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Romania

Executive Summary

Romania welcomes all forms of foreign investment. The government provides national treatment for foreign investors and does not differentiate treatment due to source of capital. Romania’s strategic location, membership in the European Union, relatively well-educated workforce, competitive wages, and abundant natural resources make it a desirable location for firms seeking to access European, Central Asian, and Near East markets. U.S. investors have found opportunities in the information technology, automotive, telecommunications, energy, services, manufacturing, consumer products, insurance, and banking sectors.

The investment climate in Romania remains a mixed picture, and potential investors should undertake due diligence when considering any investment. The European Commission’s 2020 European Semester Country Report for Romania points to persistent legislative instability, unpredictable decision-making, low institutional quality, and corruption as factors eroding investor confidence. The report also noted that important legislation was adopted without proper stakeholder consultation and often lacked impact assessments. Frequent reorganizations of public institutions also contribute to the significant degree of instability.

Prior government efforts to undermine prosecutors and weaken judicial independence had shaken investor confidence in anti-corruption efforts. Political rhetoric had taken an increasingly nationalist tone, with some political leaders occasionally accusing foreign companies of not paying taxes, taking advantage of workers and resources, and sponsoring anti-government protests. President Iohannis was reelected in November 2019 with a pro-business stance. The December 2020 parliamentary elections resulted in a pro-investment, center right coalition government with a parliamentary majority, providing increased political stability. The coalition has repeatedly voiced its support for rule of law and reform.

The government’s sale of minority stakes in state-owned enterprises (SOEs) in key sectors, such as energy generation and exploitation, has stalled since 2014. A bill passed in 2020 instituted a two-year ban on the sale of state assets and state equity in SOEs. The Government of Romania (GOR) is in the process of drafting legislation that will terminate the ban. Successive governments have weakened enforcement of the state-owned enterprise (SOE) corporate governance code by resorting to appointments of short-term interim managers to bypass the leadership requirements outlined in the corporate governance code. Instability in the management of SOEs hinders the ability to plan and invest.

Consultations with stakeholders and impact assessments are required before enactment of legislation. However, this requirement has been unevenly followed, and public entities generally do not conduct impact assessments. Frequent government changes have led to rapidly changing policies and priorities that serve to complicate the business climate. Romania has made significant strides to combat corruption, but it remains an ongoing challenge.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 69 of 175 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 55 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 46 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country historical stock positions) 2019 $3.46B https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 $12,630 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Romania actively seeks foreign direct investment and offers a market of around 19.5 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, insurance, and banking. InvestRomania, part of the Ministry of Economy, 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, lack of regulatory impact assessments, and low institutional capacity 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 unanticipated 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 liberalized the natural gas market on July 1, 2020, and the electricity market as of January 1, 2021, for both household and non-household consumers.

In March 2021, the Parliament passed a bill reinforcing the government’s authority to vet the transfer of a petroleum agreement to a company from a non-EU country to determine if it is deemed to pose a threat to Romania’s national security. Transfer of a petroleum agreement must be approved through a government decision (GD).

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.

In 2020, Romania capped the claw back tax in an effort to ease the burden on pharmaceutical companies. Designed to recoup drug reimbursement costs that exceeded budgeted amounts, the tax had increased up to 27.65 percent in 2019. In May 2020, President Klaus Iohannis signed off on a revised and differentiated claw back tax, capped at 25 percent for innovative medicines, 20 percent for generic medicines, and 15 percent for locally produced medicines. The claw back tax is one factor that continues to negatively impact the availability of drugs in the Romanian marketplace.

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 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 investments, 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 2021 Economic Freedom Report saw Romania’s score fall slightly due to an increase in the country’s fiscal deficit. Romania scored best in the Tax Burden category due to its low income and corporate tax rates. Romania’s economy had been rising through the ranks of the “moderately free” – a classification given by the report – over the past decade and will need to improve the following to continue its ascent: Improving the judicial system, strengthening anti-corruption efforts, removing rigidities in the labor market, and further modernizing the financial sector.

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. 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. Foreign companies do not need to seek investment approval. A Trade Registry judge must hold a public hearing on the company’s application for registration within five days of submission of the required documentation. 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 49). Areas for improvement include making all registration documents available to download online in English. 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.

3. Legal Regime

Transparency of the Regulatory System

Romanian law requires consultations with stakeholders, including the private sector, and a 30-day comment period on legislation or regulation affecting the business environment (the “Sunshine Law”). Some draft pieces of legislation pending with the government are available in Romanian at  http://www.sgg.ro/acte-normative/ . Proposed items for cabinet meetings are not always publicized in advance or in full. As a general rule, the agenda of cabinet meetings should include links to the draft pieces of legislation (government decisions, ordinances, emergency ordinances, or memoranda) slated for government decision, but this is not always the case. Legislation pending with the parliament is available at http://www.cdep.ro/pls/proiecte/upl_pck.home  for the Chamber of Deputies and at https://www.senat.ro/legis/lista.aspx   for the Senate. The Chamber of Deputies is the decision-making body for economic legislation.

Foreign investors point to the excessive time required to secure necessary zoning permits, environmental approvals, property titles, licenses, and utility hook-ups.

The Sunshine Law (Law 52/2003 on Transparency in Public Administration) requires public authorities to allow the public to comment on draft legislation and sets the general timeframe for stakeholders to provide input; however, comments received are not published. The Sunshine Law’s public consultation timelines do not have enforceable penalties or sanctions, and thus public authorities can bypass its provisions without harm. In some cases, public authorities have set deadlines much shorter than the standards set forth in the law or passed a piece of legislation before the deadline for public input expired.

International Regulatory Considerations

As an EU member state since 2007, Romanian legislation is largely driven by the EU acquis, the body of EU legislation. European Commission (EC) regulations are directly applicable, while implementation of directives at the national level is done through the national legislation. Romania’s regulatory system incorporates European standards. Romania has been a World Trade Organization (WTO) member since January 1995 and a member of the General Agreement on Tariffs and Trade (GATT) since November 1971. Technical regulation notifications submitted by the EU are valid for all Member States. The EU signed the Trade Facilitation Agreement (TFA) in October 2015. Romania has implemented all TFA requirements.

Legal System and Judicial Independence

Romania recognizes property and contractual rights, but enforcement through the judicial process can be lengthy, costly, and difficult. Foreign companies engaged in trade or investment in Romania often express concern about the Romanian courts’ lack of expertise in commercial issues. There are no specialized commercial courts, but there are specialized civil courts. Judges generally have limited experience in the functioning of a market economy, international business methods, intellectual property rights, or the application of Romanian commercial and competition laws. As stipulated in the Constitution, the judicial system is independent from the executive branch and generally considered procedurally competent, fair, and reliable. Affected parties can challenge regulations and enforcement actions in court. Such challenges are adjudicated in the national court system.

Inconsistency and a lack of predictability in the jurisprudence of the courts or in the interpretation of the laws remains a major concern for foreign and domestic investors and for wider society. Even when court judgments are favorable, enforcement of judgments is inconsistent and can lead to lengthy appeals. Failure to implement court orders or cases where the public administration unjustifiably challenges court decisions constitute obstacles to the binding nature of court decisions.

Mediation as a tool to resolve disputes is gradually becoming more common in Romania, and a certifying body, the Mediation Council, sets standards and practices. The professional association, the Union of Mediation Centers in Romania, is the umbrella organization for mediators throughout the county. Court-sanctioned and private mediation is available at recognized mediation centers in every county seat.

There is no legal mechanism for court-ordered mediation in Romania, but judges can encourage litigants to use mediation to resolve their cases. If litigants opt for mediation, they must present their proposed resolution to a judge upon completion of the mediation process. The judge must then approve the agreement.

Laws and Regulations on Foreign Direct Investment

Since Romania became a member of the European Union in 2007, the country has worked assiduously to create an EU-compatible legal framework consistent with a market economy and investment promotion. At the same time, implementation of these laws and regulations frequently lags or is inconsistent, and lack of legislative predictability undermines Romania’s appeal as an investment destination.

Romania’s legal framework for foreign investment is encompassed within a substantial body of law largely enacted in the late 1990s. It is subject to frequent revision. Major changes to the Civil Code were enacted in October 2011, including replacing the Commercial Code, consolidating provisions applicable to companies and contracts into a single piece of legislation, and harmonizing Romanian legislation with international practices. The Civil Procedure Code, which provides detailed procedural guidance for implementing the new Civil Code, came into force in February 2013. Fiscal legislation is revised frequently, often without scientific or data-driven assessment of the impact the changes may have on the economy.

Given the state of flux of legal developments, investors are strongly encouraged to engage local counsel to navigate the various laws, decrees, and regulations, as several pieces of investor-relevant legislation have been challenged in both local courts and the Constitutional Court. There have been few hostile takeover attempts reported in Romania. Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms’ free association with foreign investors.

Competition and Antitrust Laws

Romania has extensively revised its competition legislation, bringing it closer to the EU Acquis Communautaire and best corporate practices. A new law on unfair competition came into effect in August 2014. Companies with a market share below 40 percent are no longer considered to have a dominant market position, thus avoiding a full investigation by the Romanian Competition Council (RCC), saving considerable time and money for all parties involved. Resale price maintenance and market and client sharing are still prohibited, regardless of the size of either party’s market share. The authorization fee for mergers or takeovers ranges between EUR 10,000 (USD 11,944) and EUR 50,000 (USD 59,720). The Fiscal Procedure Code requires companies that challenge an RCC ruling to front a deposit while awaiting a court decision on the merits of the complaint.

Romania’s Public Procurement Directives outline general procurements of goods and equipment, utilities procurement (“sectorial procurement”), works and services concessions, and remedies and appeals. An extensive body of secondary and tertiary legislation accompanies the four 2016 laws and has been subject to repeated revisions. Separate legislation governs defense and security procurements. In a positive move, this body of legislation moved away from the previous approach of using lowest price as the only public procurement selection criterion. Under the laws, an authority can use price, cost, quality-price ratio, or quality-cost ratio. The new laws also allow bidders to provide a simple form (the European Single Procurement Document) to participate in the award procedures. Only the winner must later submit full documentation.

The public procurement laws stipulate that challenges regarding procedure or an award can be filed with the National Complaint Council (NCC) or the courts. Disputes regarding execution, amendment, or termination of public procurement contracts can be subject to arbitration. The new laws also stipulate that a bidder has to notify the contracting authority before challenging either the award or procedure. Not fulfilling this notification requirement results in the NCC or court rejecting the challenge.

The EC’s 2020 European Semester Country Report for Romania notes that despite improved implementation, public procurement remains inefficient. According to the report, 97 percent of businesses think corruption is widespread in Romania, and 87 percent say it is widespread in public procurement managed by national authorities.

Expropriation and Compensation

The law on direct investment includes a guarantee against nationalization and expropriation or other equivalent actions. The law allows investors to select the court or arbitration body of their choice to settle disputes. Several cases involving investment property nationalized during the Communist era remain unresolved. In doing due diligence, prospective investors should ensure that a thorough title search is done to ensure there are no pending restitution claims against the land or assets.

Dispute Settlement

ICSID Convention and New York Convention

Romania is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Romania is also a party to the European Convention on International Commercial Arbitration concluded in Geneva in 1961 and is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). Romania’s 1975 Decree 62 provides for legal enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

Romania is a signatory to the New York Convention, the European Convention on International Commercial Arbitration (Geneva), and the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). There have been 17 ICSID cases in total against Romania. Three of them involved U.S. investors. The arbitral tribunal ruled in favor of Romania in two of them. Eight investor-state arbitration cases against Romania are currently pending with the International Center for Settlement of Investment Disputes (ICSID). Local courts recognize and enforce foreign arbitral awards against the government. There is no history of extrajudicial action against investors.

International Commercial Arbitration and Foreign Courts

Romania increasingly recognizes the importance of investor-state dispute settlement and has provided assurances that the rule of law will be enforced. Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration. Local courts recognize and enforce foreign arbitral awards and judgments of foreign courts. There are no statistics on the percentage of cases in which Romanian courts ruled against state-owned enterprises (SOEs).

Romanian law and practice recognize applications to other internationally known arbitration institutions, such as the International Chamber of Commerce (ICC) Paris Court of Arbitration and the United Nations Commission on International Trade Law (UNCITRAL). Romania has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania. Additionally, in November 2016, the American Chamber of Commerce in Romania (AmCham Romania) established the Bucharest International Arbitration Court (BIAC). This new arbitration center focuses on business and commercial disputes involving foreign investors and multinationals active in Romania.

According to the World Bank 2020 Doing Business Report, it takes on average 512 days to enforce a contract, from the moment the plaintiff files the lawsuit until actual payment. Associated costs can total around 27 percent of the claim. Arbitration awards are enforceable through Romanian courts under circumstances similar to those in other Western countries, although legal proceedings can be protracted.

Bankruptcy Regulations

Romania’s bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with Western legal standards. These laws usually emphasize enterprise restructuring and job preservation. To mitigate the time and financial cost of bankruptcies, Romanian legislation provides for administrative liquidation as an alternative to bankruptcy. However, investors and creditors have complained that liquidators sometimes lack the incentive to expedite liquidation proceedings and that, in some cases, their decisions have served vested outside interests. Both state-owned and private companies tend to opt for judicial reorganization to avoid bankruptcy.

In December 2009, the debt settlement mechanism Company Voluntary Agreements (CVAs) was introduced as a means for creditors and debtors to establish partial debt service schedules without resorting to bankruptcy proceedings. The global economic crisis did, however, prompt Romania to shorten insolvency proceedings in 2011.

According to the World Bank’s Doing Business Report, resolving insolvency in Romania takes 3.3 years on average, compared to 2.3 years in Europe and Central Asia, and costs 10.5 percent of the debtor’s estate, with the most likely outcome being a piecemeal sale of the company. The average recovery rate is 34.4 cents on the dollar. Globally, Romania stands at 56 in the ranking of 190 economies on the ease of resolving insolvency.

6. Financial Sector

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 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 289 listed companies – mostly small- and medium-sized enterprises (SMEs) – and features 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 16 foreign stocks listed on international capital markets.

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- five banks and credit cooperative national unions currently operate in Romania. The largest is the privately-owned Transilvania Bank (18.4 percent market share), followed by Austrian-owned Romanian Commercial Bank (BCR-Erste, 14.2 percent); French-owned Romanian Bank for Development (BRD-Société Générale, 11.0 percent); Dutch-owned ING (9.5 percent); Austrian-owned Raiffeisen (9.2 percent), and Italian-owned UniCredit (8.1 percent).

The banking system is stable and well-provisioned relative to its European peers. According to the National Bank of Romania, non-performing loans (NPLs) have steadily fallen in recent years and currently account for 3.89 percent of total bank loans. As of December 2020, the banking system’s solvency rate was 22.7 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 10.63 percent of the market combined, having grown after the latter’s acquisition of Banca Romaneasca from Greek-owned NBG.

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.

In response to the COVID-19 pandemic, the government instituted a credit/lease installment moratorium in 2020, and later extended it into 2021. Borrowers are permitted a total of nine months of non-payment of their installments. As of September 2020, 558,000 borrowers applied for the installment moratorium, representing 14.7 percent of the total non-government credit balance.

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 government in January 2020.

7. State-Owned Enterprises

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 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 and 2020.

Privatization Program

Privatization has stalled since 2014. The government has repeatedly postponed IPOs for hydropower producer Hidroelectrica, though its sale is currently slated for end-2021 pending repeal of the ban on the sales of state equities

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. The Ministry of Energy has authority over energy generation assets and natural gas production. 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, national air carrier Tarom, and the Constanta Port Administration. There are currently no plans to privatize companies in the transportation sector.

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.

10. Political and Security Environment

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 of the protests. However, no officials took any action and public attention diminished. The current coalition government supports the creation of a business-friendly environment.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (USD) 2020 $250B 2020 $257B www.worldbank.org/en/country  https://insse.ro/cms/ 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (stock positions, USD) 2020 $5.87B 2019 $3.46B BEA data available at https://apps.bea.gov/international/factsheet/  National Office of the Trade Register National Bank of Romania
Host country’s FDI in the United States (stock positions, USD) N/A N/A 2019 $38M BEA data available at ttps://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as %host GDP N/A N/A 2019 2.5% UNCTAD data available at https://stats.unctad.org/handbook/EconomicTrends/Fdi.html 

* Source for Host Country Data:

National Statistics Institute: https://insse.ro/cms/ 

National Bank of Romania: https://www.bnr.ro/

National Office of the Trade Register: https://www.onrc.ro/ 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 99,050 100% Total Outward N/A
Netherlands 23,012 23.2% Country #1 N/A
Austria 12,461 12.6% Country #2 N/A
Germany 12,219 12.3% Country #3 N/A
Italy 8,146 8.2% Country #4 N/A
Cyprus* 6,161 6.2% Country #5 N/A
“0” reflects amounts rounded to +/- USD 500,000.*The National Bank of Romania estimates the United States to be #5 when methodology is altered to account for investments made by foreign subsidiaries of origin country companies.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (US Dollars, Millions)
Total Equity Securities Total Debt Securities
All Countries 6,137 100% All Countries 1,839 100% All Countries 4,298 100%
Luxembourg 1,346 22% Luxembourg 851 46% International Organizations 859 20%
International Organizations 859 14% Austria 198 11% U.S. 666 15%
U.S. 769 13% Ireland 165 9% Luxembourg 495 12%
Austria 674 11% Germany 141 8% Austria 476 11%
Netherlands 397 6% Netherlands 129 7% France 286 7%

Russia

Executive Summary

The Russian Federation remained in 28th place out of 190 economies in the World Bank’s Doing Business 2020 Report, reflecting modest incremental improvements in the regulatory environment in prior years. The World Bank paused the publication of the Doing Business 2021 report to assess a number of irregularities that have been reported, therefore no updates since last report are available. However, fundamental structural problems in Russia’s governance of the economy continue to stifle foreign direct investment throughout Russia. In particular, Russia’s judicial system remains heavily biased in favor of the state, leaving investors with little recourse in legal disputes with the government. Despite on-going anticorruption efforts, high levels of corruption among government officials compound this risk.

Throughout 2020, a prominent U.S. investor, who was arrested in February 2019 over a commercial dispute, remained under modified house arrest.  Moreover, Russia’s import substitution program gives local producers advantages over foreign competitors that do not meet localization requirements. Finally, Russia’s actions since 2014 have resulted in EU and U.S. sanctions – restricting business activities and increasing costs.

U.S. investors must ensure full compliance with U.S. sanctions, including sanctions against Russia in response to its invasion of Ukraine, election interference, other malicious cyber activities, human rights abuses, use of chemical weapons, weapons proliferation, illicit trade with North Korea, support to Syria and Venezuela, and other malign activities. Information on the U.S. sanctions program is available at the U.S. Treasury’s website: https://www.treasury.gov/resource-center/sanctions/Pages/default.aspx . U.S. investors can utilize the “Consolidated Screening List” search tool to check sanctions and control lists from the Departments of Treasury, State, and Commerce: https://www.export.gov/csl-search .

Russia’s Strategic Sectors Law (SSL) established an approval process for foreign investments resulting in a controlling stake in one of Russia’s 46 “strategic sectors.” The law applies to foreign states, international organizations, and their subsidiaries, as well as to “non-disclosing investors” (i.e., investors not disclosing information about beneficiaries, beneficial owners, and controlling persons).

Since 2015, the Russian government has had an incentive program for foreign investors called Special Investment Contracts (SPICs). These contracts, managed by the Ministry of Industry and Trade, allow foreign companies to participate in Russia’s import substitution programs by providing access to certain subsidies to foreign producers who establish local production. In August 2019, the Russian government introduced “SPIC-2.0,” which incentivizes long-term private investment in high-technology projects and technology transfer in manufacturing.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 129 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019* 28 of 190 http://www.doingbusiness.org/en/rankings * last year’s ranking due to the WB putting a pause on issuing the 2021 DB Report
Global Innovation Index 2020 47 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $14,439 https://www.bea.gov/international/di1usdbal 
World Bank GNI per capita 2019 $11,260 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

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 direct investment 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 in Russian regions. 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 2021, 40 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 rulemaking.

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 (Strategic Sectors Law, SSL);” and 4) the Law of the RSFSR No. 1488-1, June 26, 1991, “On Investment Activity in the Russian Soviet Federative Socialist Republic (RSFSR),” and (5) Law No. 69-FZ. April 1, 2020, “On Investment Protection and Promotion Agreements in the Russian Federation.” 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, or 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.

The new 2020 Federal Law on Protection and Promotion of Investments applies to investments made under agreements on protection and promotion of investments (“APPI”) providing for implementation of a new investment project. APPI may be concluded between a Russian legal entity (the organization implementing the project established by a Russian or a foreign company) and a regional and/or the federal government. APPI is a private law agreement coming under the Russian civil legislation (with exclusions provided for by the law). Support measures include reimbursement of (1) the costs of creating or reconstructing the infrastructure and (2) interest on loans needed for implementing the project. The maximum reimbursable costs may not exceed 50 percent of the costs actually incurred for supporting infrastructure facilities and 100 percent of the costs actually incurred for associated infrastructure facilities. The time limit for cost recovery is five years for the supporting infrastructure and ten years for the associated infrastructure.

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.” The second restricts foreign ownership of agricultural land, including restricting foreign individuals and companies, persons without citizenship, and agricultural companies more than 50-percent foreign-owned from owning land. These entities may 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 legally allowed.

