal.onrc.ro/ONRCPortalWeb/ONRCPortal.portal .  Romania has a foreign trade department and an investment promotion department within the Ministry of Economy, Energy, and Business Climate.  InvestRomania is the government’s lead agency for promoting and facilitating foreign investment in Romania.  InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities.  More information is available at http://www.investromania.gov.ro/web/ .

According to the World Bank, it takes six procedures and 20 days to establish a foreign-owned limited liability company (LLC) in Romania, compared to the regional average for Europe and Central Asia of 5.2 procedures and 11.9 days.  In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Romania must authenticate and translate its documents abroad.  Foreign companies do not need to seek an investment approval.  The Trade Registry judge must hold a public hearing on the company’s application for registration within five days of submission of the required documentation.  The registration documents can be submitted, and the status of the registration request monitored online.

Companies in Romania are free to open and maintain bank accounts in any foreign currency, although, in practice, Romanian banks offer services only in Romanian lei (RON) and certain hard currencies (Euros and U.S. dollars).  The minimum capital requirement for domestic and foreign LLCs is RON 200 (USD 47).  Areas for improvement include making all registration documents available to download online in English as currently only a portion are available online, and they are only in Romanian.

Romania defines microenterprises as having less than nine employees, small enterprises as having less than 50 employees, and medium-sized enterprises as having less than 250 employees.  Regardless of ownership, microenterprises and SMEs enjoy “de minimis” and other state aid schemes from EU funds or from the state budget.  Business facilitation mechanisms provide for equitable treatment of women in the economy.

Outward Investment

There are no restrictions or incentives on outward investment.

Capital Markets and Portfolio Investment

Romania welcomes portfolio investment.  In September 2019, the Financial Times and the London Stock Exchange (FTSE) promoted the Bucharest Stock Exchange (BVB) to Emerging Secondary Capital Market status from Frontier Capital Market classification.  The decision comes into force beginning September 1, 2020, when the BVB will transfer from FTSE Frontier Index to FTSE Global Equity Index Series (GEIS).  The Financial Regulatory Agency (ASF) regulates the securities market.  The ASF implements the registration and licensing of brokers and financial intermediaries, the filing and approval of prospectuses, and the approval of market mechanisms.

The BVB resumed operations in 1995 after a hiatus of nearly 50 years.  The BVB operates a two-tier system with the main market consisting of 83 companies.  The official index, BET, is based on an index of the ten most active stocks.  BET-TR is the total return on market capitalization index, adjusted for the dividends distributed by the companies included in the index.  Since 2015, the BVB also has an alternative trading system (MTS-AeRO) with 297 listed companies – mostly small- and medium-sized enterprises (SMEs) – and features a relaxed listing criteria.  The BVB allows trade in corporate, municipal, and international bonds.  Investors can use gross basis trade settlements, and trades can be settled in two net settlement cycles.  The BVB’s integrated group includes trading, clearing, settlement, and registry systems.  The BVB’s Multilateral Trading System (MTS) allows trading in local currency of 15 foreign stocks listed on international capital markets.

Despite a diversified securities listing, international capital and financial markets have adversely affected the Romanian capital market and liquidity remains low.  Neither the government nor the Central Bank imposes restrictions on payments and transfers.  Country funds, hedge funds, private pension funds, and venture capital funds continue to participate in the capital markets.  Minority shareholders have the right to participate in any capital increase.  Romanian capital market regulation is now EU-consistent, with accounting regulations incorporating EC Directives IV and VII.

Money and Banking System

Thirty-four banks and credit cooperative national unions currently operate in Romania.  The largest is the privately-owned Transilvania Bank (17.7 percent market share), followed by Austrian-owned Romanian Commercial Bank (BCR-Erste, 14.4 percent); French-owned Romanian Bank for Development (BRD-Société Générale, 11.3 percent); Dutch-owned ING (9.01 percent); Italian-owned UniCredit ( 9.0 percent); and Austrian-owned Raiffeisen ( 8.7 percent).

The banking system is stable and well-provisioned relative to its European peers.  According to the National Bank of Romania, as of December 2019, non-performing loans accounted for 4.08 percent of total bank loans.  As of December 2019, the banking system’s solvency rate was 20.0 percent, which has remained steady over recent years.

The government has encouraged foreign investment in the banking sector, and mergers and acquisitions are not restricted.  The only remaining state-owned banks are the National Savings Bank (CEC Bank) and EximBank, comprising 8.1 percent of the market combined.

While the National Bank of Romania must authorize all new non-EU banking entities, banks and non-banking financial institutions already authorized in other EU countries need only notify the National Bank of Romania of plans to provide local services based on the EU passport.

The Romanian Association of Banks has promoted a dialogue with interested parties – institutions, representatives of consumers’ associations, businesses, and the media – to improve the legal framework to allow adoption of digital technologies in the financial and banking sectors.

Foreign Exchange and Remittances

Foreign Exchange

Romania does not restrict the conversion or transfer of funds associated with direct investment.  All profits made by foreign investors in Romania may be converted into another currency and transferred abroad at the market exchange rate after payment of taxes.

Romania’s national currency, the Leu, is freely convertible in current account transactions, in accordance with the International Monetary Fund’s (IMF) Article VII.

Remittance Policies

There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital gains, returns on intellectual property, or imported inputs.  Proceeds from the sales of shares, bonds, or other securities, as well as from the conclusion of an investment, can be repatriated.