In October 2014, President Vladimir Putin signed the law “On Mass Media,” which took effect on January 1, 2015. The law restricts foreign ownership of any Russian media company to 20 percent (the previous law applied a 50 percent limit to Russia’s broadcast sector). U.S. stakeholders have raised concerns about similar limits on foreign direct investments in the mining and mineral extraction sectors and describe the licensing regime as non-transparent and unpredictable. 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 interest 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.

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), rejected 23, and found that 265 did not require approval (https://fas.gov.ru/news/29330). International organizations, foreign states, and the companies they control are treated as single entities under the Commission, and with their participation in a strategic business, are subject to restrictions applicable to a single foreign entity. There have been no updates regarding the number of applications received by the Commission since 2019. Due to COVID-19, the Commission met only twice since then, in December 2020 and February 2021.

Pursuant to legal amendments to the SSL that entered into force August 11, 2020, a foreign investor is deemed to exercise control over a Russia’s strategic entity even if voting rights in shares belonging to the investor have been temporarily transferred to other entities under the pledge or trust management agreement, or repo contract or a similar arrangement. According to the FAS, the amendments were aimed to exclude possible ways of circumventing the existing foreign investments control rules by way of temporary transfer of voting rights in the strategic entity’s shares.

In an effort to reduce bureaucratic procedures and address deficiencies in the SSL, on May 11, President Putin signed into law a draft bill introducing specific rules lifting restrictions and allowing expedited procedures for foreign investments into certain strategic companies for which strategic activity is not a core business.

Since January 1, 2019, foreign providers of electronic services to business customers in Russia (B2B e-services) have new Russian value-added tax (VAT) obligations. These obligations include VAT registration with the Russian tax authorities (even for VAT exempt e-services), invoice requirements, reporting to the Russian tax authorities, and adhering to VAT remittance rules.

Other Investment Policy Reviews

The WTO conducted the first Trade Policy Review (TPR) of the Russian Federation in September 2016. The next TPR of Russia will take place in October 2021, with reports published in September. (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 2020, the focus of this report was on international production beyond the pandemic ( 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 should not take 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. As of January 1, 2019, the registration fee has been waived for online submission of incorporation documents directly to the Federal Tax Service (FTS).

The publication of the Doing Business report was paused in 2020, as the World Bank is assessing its data collection process and data integrity preservation methodology.

The 2019 ranking acknowledged several reforms that helped Russia improve its position. Russia made getting electricity faster by setting new deadlines and establishing specialized departments for connection. Russia also strengthened minority investor protections by requiring greater corporate transparency and made paying taxes easier by reducing the tax authority review period of applications for VAT cash refunds. Russia also further enhanced 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 notify the government about 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 wide range of financial products.

3. Legal Regime

Transparency of the Regulatory System

While the Russian government at all levels offers moderately transparent policies, actual implementation is inconsistent. Moreover, Russia’s import substitution program often leads to burdensome regulations that can give domestic producers a financial advantage over foreign competitors. Draft bills and regulations are made available for public comment in accordance with disclosure rules set forth in the Government Resolution 851 of 2012.

Key regulatory actions are published on a centralized web site which also maintains existing and proposed regulatory documents: www.pravo.gov.ru . (Draft regulatory laws are published on the web site: www.regulation.gov.ru . Draft laws can also be found on the State Duma’s legal database: http://asozd.duma.gov.ru/ ).

Accounting procedures are generally transparent and consistent. Documents compliant with Generally Accepted Accounting Principles (GAAP), however, are usually provided only by businesses that interface with foreign markets or borrow from foreign lenders. Reports prepared in accordance with the International Financial Reporting Standards (IFRS) are required for the consolidated financial statements of all entities who meet the following criteria: entities whose securities are listed on stock exchanges; banks and other credit institutions, insurance companies (except those with activities limited to obligatory medical insurance); non-governmental pension funds; management companies of investment and pension funds; and clearing houses. Additionally, certain state-owned companies are required to prepare consolidated IFRS financial statements by separate decrees of the Russian government. Russian Accounting Standards, which are largely based on international best practices, otherwise apply.

International Regulatory Considerations

As a member of the EAEU, Russia has delegated certain decision-making authority to the EAEU’s supranational executive body, the Eurasian Economic Commission (EEC). In particular, the EEC has the lead on concluding trade agreements with third countries, customs tariffs (on imports), and technical regulations. EAEU agreements and EEC decisions establish basic principles that are implemented by the member states at the national level through domestic laws, regulations, and other measures involving goods. The EAEU Treaty establishes the priority of WTO rules in the EAEU legal framework. Authority to set sanitary and phytosanitary standards remains at the individual country level.

U.S. companies cite SPS technical regulations and related product-testing and certification requirements as major obstacles to U.S. exports of industrial and agricultural goods to Russia. Russian authorities require product testing and certification as a key element of the approval process for a variety of products, and, in many cases, only an entity registered and residing in Russia can apply for the necessary documentation for product approvals. Consequently, opportunities for testing and certification performed by competent bodies outside Russia are limited. Manufacturers of telecommunications equipment, oil and gas equipment, construction materials and equipment, and pharmaceuticals and medical devices have reported serious difficulties in obtaining product approvals within Russia. Technical Barriers to Trade (TBT) issues have also arisen with alcoholic beverages, pharmaceuticals, and medical devices. Certain SPS restrictions on food and agricultural products appear to not be based on international standards.

In April 2021, Russia adopted amendments to Article 1360 of the Civil Code that significantly simplified the mechanism of issuing compulsory licenses in the pharmaceutical industry. Under the adopted amendments, compulsory licenses are allowed “in the interest of life and health protection.” The use of the compulsory license mechanism and the lack of certainty for right holders regarding the calculation of compensation could negatively affect the investment attractiveness of Russia for pharmaceutical companies producing original drugs.

Russia joined the WTO in 2012. Although Russia has notified the WTO of numerous SPS technical regulations, it appears to be taking a narrow view regarding the types of measures that require notification. In 2020, Russia submitted 16 notifications under the WTO TBT Agreement, up from six notifications submitted in 2029. However, they may not reflect the full set of technical regulations that require notification under the WTO TBT Agreement. Russia submitted 38 SPS notifications in 2020, up from 16 in 2019. (A full list of notifications is available at: http://www.epingalert.org/en).

Legal System and Judicial Independence

The U.S. Embassy advises any foreign company operating in Russia to have competent legal counsel and create a comprehensive plan on steps to take in case the police carry out an unexpected raid. Russian authorities have exhibited a pattern of transforming civil cases into criminal matters, resulting in significantly more severe penalties. In short, unfounded lawsuits or arbitrary enforcement actions remain an ever-present possibility for any company operating in Russia.

Critics contend that Russian courts, in general, lack independent authority and, in criminal cases, have a bias toward conviction. In practice, the presumption of innocence tends to be ignored by Russian courts, and less than one-half of one percent of criminal cases end in acquittal. In cases that are appealed when the lower court decision resulted in a conviction, less than one percent are overturned. In contrast, when the lower court decision is “not guilty,” 37 percent of the appeals result in a finding of guilt.

Russia has a code law system, and the Civil Code of Russia governs contracts. Specialized commercial courts (also called “Arbitrage Courts”) handle a wide variety of commercial disputes.

Russia was ranked by the World Bank’s 2020 Doing Business Report as 21st in contract enforcement, down three notches compared to the 2019 report. Source: https://www.doingbusiness.org/content/dam/doingBusiness/country/r/russia/RUS.pdf

Commercial courts are required by law to decide business disputes efficiently, and many cases are decided on the basis of written evidence, with little or no live testimony by witnesses. The courts’ workload is dominated by relatively simple cases involving the collection of debts and firms’ disputes with the taxation and customs authorities, pension funds, and other state organs. Tax-paying firms often prevail in their disputes with the government in court. As with some international arbitral procedures, the weakness in the Russian arbitration system lies in the enforcement of decisions and few firms pay judgments against them voluntarily.

A specialized court for intellectual property (IP) disputes was established in 2013. The IP Court hears matters pertaining to the review of decisions made by the Russian Federal Service for Intellectual Property (Rospatent) and determines issues of IP ownership, authorship, and the cancellation of trademark registrations. It also serves as the court of second appeal for IP infringement cases decided in commercial courts and courts of appeal.

Laws and Regulations on Foreign Direct Investment

The 1991 Investment Code and 1999 Law on Foreign Investment (160-FZ) guarantee that foreign investors enjoy rights equal to those of Russian investors, although some industries have limits on foreign ownership. Russia’s Special Investment Contract program, launched in 2015, aims to increase investment in Russia by offering tax incentives and simplified procedures for dealings with the government. In addition, a new law on public-private-partnerships (224-FZ) took effect January 1, 2016. The legislation allows an investor to acquire ownership rights over a property. The SSL regulates foreign investments in “strategic” companies. Amendments to Federal Law No. 160-FZ “On Foreign Investments in the Russian Federation” and Russia’s Strategic Sectors Law (SSL), signed into law in May 2018 by President Putin, liberalized access of foreign investments to strategic sectors of the Russian economy and made the strategic clearance process clearer and more comfortable. The new concept is more investor-friendly, since applying a stricter regime can now potentially be avoided by providing the required beneficiary and controlling person information. In addition, the amendments expressly envisage a right for the Federal Antimonopoly Service of Russia (FAS) to issue official clarifications on the nature and application of the SSL that may facilitate law enforcement.

Federal Law № 69-ФЗ on the Protection and Promotion of Investment, entered into force in April 2020, requires that a contract be concluded between public entities and private investors, either domestic or foreign and contain stabilization clauses relating to import customs duties, measures of state support, rules regulating land use, as well as ecological and utilization fees and taxes.

Competition and Anti-Trust Laws

The Federal Antimonopoly Service (FAS) implements antimonopoly laws and is responsible for overseeing matters related to the protection of competition. Russia’s fourth and most recent anti-monopoly legislative package, which took effect January 2016, introduced a number of changes to Russia’s antimonopoly laws. Changes included limiting the criteria under which an entity could be considered “dominant,” broadening the scope of transactions subject to FAS approval and reducing government control over transactions involving natural monopolies. Over the past several years, FAS has opened a number of cases involving American companies. In February 2019, the FAS submitted to the Cabinet the fifth anti-monopoly legislative package devoted to regulating the digital economy. It includes provisions on introducing new definitions of “trustee,” and a definition of “price algorithms,” empowering the FAS to impose provisions of non-discriminated access to data as a remedy. It also introduced data ownership as a set of criteria for market analysis, etc. The legislative package is still undergoing an interagency approval process and will be submitted to the State Duma once it is approved by the Cabinet. As of March 2021, it was supported by the FAS Public Council, but the review by the Ministry of Digital Development, Communications and Mass Media was largely negative.

FAS has also claimed the authority to regulate intellectual property, arguing that monopoly rights conferred by ownership of intellectual property should not extend to the “circulation of goods,” a point supported by the Russian Supreme Court.

Expropriation and Compensation

The 1991 Investment Code prohibits the nationalization of foreign investments, except following legislative action and when such action is deemed to be in the public interest. Acts of nationalization may be appealed to Russian courts, and the investor must be adequately and promptly compensated for the taking. At the sub-federal level, expropriation has occasionally been a problem, as well as local government interference and a lack of enforcement of court rulings protecting investors.

Despite legislation prohibiting the nationalization of foreign investments, investors in Russia – particularly minority-share investors in domestically-owned energy companies – are encouraged to exercise caution. Russia has a history of indirectly expropriating companies through “creeping” and informal means, often related to domestic political disputes, and other treatment of investors leading to investment disputes. Some examples of recent cases include: 1) The privately owned oil company Bashneft was nationalized and then “privatized” in 2016 through its sale to the government-owned oil giant Rosneft without a public tender; 2) In the Yukos case, the Russian government used allegedly questionable tax and legal proceedings to ultimately gain control of the assets of a large Russian energy company; 3) In February 2019, a prominent U.S. investor was jailed over a commercial dispute and currently remains under house arrest. Other examples of Russia expropriation include foreign companies allegedly being pressured into selling their Russia-based assets at below-market prices. Foreign investors, particularly minority investors, have little legal recourse in such instances.

Dispute Settlement

ICSID Convention and New York Convention

Russia is party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. While Russia does not have specific legislation providing for enforcement of the New York Convention, Article 15 of the Constitution specifies that “the universally recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of [Russia’s] legal system. If an international treaty or agreement of the Russian Federation fixes other rules than those envisaged by law, the rules of the international agreement shall be applied.” Russia is a signatory but not a party, and never ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).

Investor-State Dispute Settlement

According to available information, at least 14 investment disputes have involved an American and the Russian government since 2006. Some attorneys refer international clients who have investment or trade disputes in Russia to international arbitration centers in Paris, Stockholm, London, or The Hague. A 1997 Russian law allows foreign arbitration awards to be enforced in Russia, even if there is no reciprocal treaty between Russia and the country where the order was issued, in accordance with the New York Convention. Russian law was amended in 2015 to give the Russian Constitutional Court authority to disregard verdicts by international bodies if it determines the ruling contradicts the Russian constitution.

International Commercial Arbitration and Foreign Courts

In addition to the court system, Russian law recognizes alternative dispute resolution (ADR) mechanisms, i.e., domestic arbitration, international arbitration, and mediation. Civil and commercial disputes may be referred to either domestic or international commercial arbitration. Institutional arbitration is more common in Russia than ad hoc arbitration. Arbitral awards can be enforced in Russia pursuant to international treaties, such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1958 New York Convention, and the 1961 European Convention on International Commercial Arbitration, as well as domestic legislation. Mediation mechanisms were established by the Law on Alternative Dispute Resolution Procedure with participation of the Intermediary in January 2011. Mediation is an informal extrajudicial dispute resolution method whereby a mediator seeks mutually acceptable resolution. However, mediation is not yet widely used in Russia.

Beginning in 2016, arbitral institutions were required to obtain the status of a “permanent arbitral institution” (PAI) in order to arbitrate disputes involving shares in Russian companies. The requirement ostensibly combats the problem of dubious arbitral institutions set up by corporations to administer disputes in which they themselves are involved. The PAI requirement applies to foreign arbitral institutions as well. Until recently there were only four arbitral institutions – all of them Russian – which had been conferred the status of PAI. In April 2019, the Hong Kong International Arbitration Centre (HKIAC) became the first foreign arbitral tribunal to obtain PAI status in Russia. In June 2019, the Vienna International Arbitration Center became the second foreign institution licensed to administer arbitrations in Russia. On May 19, 2021, the International Court of Arbitration of the International Chamber of Commerce (ICC) and the Singapore International Arbitration Centre (SIAC) received from the Russian Ministry of Justice the right to act in Russia as PAIs. The London Court of International Arbitration, and the Arbitration Institute of the Stockholm Chamber of Commerce are occasionally chosen for administering international arbitrations seated in Russia, despite the fact that none of them has PAI status. Arbitral awards rendered by tribunals constituted under the rules of these institutions can be recognized and enforced in Russia.

Bankruptcy Regulations

Russia established a law providing for enterprises bankruptcy in the early 1990s. A law on personal bankruptcy came into force in 2015. Russia’s ranking in the World Bank’s Doing Business 2020 Report for “Resolving Insolvency” is 57 out of 190 economies, down two notches compared to 2019. Article 9 of the Law on Insolvency requires an insolvent firm to petition the court of arbitration to declare the company bankrupt within one month of failing to pay the bank’s claims. The court then convenes a meeting of creditors, who petition the court for liquidation or reorganization. In accordance with Article 51 of the Law on Insolvency, a bankruptcy case must be considered within seven months of the day the petition was received by the arbitral court.

Liquidation proceedings by law are limited to six months and can be extended by six more months (art. 124 of the Law on Insolvency). Therefore, the time dictated by law is 19 months. However, in practice, liquidation proceedings are extended several times and for longer periods. The total cost of insolvency proceedings is approximately nine percent of the value of the estate.

In July 2017, amendments to the Law on Insolvency expanded the list of persons who may be held vicariously liable for a bankrupted entity’s debts and clarified the grounds for such liability. According to the new rules, in addition to the CEO, the following can also be held vicariously liable for a bankrupt company’s debts: top managers, including the CFO and COO, accountants, liquidators, and other persons who controlled or had significant influence over the bankrupted entity’s actions by kin or position, or could force the bankrupted entity to enter into unprofitable transactions. In addition, persons who profited from the illegal actions by management may also be subject to liability through court action. The amendments clarified that shareholders owning less than 10 percent in the bankrupt company shall not be deemed controlling unless they are proven to have played a role in the company’s bankruptcy. The amendments also expanded the list of people who may be subject to secondary liability and the grounds for recognizing fault for a company’s bankruptcy.

Amendments to the Law on Insolvency approved in December 2019 gave greater protection, in the context of insolvency of a Russian counterparty, to collateral arrangements and close-out netting in respect of over-the-counter derivative, repurchase, and certain other “financial” transactions documented under eligible master agreements.

6. Financial Sector

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 top three largest banks are state-controlled (with private Alfa Bank ranked fourth). The top three banks 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. By January 2020 and 2021, the aggregate assets of Russian banks reached 92.2 and 97.2 percent, respectively. Russian banks reportedly operate on short time horizons, limiting capital available for long-term investments. Overall, the share of retail non-performing loans (NPLs) to total gross loans slightly increased from 4.4 percent of total gross retail loans in January 2020 to 4.5 percent in April 2021, while corporate NPLs declined from 7.5 percent to 6.5 percent in the same period, according to the Central Bank of Russia. ACRA-Rating analytical agency expects an increase in retail NPLs to 6.0 percent and corporate NPL – to 8.8 percent by the end of 2021.

Foreign banks are allowed to establish subsidiaries, but not branches within Russia and must register as a business entity in Russia.

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 government has also lifted the requirement to repatriate export revenues if settlements under a foreign trade contract are set in Russian rubles effective January 1, 2020.

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 and in particular with repatriation of dividends.

Sovereign Wealth Funds

In 2018, Russia combined its two sovereign wealth funds to form the National Welfare Fund (NWF). The fund’s holdings amounted to $165.4 billion, or 12.0 percent of GDP as of April 1, 2020 and grew to $185.9 billion, or 12.0 percent of GDP as of May 1, 2021. 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. In June 2021, Russia’s Ministry of Finance announced plans to completely divest the $41 billion worth of NWF U.S. dollar holdings within a month, replacing them with RMB (Chinese Yuan), Euros and gold by July 2021.

7. State-Owned Enterprises

Russia does not have a unified definition of a state-owned enterprise (SOE). However, analysts define SOEs as enterprises where the state has significant control, through full, majority, or at least significant minority ownership. The OECD defines material minority ownership as 10 percent of voting shares, while under Russian legislation, a minority shareholder would need 25 percent plus one share to exercise significant control, such as block shareholder resolutions to the charter, make decisions on reorganization or liquidation, increase in the number of authorized shares, or approve certain major transactions. SOEs are subdivided into four main categories: 1) unitary enterprises (federal or municipal, fully owned by the government), of which there are 692 unitary enterprises 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).  There are six functioning state corporations directly chartered by the federal government, as of March 2021. By 2020, 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, the number of joint-stock companies with state participation declined only 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. The government approved in January 2020 a new 2020-22 plan identifying 86 “federal state unitary enterprises” (100 percent state-owned “FGUPs”) (12.3 percent of all FGUPs), sell its stakes in 186 joint stock companies (“JSCs”) (16.5 percent of all JSCs with state participation) and in 13 limited liability companies (“LLCs”) for privatization. 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 to 75 percent plus one share within three years. On October 7, 2020, Sovcomflot sold the government’s 17.2 percent stake through an IPO at the Moscow Exchange. The government’s stake in Sovcomflot will remain at 82.8 percent. The government raised about $550 million through the sale. 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 expects that “small-scale privatization” (excluding privatization of large SOEs) will bring up to RUB 3.6 billion ($58 million) to the federal budget annually in 2020-2022.

The government’s previous 2017-2019 privatization program has substantially underperformed its benchmarks. Only 24.8 percent of the 581 state-owned enterprises (SOEs) slated to be privatized were actually privatized in 2017-2019, according to a May 27, 2021 report by the Russian Accounts Chamber (RAC). As a result, total privatization revenues received in 2018 reached only RUB 2.44 billion ($39 million), down 58 percent compared to 2017. In 2019, privatization revenues (excluding large SOEs) reached RUB 2.2 billion ($35 million), down 40.5 percent compared to the official target of RUB 5.6 billion ($86.5 million).