Romania implemented regulations liberalizing foreign exchange markets in 1997.  The inter-bank electronic settlement system became fully operational in 2006, eliminating past procedural delays in processing capital outflows.  Commission fees for real-time electronic banking settlements have gradually been reduced.

Capital inflows are also free from restraint.  Romania concluded capital account liberalization in September 2006, with the decision to permit non-residents and residents abroad to purchase derivatives, treasury bills, and other monetary instruments.

Sovereign Wealth Funds

Plans to establish a Sovereign Development and Investment Fund (SDIF) were repealed by the current government in January 2020.

According to the World Bank, there are approximately 1,200 state-owned enterprises (SOEs) in Romania, of which around 300 are majority-owned by the Romanian government.  There is no published list of all SOEs since some are subordinated to the national government and some to local authorities.  SOEs are governed by executive boards under the supervision of administration boards.  Implementation of the Corporate Governance Code (Law 111/2016) remains incomplete and uneven.

SOEs are required by law to publish an annual report.  Majority state-owned companies that are publicly listed, as well as state-owned banks, are required to be independently audited.  Many SOEs are currently managed by interim boards, often with politically appointed members that lack sector and business expertise.  The EC’s 2020 European Semester Country Report for Romania noted that the corporate governance law is still only loosely applied.  The appointment of interim boards has become a standard practice.  Administrative offences carry symbolic penalties, which do not change behavior.  The operational and financial results of most state-owned enterprises deteriorated in 2019.

Privatization Program

The Ministry of Economy, Energy, and Business Climate has a broad portfolio, including energy generation assets, natural gas production, copper, uranium, coal, salt, and mineral waters.  According to the EU’s Third Energy Package directives, the same entity cannot control generation, production and/or supply activities, and at the same time control or exercise any right over a transmission system operator (TSO).  Consequently, natural gas carrier Transgaz and national electricity carrier Transelectrica are under the Government’s General Secretariat.  The Ministry of Infrastructure has authority over the entities in the transportation sector, including rail carrier CFR Marfa.  Privatization has stalled since 2014.  The government has repeatedly postponed IPOs for hydropower producer Hidroelectrica, currently slated for 2021.

As a member of the EU, Romania is required to notify the EC’s General Directorate for Competition regarding significant privatizations and related state aid.  Prospective investors should seek assistance from legal counsel to ensure compliance with relevant legislation.  The state aid schemes aim to enhance regional development and job creation through financial support for new jobs or investment in new manufacturing assets.  The Ministry of Finance issues public calls for applications under the schemes.  The government’s failure to consult with, and then formally notify, the EC properly has resulted in delays and complications in some previous privatizations.

Private enterprises compete with public enterprises under the same terms and conditions with respect to market access and credit.  Energy production, transportation, and mining are majority state-owned sectors, and the government retains majority equity in electricity and natural gas transmission.

Romanian law allows for the inclusion of confidentiality clauses in privatization and public-private partnership contracts to protect business proprietary and other information.  However, in certain high-profile privatizations, parliament has compelled the public disclosure of such provisions.

Romania’s fight against high- and medium-level corruption, a model in Southeastern Europe over the past decade suffered significant setbacks between 2016 and late 2019 due to a concerted campaign under the previous government to weaken anti-corruption efforts, the criminal and judicial legislative framework, and judicial independence.  Judicial institutions, NGOs, the EU, and NATO allied governments have all raised concerns about legislative initiatives that furthered this trend in that time period.  In Transparency International’s 2019 Corruption Perceptions Index, Romania’s score fell from 47 in 2018 to 44 out of 100.  This is among the lowest ranking of EU member states, tying with Hungary and ranking one position above Bulgaria.  The current government has begun rolling back the negative actions of the prior government, but this effort will take some time to have full effect.

Domestic and internal rule-of-law observers and law enforcement criticized the wide range of amendments that the former government introduced to the criminal and criminal procedure codes as weakening the investigative toolkits, including in fighting corruption between 2016 and 2019.  In July 2019, the Constitutional Court found these changes unconstitutional, and the current government plans to revise these codes.

The European Commission (EC) under the Cooperation and Verification Mechanism (CVM), and the Council of Europe’s (COE) Group of States Against Corruption (GRECO) prepared 2019 reports prior to the current National Liberal Party (PNL) government taking power in November 2019.  The October 2019 report, which covered actions taken through June 2019, confirmed the backtracking from the progress made in previous years and set out in the November 2018 report.  The report also emphasized that “The key institutions of Romania need to collectively demonstrate a strong commitment to judicial independence and the fight against corruption as indispensable cornerstones, and to ensure the capacity of national safeguards and checks and balances to act.”  GRECO’s July 2019 Interim Compliance Report warned that statutes enacted through emergency ordinances, or with insufficient transparency and public consultation, will weaken judicial independence.  A June 2019 Venice Commission report was also highly critical of the use of Emergency Ordinances.  The Constitutional Court found most of those changes unconstitutional.  A May 2019 non-binding referendum bans the use of Emergency Ordinances for issues related to the justice sector.

After a political and media campaign against the National Anti-Corruption Directorate (DNA) resulted in the dismissal of the Chief Prosecutor of the DNA in 2018, the position remained vacant until a new government took power in November 2019.  The government filled the position in March 2020.  Meanwhile the prosecutor’s office set up by the previous government to investigate and prosecute judges and prosecutors, which appeared to only be undertaking politically motivated cases, continues to operate.  The current government’s efforts to disband or reform it stalled during the COVID-19 crisis.  Successful court challenges of the High Court of Cassation and Justice’s procedures triggered the review of numerous high-level corruption cases.  Both the national cabinet and Parliament adopted codes of conduct, yet their overly general provisions have so far rendered them inconsequential.  Conflicts of interest, respect for standards of ethical conduct, and integrity in public office in general remained a concern for all three branches of government.  Individual executive agencies enforced sanctions slowly, and agencies’ own inspection bodies were generally inactive.