10. Political and Security Environment

Political freedom continues to be limited by restrictions on the fundamental freedoms of expression, assembly, and association and crackdowns 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 77 NGOs have been labelled foreign agents. A May 2015 law 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 June, 2021, 34 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 were the result of 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. Russians protested in support of opposition leader Alexey Navalny after his return from Germany and detention in Moscow in January 2021. Rallies were held in almost 200 cities, the largest taking place in the capital. During these protests, authorities detained thousands and initiated several criminal cases against the participants; the number of detainees was record setting. Moscow saw the largest protests since 2011 in the summer of 2019 as many Muscovites were unhappy that opposition candidates had been banned from running in the September municipal elections.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Please note that the following tables include FDI statistics from three different sources, and therefore will not be identical. Table 2 uses BEA data when available, which measures the stock of FDI by the market value of the investment in the year the investment was made (often referred to as historical value). This approach tends to undervalue the present value of FDI stock because it does not account for inflation. BEA data is not available for all countries, particularly if only a few US firms have direct investments in a country. In such cases, Table 2 uses other sources that typically measure FDI stock in current value (or, historical values adjusted for inflation). Even when Table 2 uses BEA data, Table 3 uses the IMF’s Coordinated Direct Investment Survey (CDIS) to determine the top five sources of FDI in the country. The CDIS measures FDI stock in current value, which means that if the U.S. is one of the top five sources of inward investment, U.S. FDI into the country will be listed in this table. That value will come from the CDIS and therefore will not match the BEA data.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($trillion USD) 2020 $1.423 2019 $1.699 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $5,092 2019 $14,439 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-
comprehensive-data
 

CBR data available at https://cbr.ru/statistics/macro_itm/svs/
Host country’s FDI in the United States ($M USD, stock positions) 2019 $7,362 2019 $4,371 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-
comprehensive-data
 
Total inbound stock of FDI as % host GDP 2019 $33.4% 2019 27.4% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: FDI data – Central Bank of Russia (CBR); GDP data – Rosstat (GDP) (Russia’s GDP was RUB 110,046 billion in 2019, according to Rosstat. The yearly average RUB-USD- exchange rate in 2019, according to the CBR, was RUB 64.7362 to the USD).

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (as of January 1, 2021)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 537,118 100% Total Outward 470,098 100%
Cyprus 153,355 28.6% Cyprus 200,435 43%
Bermuda 47,991 8.9% Netherlands 33.839 7.2%
Netherlands 46,712 8.7% Austria 29,702 6.2%
UK 41,961 7.8% UK 25,126 5.3%
Luxemburg 32,250 6% Switzerland 21,923 4.7%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets (as of October 1, 2020)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 98,918 100% All Countries 14,131 100% All Countries 84,786 100%
Ireland 26,108 29% United States 6,844 48.4% Ireland 25,246 29.8%
Luxemburg 17,455 22% Cyprus 1,000 7.1% Luxemburg 16,913 19.9%
U.S. 11,422 11% Netherlands 951 6.7% UK 10,306 12.2%
UK 10,984 7% Ireland 863 6.1% Netherlands 6,201 7.3%
Netherlands 7,152 6% UK 678 4.8% Cyprus 4,752 5.6%

Rwanda

Executive Summary

Rwanda has a history of strong economic growth, high rankings in the World Bank’s Ease of Doing Business Index, and a reputation for low corruption. Rwandan GDP grew 9.5 percent in 2019 before declining 3.4 percent in 2020 due to the global COVID-19 pandemic, the first recession since 1994. In late 2020 and early 2021, the Government of Rwanda (GOR) took significant policy reforms intended to return the economy to growth, improve Rwanda’s competitiveness in selected strategic growth sectors, increase foreign direct investment (FDI), and attract foreign companies to operate in the newly-created Kigali International Financial Centre. In February 2021, the GOR amended the Law on Investment Promotion and Facilitation (Investment Code), the Law on Anti-Money Laundering and Counter-Terrorism Financing, and the Company Act. The GOR passed a new law governing partnerships and a law governing mutual legal assistance in criminal matters. The Rwanda Financial Intelligence Centre (FIC) was also created to curb money laundering and terrorism finance. The country presents a number of foreign direct investment (FDI) opportunities in sectors including: manufacturing; infrastructure; energy distribution and transmission; off-grid energy; agriculture and agro-processing; affordable housing; tourism; services; and information and communications technology (ICT). The new Investment Code includes equal treatment for both foreigners and nationals in certain operations, free transfer of funds, and compensation against expropriation; the 2008 U.S.-Rwanda Bilateral Investment Treaty (BIT) reinforces this treatment.

According to the National Institute of Statistics for Rwanda (NISR), Rwanda attracted $462 million in FDI inflows in 2018, representing five percent of GDP. Rwanda had a total of $3.2 billion of FDI stock in 2018, the latest year data is available. In 2020, the Rwanda Development Board (RDB) reported registering $1.3 billion in new investment commitments (a 48 percent decline from 2019, and an 89 percent decline from 2018, due to COVID-19), mainly in manufacturing, construction, and real estate. FDI accounted for 51 percent of registered projects. With $324.7 million committed in seven projects, the United States topped origination countries with 13.2 percent of the total investment commitments to Rwanda.

Due to the economic impacts of COVID-19, Standard and Poor’s downgraded the Rwandan economic outlook from “Stable” to “Negative,” citing higher public debt and deteriorating exports, tourism revenues, and diaspora remittances. Moody’s changed Rwanda’s outlook from stable to negative due to potential lowering of returns on past GOR’s investments in transportation and tourism that would “raise credit risks associated with Rwanda’s relatively high debt burden, which had been rising before the coronavirus shock and is being exacerbated by it.”

Government debt has rapidly increased over the past few years to more than 70 percent of GDP in 2021, but most of these loans are on highly concessionary terms. The result is that the GOR holds cheaper debt than the average low-income country while maintaining a higher debt-carrying capacity. Development institutions such as the World Bank, African Development Bank, International Monetary Fund, and others have offered to lessen or suspend debt repayment terms for less developed countries such as Rwanda because of COVID-19. However, as of March 2021, Rwandan authorities had not requested debt service suspension from official bilateral creditors as envisaged under the Debt Service Suspension Initiative (DSSI) supported by the G-20 and the Paris Club. As of March 2021, Rwanda had neither incurred external payment arrears nor accumulated domestic arrears.

Many companies report that although it is easy to start a business in Rwanda, it can be difficult to operate a profitable or sustainable business due to a variety of hurdles and constraints. These include the country’s landlocked geography and resulting high freight transport costs, a small domestic market, limited access to affordable financing, and payment delays with government contracts. Government interventions designed to support overall economic growth can significantly impact investors, with some expressing frustration that they were not consulted prior to the abrupt implementation of government policies and regulations that affected their businesses.

While electricity and water supply have improved, businesses may continue to experience intermittent outages (especially during peak times) due to distribution challenges. The GOR is planning to meet more than 100 percent of the country’s power generation needs through various power projects in development. Some investors report difficulties in obtaining foreign exchange from time to time, which could be attributed to Rwanda running a persistent trade deficit.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 49 of 180 https://www.transparency.org/en/cpi/2020/index/rwa 
World Bank’s Doing Business Report 2020 38 of 190 https://www.doingbusiness.org/en/
reports/global-reports/doing-business-2020 
Global Innovation Index 2020 91 of 131 https://www.globalinnovationindex.org/analysis-economy 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 N/A https://apps.bea.gov/international/factsheet//
World Bank GNI per capita 2019 $830 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

Note:  According to NISR, stock of U.S. FDI in the country stood at $182.67 million in 2018 (most recent data available)

1. Openness To, and Restrictions Upon, Foreign Investment

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 until the start of the COVID-19 pandemic in March 2020, averaging over seven percent annual GPD growth over the prior decade. Rwanda also enjoys high rankings in the World Bank’s Doing Business report (38 out of 190 economies in 2020 worldwide, and second best in Africa) and a reputation for low corruption. In 2020, Rwanda experienced a 3.4 percent GDP contraction, marking its first recession since the 1994 genocide.

The RDB ( https://rdb.rw ) 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 (https://rdb.rw/e-services) and receive a certificate in as few 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: 1) export; 2) manufacturing including -textiles and apparel, electronics, information communication and technology equipment, large scale agricultural operations excluding coffee and tea, pharmaceuticals, processing in wood, glass and ceramics, processing and value addition in mining, agricultural equipment and other related industries that fall in these categories; 3) energy generation, transmission and distribution; 4) information and communication technologies, business process outsourcing and financial services; 5) mining activities relating to mineral exploration; 6) transport, logistics and electric mobility; 7) construction or operations of specialized innovation parks or specialized industrial parks; 8) affordable housing; 9) tourism, which includes hotels, adventure tourism and agro-tourism; 10) horticulture and cultivation of other high-value plants; 11) creative arts in the subsector of the film industry; 12) skills development in areas where the country has limited skills and capacity.

In February 2021, Rwanda made significant changes to the Investment Code to address previous investor complaints and included new incentives to attract investments in strategic growth sectors. The GOR created the Rwanda Financial Intelligence Centre (FIC), passed a law on Anti-Money Laundering and Counter-Terrorism Financing, and passed a law on Mutual Legal Assistance in Criminal Matters to fully criminalize money laundering and terrorism financing and align the country with OECD rules. The GOR amended the Company Act and passed a law on partnerships to allow professional service providers to register as partners rather than limited liability companies.

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 needed to obtain water and sewage connections to facilitate construction permits. It also began 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.

Several 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 Rwanda Revenue Authority (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 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 regarding taxes and equal access to licenses, approvals, and procurement. Foreign firms should receive value added tax (VAT) 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 few 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. Others pointed to a lack of clarity on who the regulator is on certain matters. The U.S. Treasury Department’s Office of Technical Assistance (OTA) 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. RRA has also instituted improvements to its systems that will automate certain processes and make many more processes digitized. Per RRA, it is now able to handle VAT claims in real time due to these changes.

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 with the government, ruling party, and military continuing to play a dominant role in Rwanda’s private sector. Foreign investors can acquire real estate but with a general limit on land ownership according to the 2013 land law. While local investors can acquire land through leasehold agreements that extend to a maximum of 99 years, foreign investors can be restricted to leases of 49 to 99 years with the possibility of renewal. Freehold is granted only to Rwandan citizens for properties of at least five hectares but may also be granted to foreigners for properties in designated Special Economic Zones, on a reciprocal basis, or for land co-owned with Rwandan citizens (if Rwandan citizens own at least 51 percent). However, according to an October 2020 draft law, freehold tenure would continue for Rwandan citizens on lands of at least two hectares and freehold tenure for foreigners could be approved by a Presidential Order for exceptional circumstances of strategic national interests. Long-term leases (emphyteutic leases) in residential and commercial areas for both citizens and foreigners acquiring land through private means would be increased to 99 years compared to the current 20 and 30 years, respectively. As of April 2021, this draft law had not yet been finalized. The Investment Code includes equal treatment for foreigners and nationals regarding 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 a 15 percent withholding tax and an 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 RDB generates a certificate of registration, company tax identification and employer social security contribution numbers are automatically created. 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. In October 2020, RDB launched electronic auctioning to reduce fraud by increasing transparency. The new system reduces the time needed to enforce judgments, reducing court fees and allowing payments electronically. RDB 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; and establish a commercial division at the Court of Appeal to fast-track commercial dispute resolution.

Rwanda promotes gender equality and has pioneered several 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 Investment Code provides incentives for internationalization. A small and medium registered investor or emerging investor with an investment project involved in export is entitled to a 150 percent tax deduction of all qualifying expenditures relating to internationalization including: 1) overseas marketing and public relations activities including launch of in-store promotions, road shows, overseas business or trade conferences; 2) participation in overseas trade fairs not supported by another existing initiative; 3) overseas business development costs; 4) market entry and research costs such as costs of establishing a legal entity in a foreign market, salary costs of employees stationed in foreign market, and cost of analysis of market opportunities, supply chain and entry requirements. The Commissioner General of RRA approves qualifying expenditures in consultation with the CEO of RDB. Eligible registered investors receive pre-approval of qualifying expenditures through a joint review process administered by the RRA, RDB and the Ministry of Trade and Industry (MINICOM). An eligible registered investor may claim the tax deduction on a maximum of USD 100,000 of qualifying expenditures in each year. There are no restrictions in place limiting domestic firms seeking to invest abroad.

3. Legal Regime

Transparency of the Regulatory System

The GOR generally employs transparent policies and effective laws largely consistent with international norms. Rwanda is a member of the UN Conference on Trade and Development’s international network of transparent investment procedures. The Rwanda eRegulations system is an online database designed to bring transparency to investment procedures in Rwanda. Investors can find further information on administrative procedures at: https://businessprocedures.rdb.rw/.

The GOR publishes Rwandan laws and regulations in the Official Gazette and online at https://www.minijust.gov.rw/index.php?id=133 . Government institutions generally have clear rules and procedures, but implementation can sometimes be uneven. Investors have cited breaches of contracts and incentive promises and the short time given to comply with changes in government policies as hurdles to complying with regulations. For example, in 2019 the Parliament passed a law banning single use plastic containers. Investors in the beverage and agro-processing sectors expressed concern that the law would have a serious impact on their operations, that alternative packaging was not available in some cases, and that the GOR did not consult effectively with stakeholders before submitting it. The law built on a ban on the manufacture and use of polyethylene bags introduced in 2008. Enforcement has not taken full effect as of April 2021.

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

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

The American Chamber of Commerce launched in November 2019, and a European Business Chamber of Commerce launched in March 2020. Both are coordinating policy advocacy efforts to improve the business environment for American, European, and other foreign firms in Rwanda. The Chinese also have a Chamber of Commerce registered in China that is active in Rwanda.

International Regulatory Considerations

Rwanda is a member of the EAC Standards Technical Management Committee. Approved EAC measures are generally incorporated into the Rwandan regulatory system within six months and are published in the Official Gazette like other domestic laws and regulations. Rwanda is also a member of the Standards Technical Committee for the International Standardization Organization, the African Organization for Standardization, and the International Electrotechnical Commission. Rwanda is a member of the International Organization for Legal Metrology and the International Metrology Confederation. The Rwanda Standards Board represents Rwanda at the African Electrotechnical Commission. Rwanda has been a member of the WTO since May 22, 1996 and notifies the WTO Committee on Technical Barriers to Trade on draft technical regulations.

Legal System and Judicial Independence

The Rwandan legal system was originally based on the Belgian civil law system. However, since the renovation of the legal framework in 2002, the introduction of a new constitution in 2003, and the country’s entrance to the Commonwealth in 2009, there is now a mixture of civil law and common law. Rwanda’s courts address commercial disputes and facilitate enforcement of property and contract rights. Rwanda’s judicial system suffers from a lack of resources and capacity but continues to improve. Investors occasionally state that the government takes a casual approach to contract sanctity and sometimes fails to enforce court judgments in a timely fashion. The government generally respects judicial independence, though domestic and international observers have noted that outcomes in high-profile politically sensitive cases appeared predetermined.

In August 2018, the GOR created a Court of Appeals to reduce backlogs and expedite the appeal process without going to the Supreme Court. The new Court of Appeals arbitrates cases handled by the High Court, Commercial High Court, and Military High Court. The Supreme Court continues to decide on cases of injustice filed from the Office of the Ombudsman and on constitutional interpretation. Based on Article 15 of Law nº 76/2013 of 11/09/2013, the Office of the Ombudsman has the authority to request that the Supreme Court reconsider and review judgments rendered at the last instance by ordinary, commercial, and military courts. More information on the review process can be found at https://ombudsman.gov.rw/en/?Court-Judgement-Review-Unit-1375 . A tax court is yet to be established in Rwanda. In 2019, the RDB announced the government’s intent to create a commercial division at the Court of Appeal to fast-track resolution of commercial disputes.

Laws and Regulations on Foreign Direct Investment

National laws governing commercial establishments, investments, privatization and public investments, land, and environmental protection are the primary directives governing investments in Rwanda. Since 2011, the government has reformed tax payment processes and enacted additional laws on insolvency and arbitration. The Investment Code establishes policies on FDI, including dispute settlement (Article 13). The RDB publishes investment-related regulations and procedures at: http://businessprocedures.rdb.rw .

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

A new property tax law was passed in August 2018. The new law removes the provision that taxpayers must have freehold land titles to pay property taxes. Small and medium enterprises (SMEs) will receive a two-year tax trading license exemption upon establishment.

In April 2018, the GOR passed a new law to streamline income tax administration and to clarify the law. The new law can be accessed here: http://www.primature.gov.rw/media-publication/publication/latest-offical-gazettes.html?no_cache=1&tx_drblob_pi1%5BdownloadUid%5D=464 .

The most recent laws (passed between 2020-21) on FDI are below:

  • Amended law on Investment Promotion and Facilitation:

https://www.minijust.gov.rw/fileadmin/user_upload/Minijust/Publications/Official_Gazette/2021_Official_Gazettes/_February/Official_Gazette_N___04_bis_of_08.02.2021_Ubufatanye_Mpanabyaha___Korohereza_Ishoramari.pdf

  • Amended Company Act:

https://www.minijust.gov.rw/fileadmin/user_upload/Minijust/Publications/Official_Gazette/2021_Official_Gazettes/_February/Official_Gazette_N___04_ter_of_08-02-2021_Companies_ACT_2021.pdf

  • Law on Mutual Assistance in Criminal Matters:

https://www.minijust.gov.rw/fileadmin/user_upload/Minijust/Publications/Official_Gazette/2021_Official_Gazettes/_February/Official_Gazette_N___04_bis_of_08.02.2021_Ubufatanye_Mpanabyaha___Korohereza_Ishoramari.pdf

  • Law on Anti-Money Laundering and Terrorism Finance:

https://gazettes.africa/archive/rw/2020/rw-government-gazette-dated-2020-02-24-no-7.pdf

  • Law on Partnerships:

https://www.minijust.gov.rw/fileadmin/user_upload/Minijust/Publications/Official_Gazette/2021_Official_Gazettes/_February/Official_Gazette_N___Special_of_17.02.2021_Partnershiip_Ubufatanye___RSSB.pdf

  • Law on Transfer Pricing:

https://www.minijust.gov.rw/fileadmin/user_upload/Minijust/Publications/Official_Gazette/_2020_Official_Gazettes/December/Official_Gazette__N___40_of_14.12.2020_Transfer_Pricing___Ubworozi_bwo_mu_mazi_Aquacultre_Uburobyi___Erratum___BNR___Amazina___Cooperative___Imiryango.pdf

Competition and Antitrust Laws

The GOR created the Competition and Consumer Protection Unit at the Ministry of Trade and Industry (MINICOM) in 2010 to address competition and consumer protection issues. The government is setting up the Rwanda Inspectorate, Competition and Consumer Protection Authority (RICA), a new independent body with the mandate to promote fair competition among producers. The body will reportedly aim to ensure consumer protection and enforcement of standards. To read more on competition laws in Rwanda, please visit: https://www.minicom.gov.rw/fileadmin/user_upload/Minicom/Publications/Laws/Official_Gazette_no_46_of_12-11-2012_competition_law.pdf https://www.minicom.gov.rw/fileadmin/user_upload/Minicom/Publications/Policies/CompetitionPolicy_September_2010-3.pdf 

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

Some U.S. companies have expressed frustration that while authorities require them to operate as a formal enterprise that meets all Rwandan regulatory requirements, some local competitors are allowed to operate informally without complying fully with all regulatory requirements. Other investors have claimed SOEs, ruling party-aligned, and politically connected business competitors receive preferential treatment in securing public incentives and contracts.

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

Expropriation and Compensation

The Investment Code forbids the expropriation of investors’ property in the public interest unless the investor is fairly compensated. An expropriation law came into force in 2015, which included more explicit protections for property owners.

A 2017 study by Rwanda Civil Society Platform argues that the government conducts expropriations on short notice and does not provide sufficient time or support to help landowners fairly negotiate compensation. The report includes a survey that found only 27 percent of respondents received information about planned expropriation well in advance of action. While mechanisms exist to challenge the government’s offer, the report notes that landowners are required to pay all expenses for the second valuation, a prohibitive cost for rural farmers or the urban poor. Media have reported that wealthier landowners have the ability to challenge valuations and have received higher amounts. Political exiles and other embattled opposition figures have been involved in taxation lawsuits that resulted in their “abandoned properties” being sold at auction, allegedly at below market values.

Dispute Settlement

ICSID Convention and New York Convention

The Investment Code states that “a dispute that arises between an investor and a State organ in connection with a registered investment should be amicably settled. If an amicable settlement cannot be reached, parties must refer the dispute to an agreed arbitration institution or to any other dispute settlement procedure provided for under an agreement between both parties. If no dispute settlement procedure is provided under a written agreement, both parties must refer the dispute to the competent court.”

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

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

Investor-State Dispute Settlement

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

International Commercial Arbitration and Foreign Courts

In 2012, the GOR launched the Kigali International Arbitration Center (KIAC). KIAC case handling rules are modeled on the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules. According to the KIAC’s 2020 activity report, KIAC had reviewed 160 cases by June 2020. Close to 40 percent of those cases were international with parties from more than 20 nationalities (Burundi, China, Ethiopia, Egypt, France, India, Italy, Kenya, Korea, Pakistan, South Africa, South Korea, Singapore, Rwanda, Spain, Switzerland, Turkey, Uganda, the United States, and Zambia). Arbitrators appointed were from Rwanda, Kenya, Malaysia, Nigeria, Canada, the United States, and Singapore. Of the 89 KIAC-approved international arbitrators, only four are of Rwandan nationality, suggesting that KIAC draws from a large pool of professionals in alternative dispute resolutions from all over the world. All 38 domestic arbitrators are Rwandan nationals.

Some businesses report being pressured to use the Rwanda-based KIAC for the seat of arbitration in contracts signed with the GOR. Some of these companies have indicated that they would prefer arbitration take place in a third country, noting that KIAC has a short track record and is domiciled in Rwanda. Moreover, some companies have reported difficulty in securing international financing due to the KIAC provision in their contracts.

Bankruptcy Regulations

Rwanda ranks 38 out of 190 economies for resolving insolvency in the World Bank’s 2020 Doing Business Report and is number two in Africa. It takes an average of two and a half years to conclude bankruptcy proceedings in Rwanda. Per the World Bank 2020 Doing Business Report, the recovery rate for creditors on insolvent firms was reported at 19.3 cents on the dollar, with judgments typically made in local currency.

In April 2018, the GOR instituted a new Insolvency and Bankruptcy Law. One major change is the introduction of an article on “pooling of assets” allowing creditors to pursue parent companies and other members of the group, in case a subsidiary is in liquidation. The new law can be accessed here: https://org.rdb.rw/wp-content/uploads/2020/06/Insolvency-Law-OGNoSpecialbisdu29April2018.pdf

On February 8, 2021, Rwanda passed a new Company Act, with several bankruptcy and insolvency provisions. The new law can be found here: https://www.minijust.gov.rw/fileadmin/user_upload/Minijust/Publications/Official_Gazette/2021_Official_Gazettes/_February/Official_Gazette_N___04_ter_of_08-02-2021_Companies_ACT_2021.pdf

On February 17, 2021, Rwanda published a new law on partnerships with several provisions on partnerships’ insolvency. The new law can be accessed here: https://www.minijust.gov.rw/fileadmin/user_upload/Minijust/Publications/Official_Gazette/2021_Official_Gazettes/_February/Official_Gazette_N___Special_of_17.02.2021_Partnershiip_Ubufatanye___RSSB.pdf

6. Financial Sector

Capital Markets and Portfolio Investment

In February 2021, the GOR introduced new incentives to support the Rwanda Stock Exchange and the Capital Market Authority through the Investment Code. A preferential withholding tax of five percent is applicable to dividends and interest income paid to investors in companies listed on the Rwanda Stock Exchange. A preferential corporate income tax rate of three percent applies to collective investment schemes. A preferential corporate income tax rate of fifteen percent applies to fund management entities, wealth management services, financial advisory entities, financial technology entities, captive insurance schemes, mortgage finance institutions, fund administrators, finance lease entities, and asset backed securities.

In December 2017, the GOR established Rwanda Finance Limited (RFL), a state-owned enterprise charged with creating the Kigali International Financial Centre (KIFC). The goal is to create a conducive ecosystem to entice pan-African and international financial service providers and investment funds to Rwanda. KIFC is scheduled to be launched on the sidelines of Commonwealth Heads Of Governments Meeting (CHOGM) taking place in Kigali in June 2021. RFL has successfully pushed the GOR to change many Rwandan investment, banking, and commercial laws to in order to align with OECD/EU and AML/CFT requirements. In November 2019, BNR introduced a multiple bond issuance program. In the 2019-2020 financial year, seven bonds were reopened, eight new bonds were issued, and three multiple issuances were performed. Oversubscription reached 138% on average. BNR implemented reforms in recent years that are helping to create a secondary market for Rwandan treasury bonds.

In November 2019, BNR introduced a multiple bond issuance program. In the 2019-2020 financial year, seven bonds were reopened, eight new bonds were issued, and three multiple issuances were performed. Oversubscription reached 138% on average. BNR implemented reforms in recent years that are helping to create a secondary market for Rwandan treasury bonds.

In January 2021, the IMF completed its third review of Rwanda’s economic performance under a Policy Coordination Instrument, which can be found here: https://www.imf.org/en/Publications/CR/Issues/2021/01/04/Rwanda-Third-Review-Under-the-Policy-Coordination-Instrument-Press-Release-Staff-Report-and-49984

https://www.imf.org/en/Publications/CR/Issues/2021/01/04/Rwanda-Third-Review-Under-the-Policy-Coordination-Instrument-Press-Release-Staff-Report-and-49984

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, 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 $1 million must often engage in multi-party loan transactions, usually by leveraging support from larger regional banks. Credit terms generally reflect market rates, and foreign investors can 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.

The banking sector holds more than 67 percent of total financial sector assets in Rwanda. In total, Rwanda’s banks have assets of around $3.8 billion, which increased 18.5 percent between June 2018 and June 2020, according to BNR. Rwanda’s financial sector remains highly concentrated. The share of the three largest banks’ assets increased from 46.5 percent in December 2018 to 48.4 percent in December 2019. The largest, the partially state-owned Bank of Kigali (BoK), holds more than 30 percent of all assets. The total number of bank and micro-finance institution (MFI) accounts increased from 7.1 million to 7.7 million between 2018-2019.

Local banks often generate significant revenue from holding government debt and from charging a variety of fees to banking customers. The capital adequacy ratio decreased to 23.7 percent in June 2020 from 24.1 percent over the year but was still well above the prudential minimum of 15 percent, suggesting the Rwandan banking sector continues to be generally risk averse. Non-performing loans increased from 4.9 in December 2019 to 5.5 percent in June 2020 due to the COVID-19 pandemic’s disruption of economic activities.

The IMF gives BNR high marks for its effective monetary policy. BNR introduced a new monetary policy framework in 2019, which shifted toward an inflation-targeting monetary framework in place of a quantity-of-money framework. In April 2020, the BNR arranged a 50 billion RWF ($53.4 Million) liquidity fund for local banks facing challenges from COVID-19. The BNR allowed banks to restructure loans affected by the pandemic by authorizing an average of four months in loan holidays. Additionally, in March 2020, the BNR took a decision to suspend distribution of dividends from profits generated in 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. Atlas Mara was, in turn, acquired by Kenyan based KCB bank. Moroccan-based Bank of Africa, a minority bank in Rwanda, actively discourages American account holders due to requirements imposed by the Foreign Account Tax Compliance Act (FACTA), which charges foreign banks for expenses incurred while auditing an American.

In November 2020, the GOR signed an MOU with the African Export-Import Bank (Afreximbank) to host the permanent headquarters of Afrexim Fund for Export Development in Africa (FEDA) in Kigali. FEDA will operate as an equity investment fund that provides seed capital to companies in Africa, emphasizing projects that promote intra-African trade, trade-related infrastructure, and value-added exports. According to RDB, the fund will have an initial commitment of $350 million from Afreximbank and is expected to grow to over $1 billion in the future.

Rwandans primarily rely on cash or mobile money to conduct transactions, though use of debit and credit cards is expanding. 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. Credit cards are becoming more common in major cities, especially at locations frequented by foreigners, but are not used in rural areas. In the financial year 2019-20, the number of retail point of sale (POS) using cards increased by 29 percent compared to 2018-19. ATM terminals decreased by 15 percent due to the adoption of other channels such as agency, internet, and mobile banking. Use of mobile money has grown by more than 500 percent since March 2020 due to changes brought about by COVID-19 and business closures.

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. On a daily basis, the BNR publishes an official exchange rate, 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 ten percent of GDP in 2019. In the 2019-2020 fiscal year, BNR reported that Rwanda’s trade deficit widened by 23.7 percent. Transacting locally in foreign currency is prohibited in Rwanda. Regulations set a ceiling on the amount of foreign currency that can leave the country per day. In addition, regulations specify limits for sending money outside the country; the 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 borrower to have a turnover of at least RWF 50 million ($50,000) or equivalent in foreign currency and have a known income stream in foreign currency not below 150 percent of the total installment repayments. Moreover, 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 $10,000 to mitigate the risk of potential money laundering. 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 ($204 million). The ADF operates under the custodianship of the BNR and reports quarterly and annually to MINECOFIN. 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, voluntary contributions from citizens and the private sector, and other donations, ADF receives RWF 5 billion ($5 million) every year from tax revenues and five percent of proceeds from every public asset that the GOR has privatized. The fund also receives five 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 (the most recent report available).

7. State-Owned Enterprises

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 sectors. Some investors complain about competition from state-owned and ruling party-aligned businesses. SOEs and utilities appear in the national budget, but the financial performance of most SOEs is only detailed in an annex that is not publicly available. The most recent 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, Rwanda Energy Group, 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 National Bank of Rwanda, Development Bank of Rwanda, Special Guarantee Fund, Rwanda National Investment Trust Ltd, Agaciro Development Fund, BDF and the Rwanda Social Security Board. The GOR has interests in the BoK, Ultimate Concepts Limited (UCL), New Horizon Limited, Rwanda Convention Bureau, BSC, CIMERWA, Gasabo 3D Ltd, AoS, Korea Telecom Rwanda Network, 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 (the 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 not through public offerings but through mutual agreements directly between the government and the private investor, some of whom have personal relationships with senior government officials.

10. Political and Security Environment

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 as the second 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 Congo border, given the possibility of fighting and cross-border attacks involving armed rebel and militia groups. 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 repeatedly between 2008 and 2014 in Rwanda. There have been several reported cross-border attacks in Western Rwanda on Rwandan police and military posts 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 originating from Uganda to cross the Rwandan-Ugandan border since February 2019. Transit from/to Kenya through Uganda is allowed. Because of political tensions between Rwanda and Uganda, most of the commercial traffic to Rwanda goes through the Tanzanian border. In May 2020, the Rwanda-Tanzania border crossings were negatively impacted due to an 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

https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Rwanda.html

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical Source* USG or International Statistical Source

USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $ 9.96 billion 2019 $10.35 billion http://www.statistics.gov.rw/
publication/gdp-national-accounts-2020

https://www.worldbank.org/en/country/rwanda 
Foreign Direct Investment Host Country Statistical source* USG or International Statistical Source

USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country ($M USD, stock positions) 2018 $182.7 million 2018 n.a. https://www.statistics.gov.rw/datasource/
foreign-private-capital-census-2019
 
BEA data available
http://bea.gov/international/direct_
investment_multinational_companies_
comprehensive_data.htm
Host Country’s FDI in the United States ($M USD, stock positions) 2020 n.a. 2020 n.a. BEA data available at
http://bea.gov/international/direct_
investment_multinational_companies_
comprehensive_data.htm
Total Inbound Stock of FDI as % host GDP 2018 n.a 2020 n.a.
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/Top Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward Amount 100% Total Outward Amount 100%
Mauritius 779.5 24.4% n.a.
Kenya 239.2 7.5%
Netherlands 211.5 6.6%
 South Africa 183.8 5.7%
 United States 182.7 5.7%
“0” reflects amounts rounded to +/- $500,000.

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

Data on Rwanda equity security holdings by nationality is not available.  According to a 2019 BNR report, portfolio investment remains the lowest component of foreign investment in Rwanda mainly due to the low level of financial market development.  Portfolio investment stock amounted to $109.3 million in 2018, a 5 percent increase from 2017 levels.  In 2018, Rwanda recorded foreign portfolio inflows of $5.9 million compared to $0.3 million in 2017.

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries Amount 100% All Countries Amount 100% All Countries Amount 100%
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Saint Kitts and Nevis

Executive Summary

The Federation of St. Christopher and Nevis (St. Kitts and Nevis) is a member of the Organization of Eastern Caribbean States (OECS) and the Eastern Caribbean Currency Union (ECCU).  The government seeks to facilitate a conducive business climate to attract more foreign investment.  St. Kitts and Nevis remains vulnerable to external shocks such as climate change impacts, natural disasters, and global economic downturns.  According to Eastern Caribbean Central Bank (ECCB) figures, the economy of St. Kitts and Nevis had an estimated gross domestic product (GDP) of $927.4 million (2.5 billion Eastern Caribbean dollars) in 2020, having contracted 11.2 percent mainly due to the ongoing COVID-19 pandemic and the resulting impact on the tourism sector.  The International Monetary Fund (IMF) forecasts real GDP growth of -2 percent in 2021.

St. Kitts and Nevis’ ranking in the World Bank’s Doing Business Report remains at the 2020 ranking of 139th out of 190 countries, as the report was not updated during the reporting year.

The COVID-19 pandemic has significantly reduced the economic gains St. Kitts and Nevis had made in recent years.  The impact of the pandemic on tourism, a mainstay of St. Kitts and Nevis’s economy that generates over 60 percent of GDP, has had ripple effects across the economy.  The government has introduced measures to protect workers and key economic sectors.

St. Kitts and Nevis has identified priority sectors for investment.  These include financial services, tourism, real estate, agriculture, information technology, education services, renewable energy, and limited light manufacturing.

The government provides some investment incentives for businesses that are considering establishing operations in St. Kitts or Nevis, encouraging both domestic and foreign private investment.  Foreign investors can repatriate all profits, dividends, and import capital.

The country’s legal system is based on British common law.  It does not have a bilateral investment treaty with the United States.  It has a Double Taxation Agreement with the United States, although the agreement only addresses social security benefits.

In 2016, St. Kitts and Nevis signed an Intergovernmental Agreement in observance of the U.S. Foreign Account Tax Compliance Act (FATCA), making it mandatory for banks in St. Kitts and Nevis to report banking information of U.S. citizens.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 45 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 139 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 476 http://www.bea.gov/international/factsheet/
World Bank GNI per capita ($M USD) 2019 19,920 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of St. Kitts and Nevis strongly encourages foreign direct investment, particularly in industries that create jobs, earn foreign currency, and have a positive impact on its citizens.

The country is home to the ECCB, the Eastern Caribbean Securities Exchange (ECSE), and the Eastern Caribbean Securities Regulatory Commission (ECSRC).

In the federation, each island has a separate investment promotion agency, the St. Kitts Investment Promotion Agency (SKIPA) and the Nevis Investment Promotion Agency (NIPA).  Both agencies have introduced several investment incentives for businesses that consider locating in the federation.  SKIPA and NIPA provide “one-stop shop” facilitation services to investors, guiding them through the various stages of the investment process.

The federal government encourages investment in all sectors, but targeted sectors include financial services, tourism, real estate, agriculture, information and communication technologies, international education services, renewable energy, ship registries, and limited light manufacturing.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in St. Kitts and Nevis.  Foreign investors may hold up to 100 percent of an investment.  Local enterprises generally welcome joint ventures with foreign investors to access technology, expertise, markets, and capital.

Foreign investment in St. Kitts and Nevis is generally not subject to any restrictions, and foreign investors receive the same treatment as citizens.  The only exception to this is the requirement that foreign investors obtain an Alien Landholders License to purchase residential or commercial property.

Other Investment Policy Reviews

The OECS, of which St. Kitts and Nevis is a member, has not conducted a World Trade Organization (WTO) trade policy review in the last three years.

Business Facilitation

SKIPA and NIPA facilitate domestic and foreign direct investment in priority sectors and advise the government on the formation and implementation of policies and programs to attract investment.  Both agencies provide business support services and market intelligence to investors.

St. Kitts and Nevis ranks 109th of 190 countries in starting a business, which takes seven procedures and about 18.5 days to complete, according to the World Bank’s 2020 Doing Business Report.  It is not mandatory that an attorney prepare incorporation documents.  A business must register with the Financial Services Regulatory Commission, the Registrar of Companies, the Ministry of Finance, the Inland Revenue Department, and the Social Security Board.

Outward Investment

There is no restriction on domestic investors seeking to do business abroad.  Local companies in St. Kitts and Nevis are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the OECS Economic Union and the Caribbean Community Single Market and Economy (CSME), which enhance the competitiveness of the local and regional private sectors across traditional and emerging high-potential markets.

3. Legal Regime

Transparency of the Regulatory System

The government of St. Kitts and Nevis provides a legal framework to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety.  The St. Kitts Ministry of Finance and SKIPA and the Nevis Ministry of Finance and NIPA provide oversight of the system’s transparency as it relates to investment.

The incorporation and registration of companies differs somewhat on the country’s two constituent islands.  In St. Kitts, the Companies Act regulates the process.  On Nevis, the Nevis Island Business Corporation Ordinance regulates the incorporation of companies.  There are no nationality restrictions for directors in a company, and in general, national treatment is applied.  All registered companies must have a registered office in St. Kitts and Nevis.

Rulemaking and regulatory authority lies with the unicameral parliament of St. Kitts and Nevis.  The parliament consists of 11 members elected in single-seat constituencies (eight from St. Kitts and three from Nevis) for a five-year term.

Although St. Kitts and Nevis does not have legislation that guarantees access to information or freedom of expression, access to information is generally available in practice.  The government maintains an information service and a website, where it posts information such as directories of officials and a summary of laws and press releases.  The government budget and limited debt obligation information are available on the website: https://www.gov.kn/.  Accounting, legal, and regulatory procedures are generally transparent and consistent with international norms.  The International Financial Accounting Standards, which stem from the General Accepted Accounting Principles, govern the accounting profession in St. Kitts and Nevis.

The independent Office of the Ombudsman guards against abuses by government officers in the performance of their duties.  The Ombudsman is responsible for investigating any complaint relating to any decision or act of any government officer or body in any case in which a member of the public claims to be aggrieved or appears to the Ombudsman to be the victim of injustice due to the exercise of the administrative function of that officer or body.

Regulations are developed nationally and regionally.  Nationally, the relevant line ministry reviews regulations.  Ministries then submit the results of their reviews to the Ministry of Justice, Legal Affairs and Communications for the preparation of the draft legislation.  Subsequently, the Ministry of Justice, Legal Affairs and Communications reviews all agreements and legal commitments (national, regional, and international) to be undertaken by St. Kitts and Nevis to ensure consistency prior to finalization.  SKIPA has the main responsibility for project-level supervision, while the Ministry of Finance monitors investments to collect information for national statistics and reporting purposes.

St. Kitts and Nevis’s membership in regional organizations, particularly the OECS and its Economic Union, commits it to implement all appropriate measures to ensure the fulfillment of its various treaty obligations.  For example, the Banking Act, which establishes a single banking space and the harmonization of banking regulations in the Economic Union, is uniformly in force in the eight member territories of the ECCU, although there are some minor differences in implementation from country to country.  The enforcement mechanisms of these regulations include penalties or legal sanctions.

International Regulatory Considerations

As a member of the OECS and the Eastern Caribbean Customs Union, St. Kitts and Nevis subscribes to a set of principles and policies outlined in the Revised Treaty of Basseterre.  The relationship between national and regional systems is such that each participating member state is expected to coordinate and adopt, where possible, common national policies aimed at the progressive harmonization of relevant policies and systems across the region.  Thus, St. Kitts and Nevis is obligated to implement regionally developed regulations, such as legislation passed under OECS authority, unless specific concessions are sought.

The St. Kitts and Nevis Bureau of Standards develops, establishes, maintains, and promotes standards for improving industrial development, industrial efficiency, the health and safety of consumers, the environment, food and food products, and the facilitation of trade.  It also conducts national training and consultations in international standards practices.  As a signatory to the World Trade Organization (WTO) Agreement on the Technical Barriers to Trade, St. Kitts and Nevis, through the St. Kitts and Nevis Bureau of Standards, is obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.

St. Kitts and Nevis ratified the WTO Trade Facilitation Agreement (TFA) in 2016.  Ratification of the Agreement is an important signal to investors of the country’s commitment to improving its business environment for trade.  The TFA aims to improve the speed and efficiency of border procedures, facilitate reductions in trade costs, and enhance participation in the global value chain.  St. Kitts and Nevis has already implemented some TFA requirements.  A full list is available at: https://www.tfadatabase.org/members/saint-kitts-and-nevis/measure-breakdown.  St. Kitts and Nevis ranks 71st out of 190 countries in trading across borders in the World Bank’s 2020 Doing Business Report.

Legal System and Judicial Independence

St. Kitts and Nevis bases its legal system on the British common law system.  The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court (ECSC), junior judges, and magistrates administer justice in the country.  The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal.  The High Court hears criminal and civil matters and makes determinations on interpretation of the Constitution.  Parties may appeal to the ECSC, an itinerant court that hears appeals from all OECS members.  Final appeal is to the Judicial Committee of the Privy Council of the UK.

The Caribbean Court of Justice (CCJ) is the regional judicial tribunal.  The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas.  In its appellate jurisdiction, the CCJ considers and determines appeals from CARICOM member states, which are parties to the Agreement Establishing the Caribbean Court of Justice.  Currently, St. Kitts and Nevis is subject only to the original jurisdiction of the CCJ.

The United States and St. Kitts and Nevis are both parties to the WTO.  The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.

Laws and Regulations on Foreign Direct Investment

St. Kitts and Nevis’ policy is to attract foreign direct investment into the priority sectors identified under its National Diversification Strategy.  These include financial services, tourism, real estate, agriculture, information technology, education services, and limited light manufacturing.  However, investment opportunities also exist in renewable energy and other services.  The main laws concerning foreign investment include the Fiscal Incentive Act, the Hotels Aid Act, and the Companies Act.

SKIPA and NIPA offer websites useful for navigating procedures and registration requirements for foreign investors at https://investstkitts.kn and https://investnevis.org .  St. Kitts also offers an online investment handbook at https://goldenbookskn.com.

Under St. Kitts and Nevis’ citizenship by investment (CBI) program, foreign individuals can obtain citizenship without needing to establish residence (or gaining voting rights).  Applicants are required to undergo a due diligence process before citizenship can be granted.  A minimum investment for a single investor to qualify is $200,000 in real estate or a $150,000 contribution to the Sustainable Growth Fund.  Applicants must also provide a full medical certificate and evidence of the source of funds.  Applications for CBI status for real estate projects should be submitted to SKIPA for review and processing.  Further information is available at: http://www.ciu.gov.kn/.

Competition and Anti-Trust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM states.  Member states are required to establish and maintain a national competition authority for implementing the rules of competition.  CARICOM established a Caribbean Competition Commission to apply rules of competition regarding anti-competitive cross-border business conduct.  CARICOM competition policy addresses anti-competitive business conduct such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within CARICOM, and actions by which an enterprise abuses its dominant position within CARICOM.  St. Kitts and Nevis does not have domestic legislation regulating competition.