In June 2019, the previous government adopted a sizable Administrative Code by emergency ordinance.  The Code weakened the authority of the National Civil Service Agency to oversee civil service by merit-based selection, lowered the voting requirements for transferring management of properties by local councils, and limited local elected officials’ legal liability for official acts by shifting it to civil servants.  Implementation of the 2016-2020 national anticorruption strategy, which the previous government adopted in 2016, has been slow, especially with regard to prevention efforts.  The strategy focused on strengthening administrative review and transparency within public agencies, prevention of corruption, increased and improved financial disclosure, conflict of interest oversight, more aggressive investigation of money laundering, and passage of legislation to allow for more effective asset recovery.  The strategy includes education in civics and ethics for civil servants, a requirement for peer reviews of state institutions, stepped-up measures to strengthen integrity in the business environment, a significant decrease in public procurement fraud, and an increased role for ethics advisors and whistle-blowers.  There has been little action in these areas, especially on the prevention component.  Absent political support from the top, the new National Agency for Managing Seized Assets (ANABI) has only made limited progress.

Romania implemented the revised Public Procurement Directives with the passage in 2016 of new laws to improve and make public procurement more transparent.  The National Agency for Public Procurement has general oversight over procurements and can draft legislation, but procurement decisions remain with the procuring entities.  State entities, as well as public and private beneficiaries of EU funds, are required by law to follow public procurement legislation and use the e-procurement system.  Sectoral procurements, including private companies in energy and transportation, also have to follow the public procurement laws and tender via the e-procurement website.  The February 2020 EU Country Report for Romania points out that public-procurement remains inefficient.

In October 2016, the “Prevent” IT system, an initiative sponsored by the National Integrity Agency for ex-ante check of conflicts of interests in public procurement, was signed into law.  The mechanism aims to avoid conflicts of interest by automatically detecting conflict of interests in public procurement before the selection and contract award procedure.

The laws extend to politically exposed persons yet at the same time, politicians frequently criticize magistrates in the media and judicial decisions are often treated with a lack of respect.  Laws prohibit bribery, both domestically and for Romanian companies doing business abroad.  The judiciary remains paper-based and inefficient, and Romania loses a number of cases each year in the European Court of Human Rights (ECHR) due to excessive trial length.  Asset forfeiture laws exist, but a functioning regime remains under development.  Fully 80 percent of cases in the court system are property related.

While private joint stock companies use internal controls, ethics, and compliance programs to detect and prevent bribery, since 2017 the government has rolled back corporate governance rules for state-owned enterprises and has repeatedly resorted to profit and reserves distribution in dividends to bolster the budget.  U.S. investors have complained of both government and business corruption in Romania, with the customs service, municipal officials, and local financial authorities most frequently named.  According to the EC’s 2020 European Semester Country Report for Romania, since 2013, the share of companies that perceive corruption as a problem increased in Romania by 23 percentage points, the largest increase in the EU.  This result stands in stark contrast with the EU average, which continued to decrease (now at 37%).  Overall, 97% of businesses think that corruption is widespread in Romania, and 87% say it is widespread in public procurement managed by national authorities.  On a more positive note, 50% of respondents think that those engaged in corruption would be caught by police, and 43% think that those caught for bribing a senior official receive appropriate sanctions.  These results are both higher than the EU average.

Romania is a member of the Southeast European Law Enforcement Center (SELEC).  NGOs enjoy the same legal protections as any other organization, but NGOs involved in investigating corruption receive no additional protections.  Recent regulations have increased costs and administrative burdens for NGOs and reduced the pool of potential donors.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Romania is member of the UN Anticorruption Convention and the Council of Europe’s Group of States Against Corruption (GRECO).  Romania is not a member of the OECD Anti-Bribery Convention.

Romania expressed interest to join the new anti-corruption working group of the Open Government Partnership initiative.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

ORGANIZATION: National Anticorruption Directorate (DNA)
ADDRESS: Str. Stirbei Voda nr. 79-81, Bucuresti
TELEPHONE NUMBER: +40 21 312 73 99
EMAIL ADDRESS: anticoruptie@pna.ro
WEBSITE: http://www.pna.ro/sesizare.xhtml?jftfdi=&jffi=sesizare 

Contact at “watchdog” organizations:

ORGANIZATION: Expert Forum
ADDRESS:Strada Semilunei, apt 1, Sector 2, Bucuresti,
TELEPHONE NUMBER: +40 21 211 7400
EMAIL ADDRESS: office@expertforum.ro

ORGANIZATION: Freedom House Romania
ADDRESS: Bd. Ferdinand 125, Bucuresti
TELEPHONE NUMBER: +4021 253 28 38
EMAIL ADDRESS: guseth@freedomhouse.ro

ORGANIZATION: Funky Citizens
ADDRESS: Colivia, Pache Protopopescu 9
TELEPHONE NUMBER: +40 0723 627 448
EMAIL ADDRESS: elena@funkycitizens.org

Romania does not have a history of politically motivated damage to foreign investors’ projects or installations.  Major civil disturbances are rare though some have occurred in past years.  Anti-shale gas protestors invaded the site of a U.S. energy company’s exploratory well in 2013, damaging the perimeter fence and some equipment.