Expropriation and Compensation

St. Kitts and Nevis employs eminent domain laws which allow the government to expropriate private property.  The government is required to compensate owners.  There are also laws that permit the acquisition of private businesses, and the government claims such laws are constitutional.  The concept of eminent domain and the expropriation of private property is typically governed by laws that require governments to adequately compensate owners of the expropriated property at the time of its expropriation or soon thereafter.  In some cases, the procedure for compensation of owners favors the government valuation.

The U.S. Embassy in Bridgetown is aware of two separate and outstanding cases involving the seizure of private land by the government.  In the first case, the previous government agreed to pay the U.S. citizen claimant in installments and completed the first two installments.  According to certain parties to the dispute, the current government defaulted on two installments.  Although a court in St. Kitts and Nevis ordered the government to complete the 2015 and 2016 installments, the government has yet to do so.  The government claims another individual made a claim on the property, and that it must wait until a court rules on the other claim before completing payments to the U.S. citizen owner.

In the second case, in 2015, an American company signed an agreement with St. Kitts and Nevis to provide two million gallons of water.  The government expropriated one of the company’s wells in November 2018 without compensation.  In 2019, the government agreed to pay a $1 million settlement to the company and to deposit an additional $500,000 into an escrow account.  The company subsequently agreed to a settlement of $750,000 plus the escrow deposit.  Although the government agreed to the payments, the Ministry of Infrastructure has not released the funds.  The U.S. Embassy in Bridgetown recommends caution when conducting business in St. Kitts and Nevis.

Dispute Settlement

ICSID Convention and New York Convention

St. Kitts and Nevis is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.  It is not a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Arbitration Convention.  However, as a member of the Organization of American States (OAS), St. Kitts and Nevis adheres to the New York Arbitration Convention.  The Arbitration Act is the main legislation that governs arbitration in St. Kitts and Nevis.

Investor-State Dispute Settlement

Investors are permitted to use national or international arbitration for contracts with the state.  St. Kitts and Nevis does not have a bilateral investment treaty or a free trade agreement with an investment chapter with the United States.

The country ranks 49th out of 190 countries in enforcing contracts in the 2020 World Bank Doing Business Report.  According to the report, dispute resolution in St. Kitts and Nevis generally took an average of 578 days with a cost of 26.6 percent of the claim.  The slow court system and bureaucracy are widely seen by foreign investors as main hindrances to timely resolution of commercial disputes.  Through the Arbitration Act, the local courts recognize and enforce foreign arbitral awards issued against the government.

International Commercial Arbitration and Foreign Courts

The Eastern Caribbean Supreme Court (ECSC) is the domestic arbitration body.  Local courts recognize and enforce foreign commercial arbitral awards.  International commercial arbitration in St. Kitts and Nevis is applied under the Arbitration Act.  The ECSC’s Court of Appeal also provides mediation.

Bankruptcy Regulations

St. Kitts and Nevis has a bankruptcy framework that grants certain rights to debtor and creditor.  The 2020 Doing Business Report ranks St. Kitts and Nevis 168th of 190 countries in resolving insolvency.

6. Financial Sector

Capital Markets and Portfolio Investment

St. Kitts and Nevis is a member of the ECCU.  As such, it is also a member of the ECSE and the Regional Government Securities Market.  The ECSE is a regional securities market established by the ECCB and licensed under the Securities Act of 2001, a uniform regional body of legislation governing the buying and selling of financial products for the eight member territories.  In 2020, the ECSE listed 155 securities, comprising 135 sovereign debt instruments, 13 equities, and seven corporate debt securities.  Market capitalization stood at $1.8 billion.  St. Kitts and Nevis is open to portfolio investment.

St. Kitts and Nevis accepted the obligations of Article VIII of the International Monetary Fund Agreement, Sections 2, 3 and 4 and maintains an exchange system free of restrictions on making payments and transfers for current international transactions.  The private sector has access to credit on the local market through loans, purchases of non-equity securities, trade credits, and other accounts receivable that establish a claim for repayment.

Money and Banking System

The eight participating governments of the ECCU have passed the Eastern Caribbean Central Bank Agreement Act.  The Act provides for the establishment of the ECCB, its management and administration, its currency, relations with financial institutions, relations with the participating governments, foreign exchange operations, external reserves, and other related matters.  St. Kitts and Nevis is a signatory to this agreement, and the ECCB controls St. Kitts and Nevis’s currency and regulates its domestic banks.

Domestic and foreign banks can establish operations in St. Kitts and Nevis.  The Banking Act requires all commercial banks and other institutions to be licensed in order to conduct any banking business.  The ECCB regulates financial institutions.  As part of ongoing supervision, licensed financial institutions are required to submit monthly, quarterly, and annual performance reports to the ECCB.  In its latest annual report, the ECCB listed the commercial banking sector as stable.  Assets of commercial banks totaled $2.5 billion (6.8 billion Eastern Caribbean dollars) at the end of 2019.

St. Kitts and Nevis is well served by bank and non-bank financial institutions.  There are minimal alternative financial services.  Some citizens still participate in informal community group lending.

The Caribbean region has witnessed a withdrawal of correspondent banking services by U.S. and European banks.  CARICOM remains committed to engaging with key stakeholders and appointed a Committee of Ministers of Finance on Correspondent Banking to monitor the issue.

In 2019, the ECCB started an 18-month financial technology pilot to launch a Digital Eastern Caribbean dollar (DXCD) with its partner, Barbados-based Bitt Inc.  An accompanying mobile application, DCash, was officially launched on March 31, 2021 in four pilot countries including St. Kitts and Nevis.  The DCash pilot phase will run for 12 months.  The digital Eastern Caribbean currency will operate alongside physical Eastern Caribbean currency.

St. Kitts and Nevis enacted the Virtual Assets Bill, 2020, to regulate virtual currencies with the expectation that they will become increasingly prevalent.  The bill is intended to facilitate the ease of doing business in a cashless society, and to combat theft, fraud, money laundering, Ponzi schemes, and terrorist financing.

Foreign Exchange and Remittances

Foreign Exchange

St. Kitts and Nevis is a member of the ECCU and the ECCB.  The currency of exchange is the Eastern Caribbean Dollar (XCD).  As a member of the OECS, St. Kitts and Nevis has a fully liberalized foreign exchange system.  The XCD was pegged to the United States dollar at a rate of 2.70  Eastern Caribbean dollars to $1.00 in 1976.  As a result, the XCD does not fluctuate, creating a stable currency environment for trade and investment in St. Kitts and Nevis.

Remittance Policies

Companies registered in St. Kitts and Nevis have the right to repatriate all capital, royalties, dividends, and profits.  There are no restrictions on the repatriation of dividends for totally foreign-owned firms.  A mixed foreign-domestic company may repatriate profits to the extent of its foreign participation.

As a member of the OECS, there are no exchange controls in St. Kitts and Nevis and the invoicing of foreign trade transactions are allowed in any currency.  Importers are not required to make prior deposits in local funds and export proceeds do not have to be surrendered to government authorities or to authorized banks.  There are no controls on transfers of funds.  St. Kitts and Nevis is a member of the Caribbean Financial Action Task Force (CFATF).

The country passed the Anti-Money Laundering Bill, 2019.  The stated intent of this bill is to begin to bring the country into alignment with international standards for combating money laundering.  St. Kitts and Nevis also passed the Proceeds of Crime and Asset Recovery Bill, 2019, which aims to provide the government with an additional tool to combat money laundering and terrorist financing.

In 2016, the government signed an Intergovernmental Agreement in observance of FATCA, making it mandatory for banks in St. Kitts and Nevis to report the banking information of U.S. citizens.

Sovereign Wealth Funds

Neither the government of St. Kitts and Nevis, nor the ECCB, of which St. Kitts and Nevis is a member, maintains a sovereign wealth fund.

7. State-Owned Enterprises

State-owned enterprises (SOEs) in St. Kitts and Nevis work in partnership with ministries, or under their remit to carry out certain specific ministerial responsibilities.  There are currently about ten SOEs in St. Kitts and Nevis in areas such as tourism, investment services, broadcasting and media, solid waste management, and agriculture.  They are all wholly owned government entities.  Each is headed by a board of directors to which senior managers report.  A list of SOEs can be found at http://www.gov.kn.

Privatization Program

St. Kitts and Nevis does not currently have a targeted privatization program.

10. Political and Security Environment

St. Kitts and Nevis does not have a recent history of politically motivated violence or civil disturbance.  The government constantly reviews mandatory protocols and measures related to the COVID-19 pandemic. St. Kitts and Nevis’ general elections are constitutionally due in 2025.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 927.4 2019 1,053 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 476 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A 2019 169.1 UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx

* Source for Host Country Data: Eastern Caribbean Central Bank https://www.eccb-centralbank.org/statistics/dashboard-datas/.

Table 3: Sources and Destination of FDI
St. Kitts and Nevis does not appear in the IMF’s Coordinated Direct Investment Survey (CDIS).

Table 4: Sources of Portfolio Investment
St. Kitts and Nevis does not appear in the IMF Coordinated Portfolio Investment Survey (CPIS).

Saint Lucia

Executive Summary

Saint Lucia is a member of the Organization of Eastern Caribbean States (OECS) and the Eastern Caribbean Currency Union (ECCU).  Saint Lucia had an estimated Gross Domestic Product (GDP) of $2.122 billion in 2019 according to the latest figures obtained from the World Bank.  Tourism is Saint Lucia’s main economic sector, while real estate and transport are other leading sectors.  The COVID-19 pandemic has significantly impacted Saint Lucia’s economy, experiencing an 18.9 percent contraction in 2020.  The International Monetary Fund (IMF) forecasts 3.1 percent growth in 2021.  The government remains committed to creating a welcoming and open business climate to attract more foreign investment to the country.  Investment opportunities are focused primarily in tourism and hotel development, information and communication technology, manufacturing, international financial services, agribusiness, and creative industries.

Saint Lucia ranked 93 out of 190 countries in the 2020 World Bank’s Doing Business Report.

The Government of Saint Lucia provides several incentives to encourage domestic and foreign private investment.  For example, foreign investors in Saint Lucia can repatriate all profits, dividends, and import capital.

The Saint Lucia legal system is based on the British common law system, but its civil code and property law are greatly influenced by French law.  Saint Lucia does not have a bilateral investment treaty with the United States, but it has bilateral investment treaties with the United Kingdom and Germany.

In 2014, the Government of Saint Lucia signed an Intergovernmental Agreement in observance of the U.S. Foreign Account Tax Compliance Act (FATCA), making it mandatory for banks in Saint Lucia to report the banking information of U.S. citizens.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 N/A http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 93 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 412 http://www.bea.gov/international/factsheet/
World Bank GNI per capita ($M USD) 2019 11,020 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of Saint Lucia strongly encourages foreign direct investment (FDI).  Invest Saint Lucia has introduced several investment incentives for businesses that consider locating in Saint Lucia, encouraging both domestic and foreign private investment.  Invest Saint Lucia is managed by a Chief Executive Director and is overseen by a board of directors appointed by the government under the Office of the Prime Minister and Minister of Commerce, International Trade, Investment, Enterprise Development and Consumer Affairs. The state-run agency Invest Saint Lucia provides “one-stop shop” facilitation services to investors, helping to guide them through the various stages of the investment process.  It assesses investment proposals for viability and in accordance with the laws of Saint Lucia and provides investment promotion services.

Applicable government agencies, rather than Invest Saint Lucia, grant investment concessions.  Government policies provide liberal tax holidays, a waiver of import duty on imported plant machinery and equipment and imported raw and packaging materials, and export allowance or tax relief on export earnings.  Various laws provide fiscal incentives to encourage establishing and expanding foreign and domestic investment.

The Saint Lucian government encourages investment in all sectors, but targeted sectors include tourism, smart manufacturing and infrastructure, information and communication technologies, alternative energy, education, and business/knowledge processing operations.

Limits on Foreign Control and Right to Private Ownership and Establishment

There is no limit on the amount of foreign ownership or control in the establishment of a business in Saint Lucia.  The government allows 100 percent foreign ownership of companies in any sector.  Currently, there are no restrictions on foreign investors investing in military or security-related businesses or natural resources.  Trade licenses and other approvals/licenses may be required before establishment.

Invest Saint Lucia evaluates all FDI proposals and provides intelligence, business facilitation, and investment promotion to establish and expand profitable business enterprises in Saint Lucia.  Invest Saint Lucia also advises the government on issues that are important to the private sector and potential investors and advocates for an improved business climate, growth in investment opportunities, and improvements in the international competitiveness of the local economy.  It focuses on building and promoting Saint Lucia as an ideal location for investors, seeking and generating new investment in strategic sectors, facilitating domestic and foreign direct investment as a one stop shop for investors, and identifying major issues and measures geared towards assisting the government in the ongoing development of a National Investment Policy.

The Government of Saint Lucia treats foreign and local investors equally with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.

Other Investment Policy Reviews

Saint Lucia, as a member state of the OECS, has not conducted a trade policy review in the last three years.

Business Facilitation

All potential investors applying for government incentives must submit their proposals for review by Invest Saint Lucia to ensure the projects are consistent with the national interest and provide economic benefits to the country.  Invest Saint Lucia offers an online resource that is useful for navigating the laws, rules, procedures and registration requirements for foreign investors.  It is available at http://www.investstlucia.com/.

The Registry of Companies and Intellectual Property office maintains an e-filing portal for most of its services, including company registration.  Relevant officials can review applications submitted electronically.  Applicants, however, must pay the registration fee in-person at the Registry office.  The Registry of Companies and Intellectual Property office can only accept payment in the form of cash and checks.  Personal checks are not accepted.  It is advisable to consult a local attorney prior to starting the process.  Further information is available at http://www.rocip.gov.lc.

According to the World Bank Doing Business Report for 2020, Saint Lucia ranked 69 out of 190 countries in the ease of starting a business.  The general practice for starting a business is to retain an attorney to prepare all incorporation documents.  A business must register with the Registry of Companies and Intellectual Property Office, the Inland Revenue Authority, and the National Insurance Corporation.  The Government of Saint Lucia continues to support the growth of women-led businesses.  The government seeks to support equitable treatment of women in the private sector through non-discriminatory processes for business registration, awarding of fiscal incentives, and assessing investments.

The Government of Saint Lucia is committed to the full participation of people with disabilities in the society and the economy.  It actively engages with people with disabilities in society to ensure the equal participation of people with disabilities in the formal and informal sectors of the economy.

Outward Investment

The Government of Saint Lucia prioritizes investment retention as a key component of its overall economic strategy.  While the Government of Saint Lucia is encouraging more domestic savings, it continues to require significant foreign investment to fill the investment gap.

There is no restriction on domestic investors seeking to do business abroad.  Local companies in Saint Lucia are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the OECS Economic Union and the Caribbean Community Single Market and Economy (CSME), which enhance the competitiveness of the local and regional private sectors across traditional and emerging high-potential markets.

3. Legal Regime

Transparency of the Regulatory System

The legal framework in Saint Lucia seeks to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety.  The Ministry of Commerce, International Trade, Investment, Enterprise Development and Consumer Affairs in the Office of the Prime Minister and Invest Saint Lucia provide oversight on the transparency of the system as it relates to investment.  The government offers a range of incentives for foreign investors.  The Invest Saint Lucia Act addresses government policy for attracting investment.  The Trade License Act, Aliens Licensing Act, Special Development Areas Act, Income Tax Act, Free Zones Act, Tourism Incentives Act, Investment and Stimulus Act, and Fiscal Incentives Act also impact foreign investment.  The government announced plans to update these pieces of legislation to ensure that Saint Lucia remains compliant with international tax and exchange of information requirements.

Rulemaking and regulatory authority lie with the bicameral parliament.  The parliament consists of 17 members elected for a five-year term in single-seat constituencies to the lower house, and 11 appointed members in the Senate.

Relevant laws govern all regulations relating to foreign investment in Saint Lucia.  These laws are developed in the respective ministries and drafted by the Office of the Attorney General.  FDI is covered by the enacting legislation for Invest Saint Lucia, the citizenship by investment (CBI) program, and some sector-specific laws such as the Fiscal Incentives Act or tourism-related laws.  Saint Lucia’s laws are available online at http://www.govt.lc.

Although some draft bills are not subject to public consultation, the government often solicits input from various stakeholder groups and via town hall meetings when formulating new legislation.  The government also uses public awareness efforts such as television and radio call-in programs to inform and shape public opinion.  The government publishes copies of proposed laws and regulations in the Official Gazette before they are presented in the House of Assembly.  Although Saint Lucia does not have legislation guaranteeing access to information or freedom of expression, access to information is generally available in practice.  The government maintains an information service website on which it posts information such as directories of officials and a summary of laws and press releases.  The government budget and an audit of that budget are available on the website.  Accounting, legal, and regulatory procedures are generally transparent and consistent with international norms.  The International Financial Accounting Standards, which stem from the General Accepted Accounting Principles, govern the accounting profession in Saint Lucia.  The most recent Caribbean Financial Action Task Force (CFATF) Mutual Evaluation assessment found Saint Lucia to be largely compliant.  The ECCB is the supervisory authority over financial institutions registered under the Banking Act of 2015.

The Office of the Parliamentary Commissioner or Ombudsman is a constitutional entity created to guard against abuses of power by government officers in the performance of their duties.  The Office of the Parliamentary Commissioner is independent.  The Parliamentary Commissioner investigates complaints relating to actions or omissions by any government official or government body where such actions or omissions cause an injustice or harm a member of the public.

In developing regulations, respective ministries advise the Ministry of Home Affairs, Justice and National Security regarding necessary elements and parameters of the proposed legislation.  The Ministry of Home Affairs, Justice and National Security subsequently drafts the legislation, ensuring compatibility with the nation’s domestic and international legal commitments.  Invest Saint Lucia has the main responsibility for investment supervision, whereas the Ministry of Finance monitors investments to collect information for national statistics and reporting purposes.  Saint Lucia’s membership in regional organizations, particularly the OECS and its Economic Union, commits the state to ensure the fulfillment of its various treaty obligations, although there are some minor differences in implementation from country to country.  The enforcement mechanisms of these regulations include financial penalties and other sanctions.

International Regulatory Considerations

As a member of the OECS and the ECCU, Saint Lucia subscribes to a set of principles and policies outlined in the Revised Treaty of Basseterre.  Each participating member state is expected to coordinate and adopt, where possible, common national policies, with the objective of progressive harmonization of relevant policies and systems across the region.  Saint Lucia is obligated to implement regionally developed regulations, such as legislation passed under OECS authority, unless it seeks specific concessions not to implement such regulations.

The Saint Lucia Bureau of Standards is a statutory body established under the Standards Act.  It establishes, maintains, and promotes standards for improving industrial development and efficiency, promoting the health and safety of consumers, and protecting the environment, food products, quality of life, and the facilitation of trade.  It also conducts international standards consultations and training.  As a signatory to the World Trade Organization (WTO) Agreement on the Technical Barriers to Trade, Saint Lucia is obligated to harmonize all national standards to international norms to avoid creating technical barriers to trade.  Saint Lucia is working to improve customs efficiency, modernize customs operations, and address inefficiencies in the clearance of goods.

Saint Lucia ratified the WTO Trade Facilitation Agreement (TFA) in December 2015.  Ratification of the Agreement is an important signal to investors of the country’s commitment to improving its business environment for trade.  The TFA aims to improve the speed and efficiency of border procedures, facilitate reductions in trade costs, and enhance participation in the global value chain.  Saint Lucia has already implemented several TFA requirements.  A full list is available at: https://www.tfadatabase.org/members/saint-lucia/measure-breakdown .

Legal System and Judicial Independence

Saint Lucia bases its legal system on the British common law system, but its civil code and property law are influenced by French law.  The Attorney General, the Chief Justice of the Eastern Caribbean Supreme Court, junior judges, and magistrates administer justice.  The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal.  The High Court hears criminal and civil matters and makes determinations on the interpretation of the Constitution. Parties may appeal first to the Eastern Caribbean Supreme Court.  The final court of appeal is the Judicial Committee of the Privy Council of the United Kingdom.

The Caribbean Court of Justice (CCJ) is the regional judicial tribunal, established in 2001 by the Agreement Establishing the CARICOM Single Market and Economy.  The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas.  In its appellate jurisdiction, the CCJ considers and determines appeals from the CARICOM member states that are parties to the Agreement Establishing the CCJ.  Currently, Saint Lucia is subject only to the original jurisdiction of the CCJ.

The United States and Saint Lucia are both parties to the WTO.  The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.

The judicial system remains relatively independent of the executive branch of government and is free of political interference in judicial matters.

Laws and Regulations on Foreign Direct Investment

Invest Saint Lucia’s FDI policy is to actively pursue FDI in priority sectors and advise the government on the formation and implementation of policies and programs to attract sustainable investment.  Invest Saint Lucia reviews all proposals for investment concessions and incentives to ensure the projects are consistent with the national interest and provide economic benefits to the country.

Invest Saint Lucia provides “one-stop shop” facilitation services to investors to guide them through the various stages of the investment process.  Invest Saint Lucia offers a website that is useful to navigate the laws, rules, procedures, and registration requirements for foreign investors: http://www.investstlucia.com/ .