During the February 2017 anti-government protests, and intermittently during the previous government, some government leaders pointed to “multinationals” as among the orchestrators.  As of March 2019, the government has taken no adverse action against the multinational companies, and public attention has diminished.

Policies Towards Foreign Direct Investment

The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia.  The Russian Direct Investment Fund (RDIF) was established in 2011 to facilitate FDI in Russia and has already attracted over $40 billion of foreign capital into the Russian economy through long-term strategic partnerships.  In 2013, Russia’s Agency for Strategic Initiatives (ASI) launched an “Invest in Russian Regions” project to promote FDI on a regional basis.  Since 2014, ASI has released an annual ranking of Russia’s regions in terms of the relative competitiveness of their investment climates, and provides potential investors with information about regions most open to foreign investment.  In 2019, 69 Russian regions improved their Regional Investment Climate Index scores (https://asi.ru/investclimate/rating).  The Foreign Investment Advisory Council (FIAC), established in 1994, is chaired by the prime minister and currently includes 53 international company members and four companies as observers.  The FIAC allows select foreign investors to directly present their views on improving the investment climate in Russia and advises the government on regulatory policy.

Russia’s basic legal framework governing investment includes 1) Law 160-FZ, July 9, 1999, “On Foreign Investment in the Russian Federation;” 2) Law No. 39-FZ,  February 25, 1999, “On Investment Activity in the Russian Federation in the Form of Capital Investment;” 3) Law No. 57-FZ, April 29, 2008, “Foreign Investments in Companies Having Strategic Importance for State Security and Defense;” and 4) the Law of the RSFSR No. 1488-1, June 26, 1991, “On Investment Activity in the Russian Soviet Federative Socialist Republic (RSFSR).”  This framework of laws nominally attempts to guarantee equal rights for foreign and local investors in Russia.  However, exemptions are permitted when it is deemed necessary to protect the Russian constitution, morality, health, human rights, national security, or defense, and to promote its socioeconomic development.  Foreign investors may freely use the profits obtained from Russia-based investments for any purpose, provided they do not violate Russian law.

Limits on Foreign Control and Right to Private Ownership and Establishment

Russian law places two primary restrictions on land ownership by foreigners.  The first is on the foreign ownership of land located in border areas or other sensitive territories in terms of national security.  The second restricts foreign ownership of agricultural land, restricting foreign individuals and companies, persons without citizenship, and agricultural companies more than 50-percent foreign-owned from owning land.  These entities may, however, hold agricultural land through leasehold rights.  As an alternative to agricultural land ownership, foreign companies typically lease land for up to 49 years, the maximum term allowed.

A law “On Mass Media,” took effect in 2015 which restricts foreign ownership of any Russian media company to 20 percent (the previous law applied a 50 percent limit to Russia’s broadcast sector).   In December 2018, the State Duma approved in its first reading a draft bill introducing new restrictions on online news aggregation services.  If adopted, foreign companies, including international organizations and individuals, would be limited to a maximum of 20 percent ownership in Russian news aggregator websites.  The second, final hearing was planned for February 2019 but was postponed.  To date, this proposed law has not been passed.

U.S. stakeholders have raised concerns about similar limits on FDI in the mining and mineral extraction sectors, and describe the licensing regime as non-transparent and unpredictable.

Russia’s Commission on Control of Foreign Investment (Commission) was established in 2008 to monitor foreign investment in strategic sectors in accordance with the SSL.  Between 2008 and 2019, the Commission received 621 applications for foreign investment, 282 of which were reviewed, according to the Federal Antimonopoly Service (FAS).  Of those 282, the Commission granted preliminary approval for 259 (92 percent approval rate) and rejected 23 (https://fas.gov.ru/news/29330).  International organizations, foreign states, and the companies they control are treated as distinct entities under the Commission. They are subject to restrictions applicable to a single foreign entity if they participate in a strategic business.

Other Investment Policy Reviews

The WTO conducted Russia’s first Trade Policy Review (TPR) in September 2016.  Dates are still pending for the next Russia TPR.  (Related reports are available at https://www.wto.org/english/tratop_e/tpr_e/tp445_e.htm ).

The United Nations Conference on Trade and Development (UNCTAD) issues an annual World Investment Report covering different investment policy topics.  In 2019, the focus of this report was on special economic zones (https://unctad.org/en/Pages/Publications/WorldInvestmentReports.aspx ).  UNCTAD also issues an investment policy monitor (https://investmentpolicyhub.unctad.org/IPM ).

Business Facilitation

The Federal Tax Service (FTS) operates Russia’s business registration website: www.nalog.ru .  Per law (Article 13 of Law 129-FZ of 2001), a company must register with a local FTS office, and the registration process typically takes no more than three days.  Foreign companies may be required to notarize the originals of incorporation documents included in the application package.  To establish a business in Russia, a company must register with FTS and pay a registration fee of RUB 4,000.  Since January 1, 2019, the registration fee is waived for online submission of incorporation documents.

In 2020, Russia moved up three notches to the 28th position in the World Bank’s Doing Business 2020 Index.  The ranking acknowledged several reforms that helped Russia improve its position.  Russia has improved the process for establishing connection to electricity by setting new deadlines and establishing specialized departments for connection.  Russia has also strengthened minority investor protections by requiring greater corporate transparency, and facilitated the payment of taxes by reducing the tax authority review period of applications for VAT cash refunds, as well as enhancing the software used for tax and payroll preparation.

Outward Investment

The Russian government does not restrict Russian investors from investing abroad.  Since 2015, Russia’s “De-offshorization Law” (376-FZ) requires that Russian tax residents disclose to the government their overseas assets, potentially subjecting these assets to Russian taxes.

While there are no restrictions on the distribution of profits to a nonresident entity, some foreign currency control restrictions apply to Russian residents (both companies and individuals) and to foreign currency transactions.  As of January 1, 2018, all Russian citizens and foreign holders of Russian residence permits are considered Russian “currency control residents.”  These “residents” are required to notify the tax authorities when a foreign bank account is opened, changed, or closed and when funds are moved in a foreign bank account.  Individuals who have spent less than 183 days in Russia during the reporting period are exempt from the reporting requirements and restrictions using foreign bank accounts.  On January 1, 2020, Russia abolished all currency control restrictions on payments of funds by non-residents to bank accounts of Russian residents opened with banks in OECD or FATF member states.  This is provided that such states participate in the automatic exchange of financial account information with Russia.  As a result, from 2020 onward, Russian residents will be able to freely use declared personal foreign accounts for savings and investment in a wide range of financial products.

Capital Markets and Portfolio Investment

Russia is open to portfolio investment and has no restrictions on foreign investments. Russia’s two main stock exchanges – the Russian Trading System (RTS) and the Moscow Interbank Currency Exchange (MICEX) – merged in December 2011.  The MICEX-RTS bourse conducted an initial public offering on February 15, 2013, auctioning an 11.82 percent share.

The Russian Law on the Securities Market includes definitions of corporate bonds, mutual funds, options, futures, and forwards.  Companies offering public shares are required to disclose specific information during the placement process as well as on a quarterly basis.  In addition, the law defines the responsibilities of financial consultants assisting companies with stock offerings and holds them liable for the accuracy of the data presented to shareholders. In general, the Russian government respects IMF Article VIII, which it accepted in 1996.  Credit in Russia is allocated generally on market terms, and the private sector has access to a variety of credit instruments.  Foreign investors can get credit on the Russian market, but interest rate differentials tend to prompt investors from developed economies to borrow on their own domestic markets when investing in Russia.

Money and Banking System

Banks make up a large share of Russia’s financial system.  Although Russia had 396 licensed banks as of March 1, 2020, state-owned banks, particularly Sberbank and VTB Group, dominate the sector.  The three largest banks are state-controlled (with private Alfa Bank ranked fourth); and held 51.4 percent of all bank assets in Russia as of March 1, 2020.  The role of the state in the banking sector continues to distort the competitive environment, impeding Russia’s financial sector development.  At the beginning of 2019, the aggregate assets of the banking sector amounted to 91.4 percent of GDP, and aggregate capital was 9.9 percent of GDP.  Russian banks reportedly operate on short time horizons, limiting capital available for long-term investments.  Overall, a share of non-performing loans (NPLs) to total gross loans reached 5.5 percent as of January 1, 2019.  Foreign banks are allowed to establish subsidiaries, but not branches, within Russia and must register as a Russian business entity.

Foreign Exchange and Remittances

Foreign Exchange

While the ruble is the only legal tender in Russia, companies and individuals generally face no significant difficulty in obtaining foreign currency from authorized banks.  The CBR retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account, according to Russia’s currency control laws.  The CBR does not require security deposits on foreign exchange purchases.  Otherwise, there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital, apart from the fact that reporting requirements exist and failure to report in a timely fashion will result in fines.

Currency controls also exist on all transactions that require customs clearance, which, in Russia, applies to both import and export transactions and certain loans.  As of March 1, 2018, the CBR no longer requires a “transaction passport” (i.e. a document with the authorized bank through which a business receives and services a transaction) when concluding import and export contracts.  The CBR also simplified the procedure to record import and export contracts, reducing the number of documents required for bank authorization. The new instruction is an example of liberalization of the settlement procedure for foreign trade transactions in Russia.  In 2016, the CBR tightened regulations for cash currency exchanges: a client must provide his full name, passport details, registration place, date of birth, and taxpayer number, if the transaction value exceeds RUB 15,000 (approximately $200).  In July 2016, this amount was increased to RUB 40,000 (approximately $535).  The declared purpose of this regulation is to combat money laundering and terrorist financing.

Remittance Policies

The CBR retains the right to impose restrictions on the purchase of foreign currency, including the requirement that the transaction be completed through a special account, according to Russia’s currency control laws.  The CBR does not require security deposits on foreign exchange purchases.  To navigate these requirements, investors should seek legal expert advice at the time of making an investment.  Banking contacts confirm that investors have not had issues with remittances or with repatriation of dividends.

Sovereign Wealth Funds

In 2018, Russia combined its two sovereign wealth funds to form the National Welfare Fund (NWF).  These funds have a combined holding of $123.4 billion as of April 2020.  The Ministry of Finance oversees the fund’s assets, while the CBR acts as the operational manager.  Russia’s Accounts Chamber regularly audits the NWF, and the results are reported to the State Duma.  The NWF is maintained in foreign currencies, and is included in Russia’s foreign currency reserves, which amounted to $563.4 billion as of March 31, 2020.

Russian state-owned enterprise (SOE)s are subdivided into four main categories:

1) unitary enterprises (federal or municipal, fully owned by the government), of which there are 692 owned by the federal government as of January 1, 2020;

2) other state-owned enterprises where government holds a stake, of which there are 1,079 joint-stock companies owned by the federal government as of January 1, 2019 – such as Sberbank, the biggest Russian retail bank (over 50 percent is owned by the government);

3) natural monopolies, such as Russian Railways; and

4) state corporations (usually a giant conglomerate of companies) such as Rostec and Vnesheconombank (VEB), of which there are currently six.