Under Saint Lucia’s CBI program, foreign individuals may obtain citizenship in accordance with the Citizenship by Investment Act of 2015, which grants the right to citizenship by investment.  Program applicants are required to submit to a due diligence process before citizenship can be granted.  The minimum investment for a single applicant to qualify is a $100,000 contribution to the National Economic Fund.  A $190,000 contribution covers a family of four made up of the principal applicant, spouse, and up to two dependents.  Alternatively, a real estate purchase valued at $300,000 or more will also qualify.  There are also provisions for enterprise investment in approved projects and a government bond option.  In response to the Covid-19 pandemic, the unit also created a special Covid-19 Relief Bond with a minimum investment of $250,000.  This bond option is available until the end of 2021.  More information on the CBI program is available at https://www.cipsaintlucia.com.

Competition and Antitrust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to the CARICOM member states.  Member states are required to establish and maintain a national competition authority.  CARICOM established a Caribbean Competition Commission to apply rules of competition regarding anti-competitive cross-border business conduct.  CARICOM competition policy addresses anti-competitive business conduct, such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within CARICOM, and actions by which an enterprise abuses its dominant position within CARICOM. Saint Lucia does not yet have legislation regulating competition.  The OECS agreed to establish a regional competition body to handle competition matters within its single market.

Expropriation and Compensation

Under the Land Acquisition Act, the government can acquire land for a public purpose.  The government must serve a notice of acquisition to the person from whom the land is acquired.  Saint Lucia employs a system of eminent domain to pay compensation in such cases.  There were no reports that the government discriminated against U.S. investments, companies, or landholdings.  There are no laws forcing local ownership in specified sectors.

There is one case of expropriation involving an American citizen-owned property.  An American citizen purchased 32 acres of land in Saint Lucia in 1970.  The government expropriated the land in 1985 by an act of law.  The claimant has been seeking redress, and those efforts have been unsuccessful to date.  The government has been largely unresponsive to repeated attempts by the claimant to follow up on the case, and the government indicated it lost property records the claimant says support their ownership claim.  U.S. Embassy Bridgetown continues to advocate with the government to ensure the claimant is allowed to fully exercise his/her due process rights.

Dispute Settlement

ICSID Convention and New York Convention

Saint Lucia is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, but not a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Arbitration Convention.  The Arbitration Act (2001) provides general and specific provisions on arbitration rules and procedures in Saint Lucia.

Investor-State Dispute Settlement

Investors can use national or international arbitration regarding contracts entered with the state.  Saint Lucia does not have a Bilateral Investment Treaty or a Free Trade Agreement with an investment chapter with the United States.  Embassy Bridgetown is not aware of any current investment disputes in Saint Lucia.

The country ranked 79th out of 190 countries in in enforcing contracts in the 2020 World Bank Doing Business Report.  Through the Arbitration Act, the local courts recognize and enforce foreign arbitral awards issued against the government.  In 2016, Saint Lucia established a Commercial division within its High Court.

International Commercial Arbitration and Foreign Courts

The Eastern Caribbean Supreme Court is the domestic arbitration body.  The Eastern Caribbean Supreme Court’s Court of Appeal also provides mediation.  The judgements handed down by this court is recognized and enforceable under the local court system in Saint Lucia.  Court proceedings are generally transparent and non-discriminatory.

Bankruptcy Regulations

Saint Lucia has a limited bankruptcy framework that grants certain rights to debtors and creditors.  The 2020 World Bank Doing Business Report notes the limitations of this framework, ranking Saint Lucia 131 out of 190 countries in resolving insolvency.

6. Financial Sector

Capital Markets and Portfolio Investment

Saint Lucia is a member of the ECCU.  As such, it is a member of the Eastern Caribbean Securities Exchange (ECSE) and the Regional Government Securities Market.  The ECSE is a regional securities market established by the ECCB and licensed under the Securities Act of 2001, a uniform regional body of legislation governing the buying and selling of financial products for the eight member territories.  In 2020, the ECSE listed 155 securities, comprising 135 sovereign debt instruments, 13 equities, and seven corporate debt securities.  Market capitalization stood at $1.8 billion.  Saint Lucia is open to portfolio investment.

Saint Lucia has accepted the obligations of Article VIII of the International Monetary Fund Agreement, Sections 2, 3 and 4 and maintains an exchange system free of restrictions on making payments and transfers for current international transactions.  Foreign tax credit is allowed for the lesser of the tax payable in the foreign country or the tax charged under Saint Lucia tax law.  The private sector has access to credit on the local market through loans, purchases of non-equity securities, and trade credits and other accounts receivable that establish a claim for repayment.

Money and Banking System

The eight participating governments of the ECCU have passed the Eastern Caribbean Central Bank Agreement Act.  The Act provides for the establishment of the ECCB, its management and administration, its currency, relations with financial institutions, relations with the participating governments, foreign exchange operations, external reserves, and other related matters.  Saint Lucia is a signatory to this agreement and the ECCB controls Saint Lucia’s currency and regulates its domestic banks.

The Banking Act is a harmonized piece of legislation across the ECCU.  The Minister of Finance usually acts in consultation with, and on the recommendation of, the ECCB with respect to those areas of responsibility within the Minister of Finance’s portfolio.

Domestic and foreign banks can establish operations in Saint Lucia.  The Banking Act requires all commercial banks and other institutions to be licensed in order to conduct any banking business.  The ECCB regulates financial institutions.  As part of ongoing supervision, licensed financial institutions are required to submit monthly, quarterly, and annual performance reports to the ECCB.

In its latest annual report, the ECCB listed the commercial banking sector in Saint Lucia as stable.  Assets of commercial banks totaled $2.8 billion (6.4 billion Eastern Caribbean dollars) in at the end of 2019.  In its latest annual report, the ECCB listed the commercial banking sector in Saint Lucia as stable. Saint Lucia is well-served by bank and non-bank financial institutions.

The Caribbean region has witnessed a withdrawal of correspondent banking services by the U.S. and European banks.  CARICOM remains committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to monitor the issue.

In 2019, the ECCB launched an 18-month financial technology pilot to launch a Digital Eastern Caribbean dollar (DXCD) with its partner, Barbados-based Bitt Inc.  An accompanying mobile application, DCash was officially launched on March 31, 2021 in four pilot countries including Saint Lucia.  The DCash pilot phase will run for 12 months.  The digital Eastern Caribbean currency will operate alongside physical Eastern Caribbean currency.  Saint Lucia does not have any specific legislation to regulate cryptocurrencies.

Foreign Exchange and Remittances

Foreign Exchange

Saint Lucia is a member of the ECCU and the ECCB.  The currency of exchange is the Eastern Caribbean dollar (XCD).  Saint Lucia has a fully liberalized foreign exchange system.  The Eastern Caribbean dollar has been pegged to the United States dollar at a rate of XCD 2.70 to $1.00 since 1976.  As a result, the Eastern Caribbean dollar does not fluctuate, creating a stable currency environment for trade and investment in Saint Lucia.

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.  Funds can also be freely converted into any of the major world currencies.

Remittance Policies

Companies registered in Saint Lucia have the right to repatriate all capital, royalties, dividends, and profits.  There are no restrictions on the repatriation of dividends for totally foreign-owned firms.

As a member of the OECS, there are no exchange controls in Saint Lucia, and parties can invoice foreign trade transactions in any currency.  Importers are not required to make prior deposits in local funds and are not required to surrender export proceeds to government authorities or to authorized banks.  There are no controls on transfers of funds.  Saint Lucia is a member of the Caribbean Financial Action Task Force (CFATF).

Sovereign Wealth Funds

Neither the Government of Saint Lucia, nor the ECCB, of which Saint Lucia is a member, maintains a sovereign wealth fund.

7. State-Owned Enterprises

State-owned enterprises (SOEs) in Saint Lucia work in partnership with ministries, or under their remit, carrying out specific ministerial responsibilities.  There are 39 SOEs in Saint Lucia operating in areas such as tourism, investment services, broadcasting and media, solid waste management, and agriculture.

SOEs in Saint Lucia do not generally pose a threat to investors.  The Saint Lucian government established most SOEs with the goal of creating economic activity in areas where it perceives the private sector has very little interest.  SOEs are wholly owned government entities and are headed by boards of directors to which senior management reports.  A list of SOEs in Saint Lucia is available at http://www.govt.lc/statutory-bodies .

Privatization Program

Saint Lucia currently does not have a targeted privatization program.

10. Political and Security Environment

Saint Lucia is considered politically stable and does not have a recent history of political violence.  Elections are peaceful and considered generally free and transparent.  The next election is constitutionally due in 2021.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) N/A N/A 2019 2122 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 412 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 7 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A 2019 51.7% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%
20Investment%20Report/Country-Fact-Sheets.aspx
 

* Source for Host Country Data: Eastern Caribbean Central Bank – https://www.eccb-centralbank.org/statistics/gdp-datas/comparative-report/1

Table 3: Sources and Destination of FDI
Data not available; Saint Lucia does not appear in the IMF’s Coordinated Direct Investment Survey (CDIS).

Table 4: Sources of Portfolio Investment
Data not available; Saint Lucia does not appear in the IMF Coordinated Portfolio Investment Survey (CPIS).

Saint Vincent and the Grenadines

Executive Summary

St. Vincent and the Grenadines is a member of the Organization of Eastern Caribbean States (OECS) and the Eastern Caribbean Currency Union (ECCU).  According to Eastern Caribbean Central Bank (ECCB) statistics, St. Vincent and the Grenadine’s 2020 estimated gross domestic product (GDP) was 783 million USD (2.12 billion Eastern Caribbean dollars) in 2020.  This represents an estimated 7 percent reduction from 2019, following several consecutive years of minimal growth.  St. Vincent and the Grenadines, like other Eastern Caribbean countries, is highly dependent on tourism, which accounted for 28.6 percent of GDP and 19.9 percent of formal sector employment in 2019.  The anticipated recovery from the pandemic-induced downturn is expected to fall significantly short of expectations, contributing to a challenging economic outlook for 2021.  Short-term forecasts project a sluggish recovery throughout 2021 and a return to pre-pandemic levels of growth and tourism by 2024.  The economy might struggle to hit its forecasted growth of around 3.7 percent in 2021, and in fact may continue to contract as the tourism sector is impacted by the ongoing pandemic.

Unanticipated spending on health care, extended welfare and unemployment benefits, and economic stimulus initiatives, coupled with a sharp drop in government revenues in 2020, forced the government to borrow to finance a widening fiscal deficit.  This new borrowing is primarily from international financial institutions on concessional terms.

The country seeks to diversify its economy across several niche markets, particularly tourism, international financial services, agroprocessing, light manufacturing, renewable energy, creative industries, and information and communication technologies.  St. Vincent and the Grenadines ranked 130th out of 190 countries in the World Bank’s 2020 Doing Business report.

The government of St. Vincent and the Grenadines strongly encourages foreign direct investment (FDI), particularly in industries that create jobs and earn foreign exchange.  Through the Invest St. Vincent and the Grenadines Authority (Invest SVG), the government facilitates FDI and maintains an open dialogue with current and potential investors.

The government does not impose limits on foreign control, nor are there requirements for local ownership or ownership in locally registered companies.  The island’s legal system is based on the British common law system.

St. Vincent and the Grenadines does not have a bilateral investment treaty with the United States.  It has double-taxation treaties with the United States, Canada, the UK, Denmark, Norway, Sweden, and Switzerland.

In 2016, St. Vincent and the Grenadines signed an intergovernmental agreement in observance of the United States’ Foreign Account Tax Compliance Act (FATCA), making it mandatory for banks in St. Vincent and the Grenadines to report the banking information of U.S. citizens.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 40 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 130 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 7 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 7,460 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of St. Vincent and the Grenadines, through Invest SVG, strongly encourages FDI, particularly in industries that create jobs and earn foreign currency.  The government is open to all investment, but is currently prioritizing investment in niche markets, particularly tourism, international financial services, agroprocessing, light manufacturing, creative industries, and information and communication technologies.

Invest SVG’s FDI policy is designed to attract investment into priority sectors.  It advises the government on the formation and implementation of policies and programs that attract and facilitate investment.  The government offers special incentive packages for foreign investments in the hotel industry and light manufacturing.  The government offers other incentive packages on an ad hoc basis.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign control in St. Vincent and the Grenadines, nor are there requirements for local investment or ownership in locally registered companies, although non-nationals must apply for a license from the Prime Minister’s Office to acquire more than 50 percent of a company.  An attorney must submit the application and Cabinet must approve it.  Companies holding at least five acres of land may restrict or prohibit the issue or transfer of their shares or debentures to non-nationals.

The government has not officially closed any industries to private investment, although some activities such as telecommunications, utilities, broadcasting, banking, and insurance require a government license.

Other Investment Policy Reviews

St. Vincent and the Grenadines is a member of the OECS. The OECS has not conducted a trade policy review in the last three years.

Business Facilitation

Invest SVG facilitates domestic and foreign direct investment in priority sectors and advises the government on the formation and implementation of policies and programs to attract investment.  Invest SVG provides business support services and market intelligence to all investors.  It also reviews all investment projects applying for government incentives to ensure they conform to national interests and provide economic benefits to the country.  Its website is http://www.investsvg.com.  In addition to its website, the country offers an online guide that is useful for navigating the laws, rules, procedures, and registration requirements for foreign investors.  The guide is available at http://theiguides.org/public-docs/guides/saintvincentandthegrenadines.

According to the World Bank’s 2020 Doing Business Report, St. Vincent and the Grenadines ranked 93rd of 190 countries in the ease of starting a business, which takes seven procedures and ten days to complete.  The general practice is to retain an attorney to prepare all incorporation documents.  A business must register with the Commerce and Intellectual Property Office (CIPO), the Ministry of Trade, the Inland Revenue Department, and the National Insurance Service.  The CIPO has an online information portal that describes the steps to register a business in St. Vincent and the Grenadines.  There is no online registration process, but the required forms are available online.  These must be printed and submitted to the CIPO.  More information is available at http://www.cipo.gov.vc.

Outward Investment

There is no restriction on domestic investors seeking to do business abroad.  Local companies are actively encouraged to take advantage of export opportunities specifically related to the country’s membership in the OECS Economic Union and the Caribbean Single Market and Economy (CSME), which enhances the competitiveness of the local and regional private sectors across traditional and emerging high-potential markets.

3. Legal Regime

Transparency of the Regulatory System

St. Vincent and the Grenadines uses transparent policies and laws to foster competition and establish clear rules for foreign and domestic investors in the areas of tax, labor, environment, health, and safety.  Accounting, legal, and regulatory practices are generally transparent and consistent with international norms.  The International Financial Accounting Standards, which stem from the General Accepted Accounting Principles, govern the profession in St. Vincent and the Grenadines.

Rulemaking and regulatory authority rests in the unicameral House of Assembly, which has fifteen elected members and six appointed senators who sit for a five-year term.  The Public Accounts Committee and Director of Audits ensure the government follows administrative processes.

National laws govern all regulations relating to foreign investment.  Ministries develop these laws, and the Ministry of Legal Affairs drafts them.  Laws pertaining to Invest SVG also govern FDI.  Invest SVG has the main responsibility for investment supervision, while the Ministry of Economic Planning, Sustainable Development, Industry, Information and Labor tracks investments to collect information for national statistics and reporting purposes.

The government publishes most draft bills in local newspapers for public comment.  In addition, the government circulates bills at stakeholder meetings.  Some bills and laws are published on the government website at www.gov.vc.  The government sometimes establishes a select committee to suggest amendments to specific draft bills.  In some instances, these mechanisms may also apply to investment laws and regulations.  There is no obligation for the government to consider proposed amendments prior to implementation.  The government discloses information on public finances and debt obligations.  The annual budget address can be found online.

The country’s membership in regional organizations, particularly the OECS and its Economic Union, commits the state to implement all appropriate measures to fulfill its various treaty obligations.  For example, the Banking Act, which establishes a single banking space and the harmonization of banking regulations in the Economic Union, is uniformly in force in the eight member territories of the ECCU, although there are some minor differences in implementation from country to country.  The most recent Caribbean Financial Action Task Force (CFATF) Mutual Evaluation assessment found St. Vincent and the Grenadines to be largely compliant.  The ECCB is the supervisory authority over financial institutions registered under the Banking Act of 2015.

An external company must be registered with the Commercial Registry in St. Vincent and the Grenadines if it wishes to operate in the country.  Companies using or manufacturing chemicals must first obtain approval of their environmental and health practices from the St. Vincent and the Grenadines National Standards Institution and the Environmental Division of the Ministry of Health.

International Regulatory Considerations

As a member of the OECS and the ECCU, St. Vincent and the Grenadines subscribes to a set of principles and policies outlined in the Revised Treaty of Basseterre.  The relationship between national and regional systems is such that each participating member state is expected to coordinate and adopt, where possible, common national policies aimed at the progressive harmonization of relevant policies and systems across the region.  Thus, the country must implement regionally developed regulations, such as legislation passed under the OECS Authority, unless it seeks specific concessions not to do so.

The country’s Bureau of Standards is a statutory body which prepares and promulgates standards in relation to goods, services, processes, and practices.  As a signatory to the WTO Agreement on the Technical Barriers to Trade, St. Vincent and the Grenadines must harmonize all national standards to international norms to avoid creating technical barriers to trade.

St. Vincent and the Grenadines ratified the WTO Trade Facilitation Agreement (TFA) in 2017 and subsequently notified its Category A measures.  Included in the Trade Facilitation Agreement are measures to improve risk management techniques and a post-clearance audit system to eliminate delays and congestion at the port.  While St. Vincent and the Grenadines has implemented some TFA requirements, it has missed two implementation deadlines.  A full list of measures undertaken pursuant to the TFA is available at https://tfadatabase.org/members/saint-vincent-and-the-grenadines.

Legal System and Judicial Independence

The country’s legal system is based on the British common law system.  The constitution guarantees the independence of the judiciary.  The judicial system consists of lower courts, called magistrates’ courts, and a family court.  The Eastern Caribbean Supreme Court Act establishes the Supreme Court of Judicature, which consists of the High Court and the Eastern Caribbean Court of Appeal.  The High Court hears criminal and civil (commercial) matters and makes determinations on constitutional matters.  Parties may appeal first to the Eastern Caribbean Supreme Court, an itinerant court that hears appeals from all OECS members.  The final court of appeal is the Judicial Committee of the UK Privy Council.

The country has a strong judicial system that upholds the sanctity of contracts and prevents unwarranted discrimination towards foreign investors.  The government treats foreign investors and local investors equally with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.  The police and court systems are generally unbiased in commercial matters.

The Caribbean Court of Justice (CCJ) is the regional judicial tribunal.  The CCJ has original jurisdiction to interpret and apply the Revised Treaty of Chaguaramas.  St. Vincent and the Grenadines is only subject to the original jurisdiction of the CCJ.

The United States and St. Vincent and the Grenadines are both parties to the WTO.  The WTO Dispute Settlement Panel and Appellate Body resolve disputes over WTO agreements, while courts of appropriate jurisdiction in both countries resolve private disputes.

Laws and Regulations on Foreign Direct Investment

Invest SVG provides guidance on the relevant laws, rules, procedures, and reporting requirements for investors.  Invest SVG has the authority to screen and review FDI projects.  The review process is transparent and contingent on the size of capital investment and the project’s projected economic impact.  The investor must complete a series of steps to obtain a business license.  These steps are listed at http://www.investsvg.com.  All potential investors seeking an incentive package must submit their proposals for review by Invest SVG to ensure the project is consistent with the nation’s laws and interests and would provide economic benefits to the country.

Local enterprises generally welcome joint ventures with foreign investors to access technology, expertise, markets, and capital.

Competition and Antitrust Laws

Chapter 8 of the Revised Treaty of Chaguaramas outlines the competition policy applicable to CARICOM states.  Member states are required to establish and maintain a national competition authority for implementing the rules of competition.  CARICOM established a Caribbean Competition Commission to apply rules of competition regarding anti-competitive cross-border business conduct.  CARICOM competition policy addresses anti-competitive business conduct such as agreements between enterprises, decisions by associations of enterprises, and concerted practices by enterprises that have as their object or effect the prevention, restriction, or distortion of competition within the Community, and actions by which an enterprise abuses its dominant position within the Community.  There is no legislation to regulate competition in St. Vincent and the Grenadines.

Expropriation and Compensation

Under the Land Acquisition Act, the government may acquire land for a public purpose.  The government must serve a notice of acquisition on the person from whom the land is acquired.  A Board of Assessment determines compensation and files its award in the High Court.  The value of the land is based on the amount for which the land would be sold on the open market by a willing seller.  Under the Alien’s (Land-Holding Regulation) Act, the government can hold properties forfeit without compensation if the terms of investment are not met.  The U.S. Embassy is not aware of any outstanding expropriation claims or nationalization of foreign enterprises in St. Vincent and the Grenadines.

Dispute Settlement

ICSID Convention and New York Convention

St. Vincent and the Grenadines is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Arbitration Convention.

According to the World Bank’s 2020 Doing Business Report, dispute resolution generally took 595 days, though this may vary.  The slow court system and bureaucracy are widely seen as the main hindrances to timely resolution of commercial disputes.  St. Vincent and the Grenadines ranked 61st of 190 countries in enforcing contracts in the report.  Through the Arbitration Act, the local courts recognize and enforce foreign arbitral awards issued against the government.

Investor-State Dispute Settlement

Investors are permitted to use national or international arbitration regarding contracts entered into with the state.  St. Vincent and the Grenadines does not have a bilateral investment treaty or a free trade agreement with an investment chapter with the United States.  The U.S. Embassy is not aware of any current investment disputes in the country.

International Commercial Arbitration and Foreign Courts

The Eastern Caribbean Supreme Court is the domestic arbitration body, and the local courts recognize and enforce foreign arbitral awards.  The Trade Disputes (Arbitration and Inquiry) Act provides that either party to an existing trade dispute can report it to the Governor General.  The Governor General may, if both parties consent, refer the dispute to an arbitration panel for settlement.  The arbitration panel must issue an award that is consistent with national employment laws.  Parties can be represented by legal counsel before the arbitration panel.  These bodies may conduct proceedings in public or private.  The Trade Disputes Act provides that alternative dispute mechanisms are available as a means for settling disputes between two private parties.  The government recognizes voluntary mediation or conciliation as dispute resolution mechanisms.   The Eastern Caribbean Supreme Court’s Court of Appeals also provides mediation.

Bankruptcy Regulations

The Bankruptcy and Insolvency Act governs the country’s bankruptcy framework and grants certain rights to debtors and creditors.  The 2020 World Bank Doing Business Report ranks St. Vincent and the Grenadines 168th of 190 countries in resolving insolvency.

6. Financial Sector

Capital Markets and Portfolio Investment

St. Vincent and the Grenadines is a member of the ECCU.  As such, it is also a participant on the Eastern Caribbean Securities Exchange (ECSE) and the Regional Government Securities Market.  The ECSE is a regional securities market established by the ECCB and regulated by the Eastern Caribbean Securities Regulatory Commission.  The Securities Act of 2001 regulates activities on the ECSM.

The ECSE and its subsidiaries, the Eastern Caribbean Central Securities Depository and the Eastern Caribbean Central Securities Registry, facilitate activities on the ECSE.  The main activities are the primary issuance and secondary trading of corporate and sovereign securities, the clearance and settlement of issues and trades, maintaining securities holders’ records, and providing custodial, registration, transfer agency, and paying agency services in respect of listed and non-listed securities.  As of March 31, 2020, there were 154 securities listed on the ECSE, comprising 134 sovereign debt instruments, 13 equities, and seven corporate bonds.  Market capitalization stood at 666 million USD (1.8 billion Eastern Caribbean dollars), representing a 0.3 percent decrease from the previous year.  St. Vincent and the Grenadines is open to portfolio investment.

St. Vincent and the Grenadines accepted the obligations of Article VIII of the International Monetary Fund Agreement, sections 2, 3, and 4, and maintains an exchange system free of restrictions on making international payments and transfers.  St. Vincent and the Grenadines does not have a credit bureau.

Money and Banking System

Eight participating governments passed the Eastern Caribbean Central Bank Agreement Act.  The Act provides for the establishment of the ECCB, its management and administration, its currency, relations with financial institutions, relations with the participating governments, foreign exchange operations, external reserves, and other related matters.  St. Vincent and the Grenadines is a signatory to this agreement.  Therefore, the ECCB controls the country’s currency and regulates its domestic banks.

The Banking Act 2015 is a harmonized piece of legislation across all ECCU member states.  The ECCB and the Ministers of Finance of member states jointly carry out banking supervision under the Act.  The Ministers of Finance usually act in consultation with the ECCB with respect to those areas of responsibility within the Minister of Finance’s portfolio.

Domestic and foreign banks can establish operations in St. Vincent and the Grenadines.  The Banking Act requires all commercial banks and other institutions to be licensed.  The ECCB regulates financial institutions.  As part of supervision, licensed financial institutions are required to submit monthly, quarterly, and annual performance reports to the ECCB.  In its latest annual report, the ECCB listed the commercial banking sector in St. Vincent and the Grenadines as stable.  Assets of commercial banks totaled $833 million (2.25 billion Eastern Caribbean dollars) at the end of December 2019 and remained relatively consistent during the previous year.  The reserve requirement for commercial banks was six percent of deposit liabilities.

The Caribbean region has witnessed a withdrawal of correspondent banking services by U.S., Canadian, and European banks due to risk management concerns.  CARICOM remains committed to engaging with key stakeholders on the issue and appointed a Committee of Ministers of Finance on Correspondent Banking to continue to monitor the issue.

Bitt, a Barbadian company, developed digital currency DCash in partnership with ECCB.  The first successful DCash retail central bank digital currency (CDBC) consumer-to-merchant transaction took place in Grenada in February following a multi-year development process.  The CBB and the FSC established a regulatory sandbox in 2018 where financial technology entities can do live testing of their products and services.  This allowed regulators to gain a better understanding of the product or service and to determine what, if any, regulation is necessary to protect consumers.  Bitt completed its participation and formally exited the sandbox in 2019.  Bitt is expected to launch DCash in St. Vincent and the Grenadines in mid-2021.  St. Vincent and the Grenadines does not have any specific legislation to regulate cryptocurrencies.

Foreign Exchange and Remittances

Foreign Exchange

St. Vincent and the Grenadines is a member of the ECCU and the ECCB.  The currency of exchange is the Eastern Caribbean dollar (XCD).  As a member of the OECS, its foreign exchange system is fully liberalized.  The XCD has been pegged to the U.S. dollar at a rate of XCD 2.70 to USD 1.00 since 1976.  As a result, the Eastern Caribbean dollar does not fluctuate, creating a stable currency environment for trade and investment.

Remittance Policies

Companies registered in St. Vincent and the Grenadines have the right to repatriate all capital, royalties, dividends, and profits free of all taxes or any other charges on foreign exchange transactions.  International companies are exempt from taxation.  Under present regulations, there are no personal income taxes, estate taxes, corporate income taxes, or withholding taxes for international companies operating in St. Vincent and the Grenadines.  International companies are also exempt from competitive tax for 25 years.

Only banks may make currency conversions.  St. Vincent and the Grenadines is a member of the CFATF.

In 2014, the government of St. Vincent and the Grenadines signed an intergovernmental agreement with the United States to facilitate compliance for FATCA, which makes it mandatory for St. Vincent and the Grenadines’ banks to report the banking information of U.S. citizens.

Sovereign Wealth Funds

Neither the government of St. Vincent and the Grenadines, nor the ECCB, maintains a sovereign wealth fund.

7. State-Owned Enterprises

There are currently 28 state-owned enterprises (SOEs) operating in the following sectors: water, transportation, housing, transportation (ports), electricity, tourism, information and communication, telecommunications, investment and investment services, financial services, fisheries, agriculture, sports and culture, civil engineering, and infrastructure.

SOEs in St. Vincent and the Grenadines are wholly owned government entities.  They are headed by boards of directors to which senior managers report.  They are governed by their respective legislation and do not generally pose a threat to investors, as they are not designed for competition.  There is no single published list of SOEs, though information about individual SOEs is available.

Privatization Program

There are no targeted privatization programs in St. Vincent and the Grenadines.

10. Political and Security Environment

St. Vincent and the Grenadines does not have a recent history of politically-motivated violence or civil disturbance.  Elections are peaceful and regarded as being free and fair.  The next general elections are constitutionally due in 2025.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $823 2019 825 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 7 BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 -1 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A 2019 13.5 UNCTAD data available at
https://stats.unctad.org/handbook/
EconomicTrends/Fdi.html 

* Source for Host Country Data: Eastern Caribbean Central Bank https://eccb-centralbank.org/statistics/dashboard-datas/

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

Samoa

Executive Summary

The Independent State of Samoa is a peaceful parliamentary democracy within the Commonwealth of Nations. It has a population of approximately 215,000 and a nominal GDP of USD 824 million. Samoa became the 155th member of the WTO in May 2012 and graduated from least developed country (LDC) status in January 2014.

Samoa is one of the most politically and economically stable democratic island countries in the Pacific, featuring a history of strong sociocultural structures and values. The country has been governed by the Human Rights Protectorate Party (HRPP) since 1982, and Prime Minister Tuilaepa Sailele Malielegaoi has been in power since 1998.

Samoa is located south of the equator, about halfway between Hawaii and New Zealand in the Polynesian region of the Pacific Ocean. The total land area is 1,097 square miles, consisting of the two main islands of Upolu and Savai’i, which account for 99 percent of the total land area, and eight small islets. About 80 percent of land is customary land, owned by villages, with the remainder either freehold or government-owned. Customary land can be leased, but not sold.

In the past decade, Samoa has taken steps to more closely align its systems with nations in the Southern Hemisphere and Asia. Until 2009, Samoa drove on the right side of the road (U.S.), but now drives on the left side (Australia, New Zealand, and Japan). Until 2011, Samoa was located east of the international dateline in the same time zone as Hawaii, but is now one of the first countries in the world to start each day.

The small island country has experienced catastrophic natural disasters, including a 2009 earthquake and tsunami that killed hundreds, and severe cyclones in 2012 and 2018. These calamities have inflicted damage equivalent to a quarter of Samoa’s GDP, representing significant setbacks to the economy.

In February 2021, the Central Bank of Samoa stated that the country’s economy was now in full recession as the impact of COVID-19 global pandemic affected all sectors. The latest national accounts figures from the Samoa Bureau of Statistics indicated that the real gross domestic product (RGDP) in the last quarter of 2020 dropped by 2.3 percent when compared to the previous quarter and was 16.3 per cent lower than that of the same quarter in 2019. The drop over the previous quarter was accounted for by reductions in business services, transport, and the communications sector.

The service sector accounts for nearly three-quarters of GDP and employs approximately 65 percent of the formally employed labor force (roughly 30 percent of the population). Tourism is the largest single activity, with visitor numbers and revenue more than doubling over the last decade.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index N/A N/A http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 98 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $20 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 $4,190 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of Samoa welcomes business and investors. Samoa’s fertile soil, English-speaking and educated workforce, and tropical climate offer advantages to focused investors, though the country’s distance from major markets affects the cost of imports and exports. The main productive sectors of the economy are agriculture and tourism, and the economy depends heavily on overseas remittances.

For investors, Samoa offers a trained, productive and industrially adaptable work force that communicates well in English; competitive wage rates; free repatriation of capital and profits; well-developed, reasonably priced transport infrastructure, telecommunications, water supply, and electricity; industry incentive packages for tourism and manufacturing sectors; a stable financial environment with single-digit inflation, a balanced budget and international reserves; relatively low corporate and income taxes; and a pleasant and safe lifestyle.

All businesses in the greater Apia area have access to broadband and Wi-Fi, which is reasonably reliable and fast, but relatively expensive. In rural Upolu and on Savaii Island there is limited availability of high-speed internet, but reliable Wi-Fi through personal mobile routers is universal. In 2018, Samoa completed the installation of a National Broadband Highway which provides fiber optic data services and 4G LTE cellular data speeds to the entire country. 4G LTE data speeds are operative and commercially available nationwide.

Foreign Investors are permitted 100 percent ownership in all different sectors of industry with the exception of restricted activities below.

The following businesses are reserved for Samoan Citizens only:

1. Bus transport services for the general public;
2. Taxi transport services for the general public;
3. Rental vehicles;
4. Retailing;
5. Saw milling; and
6. Traditional elei garment designing and printing.

Please see Samoa’s Foreign Investment Act 2000 for a more detailed Restricted List. http://www.paclii.org/ws/legis/consol_act/fia2000219/ 

The Investment Promotion division of the Ministry of Commerce Industry and Labor (MCIL) https://www.mcil.gov.ws/services/investment-promotion-and-industry-development/investment-promotion/ 

https://www.mcil.gov.ws/services/investment-promotion-and-industry-development/investment-promotion/ 

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign Investors are permitted 100% ownership in all different sectors of the industry with the exception of conditions for restricted activities below.

Automotive & Ground Transportation
Consumer Goods & Home Furnishings
Environmental Technologies
Textiles, Apparel & Sporting Goods

Please see Samoa’s Foreign Investment Act 2000 for a more detailed Restricted List. http://www.paclii.org/ws/legis/consol_act/fia2000219/ 

Other Investment Policy Reviews

The IMF completed a financial sector assessment with Samoan authorities in 2015. Readouts from this visit can be found here: http://www.imf.org/external/country/WSM/ 

The World Trade Organization conducted a Trade Policy review of Samoa in 2019: https://www.wto.org/english/tratop_e/tpr_e/tp486_e.htm 

Samoa’s national investment policy statement can be found here: https://www.mcil.gov.ws/services/investment-promotion-and-industry-development/investment-promotion/ 

The Strategy for the Development of Samoa can be found here: http://www.mof.gov.ws/Services/Economy/EconomicPlanning/tabid/5618/Default.aspx 

http://www.mof.gov.ws/Services/Economy/EconomicPlanning/tabid/5618/Default.aspx 

Samoa’s Trade, Commerce, and Manufacturing Sector Plan 2012-2016 Volumes 1&2 are available here: http://www.mof.gov.ws/Services/Economy/SectorPlans/tabid/5811/Default.aspx 

Business Facilitation

The Ministry of Commerce, Industry and Labor (MCIL) administers Samoa’s foreign investment policy and regulations ( https://www.mcil.gov.ws /). To open a branch of an existing corporation in Samoa, one must register the company for about USD 150. For a company to qualify as a “Samoan company,” the majority of shareholders must be Samoan. The fee to register an overseas company is about USD 150. All businesses with foreign shareholdings must obtain and hold valid foreign investment registration certificates. The application fee is about USD 50 and can be obtained by contacting MCIL. Certificates are valid until the business terminates activity. If a business does not commence activity within 2 years after a certificate is issued, the certificate becomes invalid. Upon approval of the FIC, the foreign investor is then required to apply for a business license before operating in Samoa. Fees range from USD 100-USD $250, depending on the type of business.

Land has a special status in Samoa, as it does in most Pacific Island countries. Under the country’s land classification system, about 80 percent of all land is customary land, owned by villages, with the remainder either freehold (private) or government owned. The standard method for obtaining customary land, which cannot be bought or sold, is through long-term leases that must be negotiated with the local communities. A typical lease for business use might be for 30 years, with the option of a further 30 years after that, but longer terms can be negotiated. It should be noted that customary land cannot be mortgaged, and thus cannot be used as collateral to raise capital or credit. Freehold land, mostly based in and around Apia can be bought, sold, and mortgaged. Only Samoan citizens may buy freehold land unless approval is obtained from Samoa’s Head of State.

The Foreign Investment Act 2000 is the preeminent legislation on foreign investment. http://www.paclii.org/ws/legis/consol_act/fia2000219/ 

Business Registration

  • Step 2: Obtain a business license and register for VAGST and PAYE from the Ministry of Revenue.
  • Step 3: Register with the National Provident Fund.
  • Step 4: Register with the Accident Compensation Board.

This website explains all these steps in more detail. http://www.doingbusiness.org/data/exploreeconomies/samoa/starting-a-business/ 

Some parts of these registrations can be done online, but most, if not all, require payment in person.

MCIL has an Industry Development and Investment Promotion Division (IDIPD) with services available to all investors. http://www.mcil.gov.ws/index.php/en/division/industry-development-investment-promotion-idipd 

http://www.mcil.gov.ws/index.php/en/division/industry-development-investment-promotion-idipd 

Samoa’s Ministry of Revenue only distinguishes between small/medium enterprises (less than USD 400,000 in annual turnover) and large enterprises (over USD 400,000 in annual turnover). Priority service is given to large enterprises.

Outward Investment

There is minimal outward investment from Samoa beyond several stationery and apparel stores having branches in New Zealand and American Samoa. The government and economy are more focused on increasing exports of Samoan products. The government does not appear to restrict investment abroad.

Pacific Islands Trade and Invest ( https://pacifictradeinvest.com/about/ ) is a resource for companies looking to establish themselves overseas.

3. Legal Regime

Transparency of the Regulatory System

The Government uses transparent policies and effective laws to establish “clear rules of the game.” Accounting, legal and regulatory procedures are all consistent with international norms. According to the Samoa Institute of Accountants, businesses adhere to International Financial Reporting Standards (IFRS) and International Standards on Auditing and Quality Assurance.

Draft bills are made available through the parliamentary website, http://www.palemene.ws/new/parliament-business/bills/ , but are not made available for formal public comment. Those who wish to make a comment on the bill are given the opportunity to do so before a Parliamentary Committee. Public notices are televised and printed on local newspaper for the awareness of the public that there is an avenue to voice their opinions on drafted Government policies.

The Office of the Regulator (OOTR) was established in 2006 under the Telecommunications Act 2005 to provide regulatory services for the telecommunications sector in Samoa. However, the Broadcasting and Postal Services Acts 2010 were recently approved by Parliament, which also provide regulatory framework for broadcasting and postal sectors in Samoa. These Acts require the Regulator to establish a fair, unbiased and ethical regime for implementing the objects of these Acts including licensing of telecommunications, broadcasting and postal services, promotion of new services and investment, consumer protection, prevention of anti-competitive activities by service providers, and management of the radio spectrum and national number plans. OOTR also approves the Electric Power Corporation’s Power Purchase Agreements with Independent Power Providers and reviews EPC’s Power Extension Plan.

Finances and expenditures of the government are published twice on an annual basis, and available through the parliament website. Debt obligations are published on a quarterly basis by the Samoa Bureau of Statistics through its quarterly reports.

International Regulatory Considerations

Samoa is a member of the Pacific Islands Forum, which is an 18-member inter-governmental organization that aims to enhance cooperation between the independent countries of the Pacific Ocean.

Samoa’s system of government is based on the Westminster Parliamentary system. Samoa’s Companies Act 2001 contains a modern regulatory regime based on New Zealand company law.

Legal System and Judicial Independence

The Samoan legal system has its foundations in English and Commonwealth statutory and common law. Various business structures utilized in common law are recognized: sole traders, partnerships, limited liability companies, joint ventures and trusts (including unit trusts). These structures are regulated by legislation including the Companies Act 2001, Partnership Act 1975, Trustee Act 1975 and Unit Trusts Act 2008. Samoa’s Companies Act 2001 contains a modern regulatory regime based on New Zealand company law. It allows the incorporation of a sole person company (i.e. one person being both shareholder and director) and directors need not be resident in Samoa.

A Samoa incorporated private company is a separate legal entity and a corporation under Samoan law. It must file an annual return with the Registrar of Companies specifying details of directors, shareholders, registered office etc. There is no requirement for private companies to file annual financial reports with the Companies Registry nor are there any minimum capital requirements.

The judicial system is largely independent from the executive branch. On December 15, 2020, the National Parliament passed into law three controversial bills that fundamentally changed country’s constitution and judicial system. The three bills, the Constitution Amendment Bill 2020, Lands and Titles Bill 2020, and Judicature Bill 2020, were introduced in March 2020 and passed by Parliament with a vote 41-4. The bills were opposed by the judiciary and the Samoa Law Society for lack of consultation and the impact on human rights and rule of law. The Australian and New Zealand Law Societies, and other international organizations issued statements in support of the judiciary and the law society.

The new laws have in effect divided the judicial system into parallel courts of equal standing. One to deal with criminal and civil matters, and the other with customary land and titles. The Lands and Titles Court (LTC) would have a new appellate court comprised of a retired Supreme Court Judge, a Supreme Court Judge and a retired Lands and Title Court Judge that would have authority to review the decisions of the Lands and Titles Court.

Prime Minister Tuilaepa Sailele Malielegaoi stated that the bills would implement the recommendations of the Special Inquiry Committee of Parliament into the LTC that was conducted in 2016. Following the passing of the bills, former Attorney-General, Ms. Taulapapa Brenda Heather-Latu, informed the Office of the Attorney-General that her clients intend to challenge the constitutionality of the new laws.

Laws and Regulations on Foreign Direct Investment

The Ministry of Commerce, Industry, and Labor administers Samoa’s foreign investment policy and regulations under the Foreign Investment Act 2000. All businesses with any foreign ownership require foreign investment approval by MCIL. ( https://www.mcil.gov.ws/ ).

Competition and Anti-Trust Laws

The Ministry of Commerce, Industry, and Labor’s Fair Trading and Codex Alimentarius Division (FTCD) handles competition related concerns. The main pieces of legislation regarding competition are Fair Trading Act 1998, Consumer Information Act 1989, and Measures Ordinance 1960.

Expropriation and Compensation

Expropriation cases in Samoa are not common; however, there was one significant case that occurred in 2009 over land designated for a new six-story government building. A business signed a 20-year lease with the government in 2005 but was then asked to move in 2008 to make way for the new building. The business moved but won a settlement in the Court of Appeals against the government for a much larger sum than the government initially offered the business for vacating the land.

Dispute Settlement

The Alternative Dispute Resolution Act of 2007 (amended 2013) outlines ADR procedures for both criminal and civil proceedings. Samoa has an Accredited Mediators of Samoa Association that was put in place to help resolve (largely commercial) disputes.

ICSID Convention and New York Convention

Samoa has been party to the ICSID since 1978. Samoa is not party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

The provisions of the Labour and Employment Relations Act 2013 have full effect in relation to disputes that involve foreign investors in Samoa. Foreign investors are subject to this Act.

The Alternative Dispute Resolution Act 2007 also provides alternative dispute resolution procedures where civil or criminal cases may arise.

International Commercial Arbitration and Foreign Courts

The provisions of the Arbitration Act 1976 have full effect in relation to disputes that involve foreign investors in Samoa. Subject to this Act and to any other law in Samoa, the Convention Settlement of Investment Disputes signed in Washington on the 3rd of February 1978 and ratified by Samoa on the 25th of April 1978, shall have the force of law in Samoa. The Alternative Dispute Resolution Act 2007 also provides alternative dispute resolution procedures where civil or criminal cases may arise.