The number of federal government-owned “unitary enterprises” declined by 44 percent from 1,247 in 2017, according to the Federal Agency for State Property Management, while the number of joint-stock companies with state participation declined by 33.6 percent in the same period.

SOE procurement rules are non-transparent and use informal pressure by government officials to discriminate against foreign goods and services.  Sole-source procurement by Russia’s SOEs increased to 45.5 percent in 2018, or to 37.7 percent in value terms, according to a study by the non-state National Procurement Transparency Rating analytical center.  The current Russian government policy of import substitution mandates numerous requirements for localization of production of certain types of machinery, equipment, and goods.

Privatization Program

The Russian government and its SOEs dominate the economy.  In January 2020, the Russian government published a new privatization plan for 2020-22 that identified 86 federal unitary state enterprises, 186 joint-stock companies, and 13 limited liability companies for privatization over a three-year period.  The plan specifies that market conditions will determine the terms of privatization, but the government estimates the plan could generate RUB 3.6 billion ($48.2 million) per year for the federal budget.  The plan would also reduce the state’s share in VTB, one of Russia’s largest banks, from over 60 percent to 50 percent plus one share and in Sovkomflot, a large shipping company, to 75 percent plus one share within three years.  Other large SOEs might be privatized on an ad hoc basis, depending on market conditions.

The Russian government still maintains a list of 136 SOEs with “national significance” that are either wholly or partially owned by the Russian state and whose privatization is permitted only with a special governmental decree, including Aeroflot, Rosneftegaz, Transneft, Russian Railways, and VTB.  While the total number of SOEs has declined significantly in recent years, mostly large SOEs remain in state hands and “large scale” privatization, intended to help shore up the federal budget and spur economic recovery, is not keeping up with implementation plans.  The government has attributed the slow pace of privatization of large SOEs to low share prices, which would yield insufficient revenue for government coffers.   As a result, the total privatization revenues received in 2018 reached only RUB 2.44 billion ($32 million), down 58 percent compared to 2017.

In 2019, privatization revenues (excluding large SOEs) reached RUB 2.2 billion ($29.5 million), down 40.5 percent compared to the official target of RUB 5.6 billion ($75.0 million).  The government expects that “small-scale privatization” (excluding privatization of large SOEs) will bring up to RUB 3.6 billion ($48.2 million) to the federal budget annually in 2020-2022.

Despite some government efforts to combat it, the level of corruption in Russia remains high. Transparency International’s 2019 Corruption Perception Index (CPI) ranked Russia 137 out of 180, which was one notch below its 2018 rank.

Roughly 24 percent of entrepreneurs surveyed by the Russian Chamber of Commerce in October and November 2019 said they constantly faced corruption.  Businesses mainly experienced corruption during applications for permits (35.3 percent), during inspections (22.1 percent), and in the procurement processes (38.7 percent).  The areas of government spending that ranked highest in corruption were public procurement, media, national defense, and public utilities.

In March 2020, Russia’s new Prosecutor General Igor Krasnov reported RUB 21 billion ($281 million) were recovered in the course of anticorruption investigations in 2019.  In December 2019, Procurator General’s Office Spokesperson Svetlana Petrenko reported approximately over 7,000 corruption convictions in 2019, including of 752 law enforcement officers, 181 Federal Penitentiary Service (FPS) officers, 81 federal bailiffs, and 476 municipal officials.

Until recently, one of the peculiarities of Russian enforcement practice was that companies were prosecuted almost exclusively for small and mid-scale bribery.  Several 2019 cases indicate that Russian enforcement actions, finally, may extend to more severe offenses as well.  To date, ten convictions of companies for large- or extra large-scale bribery with penalty payments of RUB 20 million ($268,000) or more have been disclosed in 2019 – compared to only four cases in the whole of 2018.  In July 2019, Russian Standard Bank, which is among Russia’s 200 largest companies according to Forbes Russia, had to pay a penalty of RUB 26.5 million ($355,000) for bribing bailiffs in Crimea in order to speed up enforcement proceedings against defaulted debtors.

Still, there is no efficient protection for whistleblowers in Russia.  In June 2019, the legislative initiative aimed at the protection of whistleblowers in corruption cases ultimately failed.  The draft law, which had been adopted at the first reading in December 2017, provided for comprehensive rights of whistleblowers and responsibilities of employers and law enforcement authorities.  Since August 2018, Russian authorities have been authorized to pay whistleblowers rewards which may exceed RUB 3 million ($40,000).  However, rewards alone will hardly suffice to incentivize whistleblowing.

Russia adopted a law in 2012 requiring individuals holding public office, state officials, municipal officials, and employees of state organizations to submit information on the funds spent by them and members of their families (spouses and underage children) to acquire certain types of property, including real estate, securities, stock, and vehicles.  The law also required public servants to disclose the source of the funds for these purchases and to confirm the legality of the acquisitions.

In July 2018, President Putin signed a two-year plan to combat corruption.  The plan required public consultation for federal procurement projects worth more than RUB 50 million ($670,000) and municipal procurement projects worth more than RUB 5 million ($67,000).  The government also expanded the list of property that can be confiscated if the owners fail to prove it was acquired using lawful income.  The government maintains an online registry of officials charged with corruption-related offences, with individuals being listed for a period of five years.

The Constitutional Court has given clear guidance to law enforcement on asset confiscation due to the illicit enrichment of officials.  Russia has ratified the UN Convention against Corruption, but its ratification did not include article 20, which deals with illicit enrichment.  The Council of Europe’s Group of States against Corruption (GRECO) reported in 2019 that Russia had implemented only 10 out of 22 recommendations: eight concern members of the parliament, nine concern judges, and five concern prosecutors , according to a draft report by the office of the Prosecutor General of the Russian Federation that was submitted to the State Duma.

U.S. companies, regardless of size, are encouraged to assess the business climate in the relevant market in which they will be operating or investing and to have effective compliance programs or measures to prevent and detect corruption, including foreign bribery.  U.S. individuals and firms operating or investing in Russia should take time to become familiar with the relevant anticorruption laws of both Russia and the United States in order to comply fully with them.  They should also seek the advice of legal counsel when appropriate.

Resources to Report Corruption

Andrey Avetisyan Ambassador at Large for International Anti-Corruption Cooperation
Ministry of Foreign Affairs
32/34 Smolenskaya-Sennaya pl, Moscow, Russia
+7 499 244-16-06

Anton Pominov
Director General
Transparency International – Russia
Rozhdestvenskiy Bulvar, 10, Moscow
Email: Info@transparency.org.ru

Individuals and companies that wish to report instances of bribery or corruption that affect their operations and request the assistance of the United States government with respect to issues relating to corruption may call the Department of Commerce’s Russia Corruption Reporting hotline at (202) 482-7945, or submit the form provided at http://tcc.export.gov/Report_a_Barrier/reportatradebarrier_russia.asp .

Russia continues to restrict the fundamental freedoms of expression, assembly, and association by cracking down on political opposition, independent media, and civil society.  Since July 2012, Russia has passed a series of laws giving the government the authority to label NGOs as “foreign agents” if they receive foreign funding, greatly restricting the activities of these organizations.  To date, more than 150 NGOs have been labelled foreign agents.  A law enacted in May 2015 authorizes the government to designate a foreign organization as “undesirable” if it is deemed to pose a threat to national security or national interests.  As of April 2020, 22 foreign organizations were included on this list.  (https://minjust.ru/ru/activity/nko/unwanted )

According to the Russian Supreme Court, 7,763 individuals were convicted of economic crimes in 2019; the Russian business community alleges many of these cases stemmed from commercial disputes.  Potential investors should be aware of the risk of commercial disputes being criminalized.  Chechnya, Ingushetia, Dagestan, and neighboring regions in the northern Caucasus have a high risk of violence and kidnapping.

Public protests continue to occur intermittently in Moscow and other cities.  In July and August 2019 in Moscow, large protests took place to voice frustration with the banning of opposition candidates from running in September municipal elections.  Some protests were marred by police brutality and indiscriminate arrests of participants and innocent bystanders.  In April, the Russian government imposed self-isolation orders in an effort to stop the spread of the COVID-19 pandemic. Protesters could not gather in person but did so virtually through on-line platforms, demanding the government provide social assistance or lift restrictions.

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 enjoyed strong economic growth up until March 2020, averaging over seven percent  annually over the last decade, high rankings in the World Bank’s Doing Business report (38 out of 190 economies in 2020, and second best in African, compared to 29 in 2019 and 41 in 2018), and a reputation for low corruption.  GDP growth in 2020 is expected to be negative due to the dampening economic effects of COVID-19.  The 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 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 2020, The World Bank Ease of Doing Business report indicated that Rwanda made doing business easier by exempting newly formed small and medium businesses from paying for a trading license during their first two years of operation.  In addition, the GOR reduced the time to obtain water and sewage connections in order to facilitate construction permits and improved building controls by requiring construction professionals to obtain liability insurance.  The country also upgraded its power grid infrastructure and improved its regulations on weekly rest, working hours, severance pay and reemployment priority rules.

A number of investors have said a top concern affecting their operations in Rwanda is that tax incentives included in deals negotiated or 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.  Refunds can be further held up pending the results of RRA audits.  A number of investors cited punitive retroactive fines following audits that were concluded after many years.  RRA aggressively enforces tax requirements and imposes penalties for errors – deliberate or not – in tax payments.  Investors cited lack of coordination among ministries, agencies and local government (districts) leading to inconsistencies in implementation of promised incentives and other facilitation.  Others pointed to lack of clarity on who the regulator is on certain matters.  The U.S. Treasury Department’s Office of Technical Assistance (OTA) has provided tax consultants to RRA to review auditing practices in Rwanda.  The OTA program concluded in 2020 and produced a standardized tax audit handbook for RRA’s auditors to use.

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.

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 can be 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.  In April 2018, Rwanda introduced new laws to curb capital flight.  Management, loyalty and technical fees a local subsidiary can remit to its related non-residential companies (parent company) are capped at two percent of turnover.  Companies resolving to go beyond the cap are subject to a 30 percent corporate tax on turnover, in addition to 15 percent withholding tax and 18 percent reserve charge.

Other Investment Policy Reviews

In February 2019, The World Trade Organization (WTO) published a Trade Policy Review for the East African Community (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=%20wt/tpr/s/*)%20and%20((%20@Title=%20rwanda%20)%20or%20(@CountryConcerned=%20rwanda))&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 

https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?Id=251521&filename=q/WT/TPR/S384-04.pdf 

Business Facilitation

RDB offers one of the fastest business registration processes in Africa.  New investors can register online at RDB’s website (http://org.rdb.rw/busregonline ) or register in person at RDB offices in Kigali.  Once a certificate of registration is generated, company tax identification and employer social security contribution numbers are automatically generated.  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.

RDB is prioritizing additional reforms to improve the investment climate.  By 2020, it hopes to amend the land policy to merge issuance of freehold 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 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.

Capital Markets and Portfolio Investment

Rwanda’s capital markets are relatively immature and lack complexity.  Only eight companies have publicly listed and traded equities in Rwanda.  The 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.  In 2019, the National Bank of Rwanda issued five new bonds including a 20-year bond, the longest tenor ever issued by the country.  During the same year, seven existing bonds were reopened. Rwandan government bonds and other debt securities are highly oversubscribed and bond yields average 12 percent.  BNR, the country’s Central Bank, has implemented reforms in recent years that are helping to create a secondary market for Rwandan treasury bonds.  Secondary market continue go growth from low base.  In 2019, BNR reported that deals and turn overs increased by 47.0 percent and 106.5 percent respectively following intense awareness campaigns and increased number of products (new issuances and re-openings).  In January 2020, the IMF completed its first review of Rwanda’s economic performance under the Policy Coordination Instrument and Monetary Policy Consultation, which can be found here:  https://www.imf.org/en/Publications/CR/Issues/2020/01/17/Rwanda-First-Review-Under-the-Policy-Coordination-Instrument-and-Monetary-Policy-48956  

https://www.imf.org/en/Publications/CR/Issues/2020/01/17/Rwanda-First-Review-Under-the-Policy-Coordination-Instrument-and-Monetary-Policy-48956  

Money and Banking System

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 ranging from 15 percent to 20 percent, 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.

Rwanda’s financial sector remains highly concentrated.  The share of the three largest Banks’s assets increased from 46.5 percent in December 2018 to 48.4 percent in December 2019.  The largest, partially state-owned, Bank of Kigali (BoK), holds more than 30 percent of all assets.  The banking sector holds more than 65 percent of total financial sector assets in Rwanda.  Non-performing loans dropped from 6.4 percent in December 2018 to 4.9 percent in December 2019.  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 more than USD 3 billion, which increased 12.5 percent between  December 2018 and 2019, according to BNR.  The IMF gives BNR high marks for its effective monetary policy.  BNR introduced a new monetary policy framework in 2019, which shifts toward inflation-targeting monetary framework in place of a quantity-of-money framework.

In 2019, BNR reported that commercial banks liquidity ratio was 49 percent (compared to BNR’s required minimum of 20 percent), suggesting reluctance toward making loans.  The capital adequacy ratio grew to 24.1 percent from 21.4 percent over the year, well above the minimum of 15 percent, suggesting the Rwanda banking sector continues to be generally risk averse.  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.

During the COVID-19 pandemic local banks deferred loan payments from customers.  Despite this, the banking sector was confident that they had sufficient liquidity until July 2020 due to the favorable economic conditions prior to COVID-19.  In March 2020, the IMF disbursed USD 109 Million to Rwanda under the Rapid Credit Facility and the World Bank approved a USD 14.25 million immediate funding in the form of an International Development Association credit to support Rwanda’s response to the COVID-19 pandemic.  At the same time, the BNR arranged a 50 Billion Rwandan Franc (USD 53.4 Million) liquidity fund for local banks.  By December 2019, the number of debit cards in the country grew eight percent year over year to 945,000, and the number of mobile banking customers grew 22 percent to 1,266,000. The total number of bank and MFI accounts increased from 7.1 million to 7.7 million between 2018-2019. The number of retail point of sale (POS) machines grew from 2,801 to 3,477 while POS transactions grew by 53 percent in volume and 29 percent in value between 2019 and 2018 according to BNR.

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 two 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 more than 10 percent of GDP in 2019. 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.

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 realized 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 Rwandan 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.  By September 30, 2019, the fund was worth 194.3 billion RWF in assets (around USD 204 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 receives 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 One and Only 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 2018 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.  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 state finances audit report of the OAG also covers SOEs and has sections criticizing the management of some of the organizations.   SOEs are governed by boards with most members having other government positions.

State-owned non-financial corporations include Ngali Holdings, Horizon Group Ltd, 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.

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.  As of 2017 (latest data available), 56 companies have been fully privatized, seven were liquidated, and 20 more were in the process of privatization.  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.

Rwanda is ranked among the least corrupt countries in Africa, with Transparency International’s 2019 Corruption Perception Index putting the country among Africa’s four least corrupt nations and 51st 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.  U.S. firms have identified the perceived lack of government corruption in Rwanda as a key incentive for investing in the country.  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.   Gallup’s Global Law and Order Index report of 2018 ranked Rwanda 2nd safest place in Africa.  Investors have cited the stable 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 groups opposed to the GOR.  Relations between Burundi and Rwanda are tense, and there is a risk of cross-border incursions and armed clashes.  Since 2018, there have been a few incidents of sporadic fighting in districts bordering Burundi and in 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 Rwanda’s borders with the DRC and Burundi, there have been no incidents involving politically motivated damage to investment projects or installations since the late 1990s.  Relations with Uganda are also tense, but leaders continue to emphasize they are seeking a political solution.  Rwanda has not allowed commercial traffic to cross the Rwandan-Ugandan border since February 2019 forcing most, if not all, commercial traffic to the Rwandan-Tanzanian border.  In May 2020, the Rwandan-Tanzania border crossings were negatively impacted due to the influx of Tanzanian truck drivers infected with COVID-19.

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