Bankruptcy Regulations

The Bankruptcy Act 1908 is in effect in Samoa. According to World Bank Doing Business 2019 survey, in terms of resolving insolvency, Samoa was ranked at 140 out of 190. The survey estimated that it took two years at a cost of 38 percent of the estate to complete the process, with an estimated recovery rate of 18.5 percent of value.

6. Financial Sector

Capital Markets and Portfolio Investment

The capital market is regulated by the Central Bank of Samoa (CBS). Since January 1998, the Central Bank has implemented monetary policy by issuing its own Securities using market-based techniques – commonly known as Open Market Operations (OMO). CBS Securities are the predominant monetary policy instrument, which is issued to influence the amount of liquidity in the financial system.

Capital Markets in Samoa are in their infancy with the Unit Trust of Samoa (UTOS) domestic market established in 2010, and no international stock exchange. More information on UTOS can be found in section 10.

Samoa has accepted the obligations of IMF Article VIII, Sections 2, 3, and 4, and maintains an exchange system that is free of restrictions on payments and transfers for current international transactions.

Money and Banking System

Samoa is well-served with banking and finance infrastructure. It has four commercial banks, complimented by a dynamic development bank. The sector is ably regulated by the Central Bank of Samoa. The largest banks are regional operators ANZ and BSP, which offer a wide range of services based upon electronic banking platforms. Although they service all markets, they tend to dominate the top-end, encompassing corporate, government and high net worth individuals. Samoa is still a cash-based society, however, and this has enabled two locally owned entrants, the National Bank of Samoa and Samoa Commercial Bank, to each garner double-digit market share, despite entering the market quite recently.

The banking sector appears healthy although recent reports have indicated the state-owned development bank is carrying a significant amount of bad debt, over 20% of its loan portfolio. The government also interfered with the bank’s attempts to foreclose on non-performing assets.

With its International Finance Centre (SIFA)—the first Pacific center to be white-listed by the OECD—and a well-structured financial services sector, Samoa is well placed to service the needs of both local and offshore businesses.

The Government, through the Central Bank, has been largely resistant of block chain technologies. Their skepticism is somewhat warranted with the discovery of several cryptocurrency schemes operating in the country widely believed to be scams.

Foreign Exchange and Remittances

Foreign Exchange

The Central Bank of Samoa (CBS) controls all foreign exchange transactions as well as matters relating to monetary stability and supply of money within the country. This includes international transactions, overseas transfer of funds and funding of imports, and registration of insurance companies. Repatriation of overseas capital and profits is normally permitted provided the original investment entered Samoa through the banking system or in an otherwise formally approved manner. Investors also have the freedom to repay principle and interest on foreign loans raised for the purpose of the investment and the freedom to pay fees to foreign parties for the use of intellectual property rights.

Remittance Policies

Repatriation of capital and profit remittances on foreign capital is permitted, although it must be approved by the CBS based on submission of necessary documents, such as the following: a) Application letter explaining the request;

a) Application letter explaining the request; b) Audited accounts relating to the profit remittance year(s) requested;

b) Audited accounts relating to the profit remittance year(s) requested; c) A copy of the Authorized Directors’ Resolution approving the specified dividend payment; and

c) A copy of the Authorized Directors’ Resolution approving the specified dividend payment; and d) A tax clearance certificate from the Ministry for Revenue.

d) A tax clearance certificate from the Ministry for Revenue.

Samoa’s Financial Intelligence Unit (FIU) within the Central Bank and the Ministry of Foreign Affairs and Trade do issue and provide to all financial institutions governed under the Money Laundering Prevention Act 2007.

Sovereign Wealth Funds

There is no sovereign wealth fund or asset management bureau in Samoa. The country has the Samoa National Provident Fund which manages and invests members’ savings for their retirement.

7. State-Owned Enterprises

Private enterprises are allowed to compete with public enterprises under the same terms and conditions. Laws and rules do not offer preferential treatment to SOEs. State-owned enterprises are subject to budget constraints and these are enforced.SOEs are active in the Energy, Water, Tourism, Aviation, Banking, Agriculture supplies, and Ports/Airports sectors. Laws do not provide for a leading role for SOEs or limit private enterprise activity in sectors in which SOEs operate. SOEs have government-appointed boards and operate with varying degrees of autonomy with respect to their governing Ministry.

SOEs follow a normal corporate structure with a board of directors and executive management. All SOEs have boards of directors who are appointed by a cabinet minister. Some SOEs have board seats allocated specifically to the heads of certain government ministries.

By law SOEs are required to present financials to their board of directors, shareholding Ministry and the National Auditor. Timely compliance, however, varies between SOEs.

Privatization Program

Major recent privatizations in Samoa were in broadcasting (2008) and telecommunications (2011), both resulting in significant gains in efficiency and benefits to both producer and consumer. The 2011 telecommunications privatization was to a foreign company.

Procedures for establishing all businesses are provided under existing legislation, including the Companies Amendment Act 2006, the Foreign Investment Amendment Act 2011, the Business License Act 1998, the Labour and Employment Relations Act 2013, the Central Bank Act and Guidelines, and the Health Ordinance 1959 (Part 11, 111 clause 13 & 15).

10. Political and Security Environment

The parliamentary democracy functions without political violence. The risk of civil disorder is low. There is no civil strife or insurrection. There are no significant border disputes at risk of escalating into conflict. Law and order is well maintained by the Samoa Police Service with support from the village chiefs and other traditional/church authorities if required.

Samoa has recently suffered a measles epidemic, strict border closures due to the COVID-19 pandemic. Both instances severely affected local business with varying degrees of cessation of economic activity. The most affected is the tourism industry. Samoa has demonstrated that it will take extreme measures to prevent loss of life, even at the expense of massive economic losses.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $824* 2018 $820.5 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2018 $20M BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2020 n/a BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2018 $90M 2018 10.5% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx 

* Source for Host Country Data: Samoa Bureau of Statistics – Dec 2019 quarter. Based on contemporaneous exchange rate of 1USD=$2.7WST

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

São Tomé and Príncipe

Executive Summary

São Tomé and Príncipe (STP) is a stable, multi-party democracy. It is a developing country with a gross domestic product (GDP) of roughly $418.6 million and a population of 215,056 (World Bank, 2019 estimate). Due to STP’s very limited revenue sources, foreign donors finance roughly 90 percent or more of its budget. For its 2020 budget, these donors were China, Equatorial Guinea, Morocco, Angola, Japan, Portugal, the World Bank, European Union, the UN Food and Agriculture Organization (FAO) and the African Development Bank.

STP has taken positive steps over the last decade to improve its investment climate and to make the country a more attractive destination for foreign direct investment (FDI), including by working to combat corruption and create an open and transparent business environment. In 2019, STP enacted a Value Added Tax (VAT) Law (13/2019) to facilitate tax collection and enforcement of the tax code (scheduled to enter into force in July 2021) and a modern Labor Code (6/2019) to make labor standards easier for investors to understand and implement. In June 2019, STP also became the 25th African country to ratify the African Continental Free Trade Agreement (AfCFTA). In 2018, it passed its Public-Private Partnership (PPP) Law, Notary Code, and Commercial Register Code; the Regulation of Investment Code was adopted in 2017; and the Investment Code and Code of Fiscal Benefits and Incentives were adopted in 2016. The 2013 anti-money laundering and counter-terrorist financing law brought STP into compliance with international standards. A Millennium Challenge Corporation Country Threshold Program, completed in 2011, modernized STP’s customs administration, reformed its tax policies, and made it less burdensome to start a new business. Together, these efforts helped to develop a modern and transparent legal framework for foreign investment. Due to its reliance on outside investment, STP remains committed to improving its investment climate.

The government continues to work with the business community to develop the country economically and to improve basic social services for the country’s young and growing population. In 2018, it approved a four-year plan to create “robust economic growth” focused on the provision of services, including tourist, financial, technological, logistics, and health services associated with the digital economy. Special attention is also being given to traditional sectors, mainly agriculture, livestock, and marine resources. STP’s extensive maritime domain (160,000 km2) may hold opportunities for hydrocarbon production as technology improves. In cooperation with China, STP is seeking to modernize its port infrastructure and capitalize on its fishing potential. In 2020, China also announced funding for airport rehabilitation and upgrades. STP is using Word Bank funding to rehabilitate the road linking the capital to the north of the island. However, foreign investors continue to face challenges identifying viable investment opportunities due to STP’s weak and small domestic market, inadequate infrastructure, slow justice system, high cost of credit, and limited access and expensive electricity.

Prime Minister Jorge Bom Jesus is focused on fighting corruption, improving the business environment, attracting FDI, and promoting economic growth, and President Evaristo Carvalho supports increased foreign investment and welcomes closer U.S. engagement on economic matters.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 63 of 180 https://www.transparency.org/cpi2019?/news/feature/cpi-2019 
World Bank’s Doing Business Report 2020 170 of 190 https://www.doingbusiness.org/en/rankings 
Global Innovation Index  2020 Not Ranked https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, stock positions)  2019 $21 https://apps.bea.gov/international/factsheet/
factsheet.cfm?Area=451&UUID=df1f4f7b-4f17-4640-99f7-047e18b2a5b4
World Bank GNI per capita 2019 $1,930 https://data.worldbank.org/country/sao-tome-and-principe?view=chart

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

São Tomé and Príncipe is taking steps toward sustainable economic growth. Its economic prospects depend on the government’s ability to attract sustained FDI. Therefore, the government is anxious to improve the country’s investment climate to make it a more attractive destination for foreign investors. Under Article 14 of the Investment Code, the State guarantees equal and non-discriminatory treatment to both foreign and domestic investors operating in the country. The Trade and Investment Promotion Agency (APCI, www.apcistp.com ), housed under the Ministry of Planning, Finance, and Blue Economy, promotes and facilitates investment through single-window service and multi-sectoral coordination. However, due to lack of capacity the agency is struggling to fully comply with its mandate.

Limits on Foreign Control and Right to Private Ownership and Establishment

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

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

Other Investment Policy Reviews

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

Business Facilitation

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

Outward Investment

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

3. Legal Regime

Transparency of the Regulatory System

The laws and regulations that affect direct investment, including environmental, health, and safety rules and regulations, apply equally to foreign and domestic firms. STP tax laws reward citizens who return to STP to invest, while also containing provisions for attracting foreigners to invest in STP. The STP legal code is based on Portuguese law, and laws and regulations are applied at the national level. Rule-making and regulatory authority exist at the national level and regulations are developed at the ministerial level, approved by the National Assembly, and promulgated by the President. The ministry concerned is responsible for any regulatory enforcement mechanisms. Rarely, drafted bills or regulations are made available for public comment. Copies of most regulations can be purchased online at https://www.legis-palop.org/  or directly at the Ministry of Justice, Public Administration, and Human Rights in the format of the Official Gazette. The public finances and debt obligations are relatively transparent and are periodically available on the finance ministry website: https://financas.gov.st/

International Regulatory Considerations

STP is a member of the Economic Community of Central African States (ECCAS), whose fundamental goal is to promote exchange and collaboration among the member countries and give an institutional and legal framework to their cooperation. ECCAS is the largest economic community in Central Africa, including Central African Economic and Monetary Community (CEMAC) member states (Gabon, Cameroon, the Central African Republic, Chad, Republic of Congo, and Equatorial Guinea), as well as Burundi, the Democratic Republic of Congo, Angola, Rwanda, and STP. STP is not a member of the WTO, but has observer status. STP is among the 44 African Nations to have signed the agreement on African Continental Free Trade Area (AfCFTA) in March 2018 in Kigali, Rwanda, and became the 25th African country to ratify the AfCFTA in June 2019.

Legal System and Judicial Independence

Aside from a dispute between a local businessman and an Angolan investor, which led to an unconstitutional dismissal of Supreme Court Judges by the parliament in May 2018, disputes are generally solved through dialogue or negotiations between parties without litigation, and there are few instances of disagreements involving foreign investors reaching international courts. The country has a written commercial law but does not have specialized courts.

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

Laws and Regulations on Foreign Direct Investment

The VAT Law approved in 2019 will come into force in July 2021. A modern Labor Code (6/2019) enacted in April 2019, is designed to make labor standards easier for investors to understand and implement. In June 2019, STP ratified the AfCFTA. The Public Private Partnership (PPP) Law, the new Notary Code, and the Commercial Register Code all entered into force in 2018; the Regulation of Investment Code was adopted in 2017; and the Investment Code and Code of Fiscal Benefits and Incentives were adopted in 2016. APCI is a one-stop shop for all investment information: https://apcistp.com/

Due to the establishment of a “one-stop shop” for starting a new business, the cost and waiting period to start a new business have been substantially reduced. A new business can obtain expedited registration within 24 hours for approximately STN10,190 ($495) and between three to five days for approximately STN 5,190 ($252). Despite this improvement, STP was downgraded to 150 out of 190 countries in terms of starting a new business according to the 2020 Doing Business Report. In comparison, in 2017 it ranked 35 out of 190 economies.

Although no online business registration process exists, companies can easily register their businesses at the counter. The following is a general description of how a foreign company can establish a local office:

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

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

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

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

Competition and Antitrust Laws

The AGER (General Regulatory Authority of the Democratic Republic of São Tomé and Principe) was created to promote competition and prevent operator abuses in the water, electricity, and telecommunications sectors, as well as in the postal service. The AGER was established in 2005 and is housed under the Ministry of Public Works, Infrastructures, Natural Resources, and Environment. STP does not have specific agencies that review transactions for competition-related concerns for other economic sectors.

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

Investor-State Dispute Settlement

STP does not have a Bilateral Investment Treaty with the United States. In May 2018, a dispute between a local businessman and an Angolan investor over a brewery led to a government intervention and the unconstitutional approval of a parliamentary resolution dismissing Supreme Court Judges, including its President. There are no reports of investor-state disputes that have involved a U.S. person in the past 10 years. STP courts recognize and enforce foreign arbitral awards issued against the government.

International Commercial Arbitration and Foreign Courts

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

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

Bankruptcy Regulations

STP has a bankruptcy law, but it is not well developed. In the World Bank’s 2020 Doing Business Report, STP ranks 168 out of 190 economies on the ease of resolving insolvency, the same rank as in 2019.

6. Financial Sector

Capital Markets and Portfolio Investment

Portfolio investment is undeveloped and unclear. The Central Bank of STP (BCSTP) issued Treasury bills (T-bills) for the first time on June 29, 2015 for STN 75 million (approximately $3.7 million) at the fixed interest rate of 6.2 percent, with a maturity of six months. The demand was 20 percent higher than the offer, due to the participation of three domestic banks. The most recent issuance occurred on March 15, 2018. STP does not have a stock market. Articles 13 and 14 of the Foreign Exchange Regulations facilitate the free flow of financial resources under the supervision of the Central Bank. Foreign investors are able to get credit on the local market; however, access to credit is difficult due to the limited variety of credit instruments, high interest rates, and the number of guarantees requested by the commercial banks. As a result, on the World Bank Doing Business Report 2020, STP ranked 165 out 190 economies regarding access to credit, a 4-point drop compared to the previous year. There are currently no significant U.S. investors active in STP.

Money and Banking System

STP has five private commercial banks. Portuguese, Nigerian, Angolan, Cameroonian, Gabonese, and Togolese, as well as Säo Toméan, interests are represented in the ownership and management of the commercial banks. The International Bank of STP (BISTP) is the largest in terms of assets; however, banks’ asset estimations are not publicly available. In early 2018, the BCSTP declared the commercial bank “Private Bank” insolvent and opened a public tender to liquidate its assets and liabilities. The Gabonese investment bank BGFI opened its São Toméan operation in March 2012. Banking services are available in the capital with a few smaller branches in cities in the north, south, and center of the country, as well as in Príncipe. In December 2020, the Governor of the Central Bank announced STP’s financial system would begin accepting Visa and MasterCard over the course of 2021.

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

Foreign Exchange and Remittances

Foreign Exchange

The BCSTP supervises the national financial system and defines monetary and exchange rate policies in STP. Among other responsibilities, it sells hard currency and establishes the reference rate. In case of a shortage, access to foreign currency is limited; however, there is no official norm restricting access. Article 18 of the Investment Code dictates that foreign investors are allowed to transfer or repatriate funds associated with an investment.

The dobra (STN) is the national currency. In July 2009, STP and Portugal signed an economic cooperation agreement to peg the dobra to the euro rather than a weighted basket of currencies. Based on the 2017 Monetary Law, the BCSTP introduced a new currency to modernize and strengthen the country’s financial system. With the introduction of the new dobra on January 1, 2018, the exchange rate is currently 24.5 dobra to the euro. This peg offers credible parity, minimizes monetary instability costs, and provides better credibility for exchange rate and monetary policy. The exchange rate to the U.S. dollar fluctuates.

Remittance Policies

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

Sovereign Wealth Funds

STP does not have a traditional sovereign wealth fund (SWF). It does have a small National Oil Account (NOA). The NOA was previously funded by signing bonuses paid by energy and oil companies to gain rights to conduct exploration and production activities. According to officials from the budget department, the Law of Petroleum allows the government to withdraw up to 20 percent of the balance of the NOA every year as calculated on June 30 of the previous year. Details are available on the state budget and under NOA online: www.grip.st/?cntnr_informac=informac&ficherselt=DT-166- Envio de Extracto da Conta Nacional de Petroleo junto BCSTP.pdf

7. State-Owned Enterprises

When STP’s cocoa plantations were shut down in the late 1980s, most SOE’s closed. EMAE (Water and Power Supply Company), ENAPORT (Port Authority Company), ENASA (National Company for Airports and Air Safety), and Empresa dos Correios (Post Office) are 100 percent state-owned, though they have some financial autonomy. Under a joint venture, the government holds 49 percent of CST (Santomean Telecommunication Company), while the largest Brazilian telecommunication company, OI, owns 51 percent. The government has a 48 percent stake in BISTP, while the Portuguese Caixa Geral de Depositos holds 27 percent and the African Investment Bank holds 25 percent. All four fully owned state enterprises are unprofitable and are annually audited by the Ministry of Planning, Finance, and Blue Economy and biennially by the Court of Audit. They have financial autonomy, but largely depend on funds from the state budget. EMAE, ENAPORT, and ENASA have no competitors. Regarding telecommunication and banking, traditionally government is the largest client of CST and BISTP.

Privatization Program

STP does not have an active privatization program. However, thorough its periodical reports, the IMF has been recommending the privatization of the SOEs, especially EMAE. On occasion, there are concession opportunities. They are normally advertised under a non-discriminatory public bidding process.

Ministry of Planning, Finance and Blue Economy: https://financas.gov.st/ 

BCSTP’s website: https://bcstp.st/

10. Political and Security Environment

STP is relatively stable, has no ethnic tensions, and has a relaxed lifestyle, which locals refer to as leve-leve (“take it easy”). Since its democratic reforms in 1990, the archipelago has been a good example of democracy in the sub-region with a history of peaceful transfers of power and consensus in decision making. There were some protests in 2018 over the creation of the Constitutional Court, and a lower court decision to recount the votes of the October 7 legislative, local, and regional elections. Despite the post-election protests, the legislative elections led to the peaceful formation of a new coalition Government.

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

Since independence in 1975, there have been no incidents of politically motivated attacks on projects or installations. There is no anti-American sentiment and instances of civil disorder are rare. Recently maritime piracy has affected STP’s territorial waters in the Gulf of Guinea, though the threat of terrorism remains limited. STP has sought to be an active partner in regional maritime security efforts, although its capacity and resources are minimal. Despite two violent murders in early 2020, violent crime rates are at a historical low.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $418 2019 $412 https://data.worldbank.org/
country/sao-tome-and-principe
 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A N/A N/A UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx

* Source for Host Country Data: Ministry of Planning, Finance and Blue Economy, 2019. 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
No Data Available No Data Available
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
No Data Available No Data Available No Data Available

Saudi Arabia

Executive Summary

In 2020, the Saudi Arabian government (SAG) continued its ambitious socio-economic reforms, collectively known as “Vision 2030.” Spearheaded by Crown Prince Mohammed bin Salman, Vision 2030 provides a roadmap for the development of new economic sectors, including tourism and entertainment, and for a significant transformation toward a digital, knowledge-based economy. The reforms are aimed at diversifying the Saudi economy away from its reliance on oil and creating more private sector jobs for a young and growing population.

To help accomplish these goals, the Saudi Arabian government (SAG) took additional steps in 2020 to improve the Kingdom’s investment climate, attract increased foreign investment, and encourage greater domestic and international private sector participation in its economy. To accelerate development and facilitate investment, the SAG elevated two Saudi authorities to full ministries in 2020: the Saudi Arabian General Investment Authority became the Ministry of Investment, and the Saudi Commission for Tourism and National Heritage became the Ministry of Tourism. On March 30, 2021, the SAG also announced the new Shareek program, an initiative designed to generate $3.2 trillion of domestic investment from the SAG, the sovereign wealth Public Investment Fund, and the private sector into Saudi Arabia’s economic development.

The Saudi Arabian government and its new stand-alone intellectual property rights (IPR) agency, the Saudi Authority for Intellectual Property (SAIP), have taken important steps since 2018 to improve IPR protection, enforcement, and awareness. In 2020, SAIP continued its inspection campaigns and seized millions of items that violated IPR protection. However, despite making measurable progress, the continued lack of effective protection of IPR in the pharmaceutical sector remains a significant concern. Several U.S. and international pharmaceutical companies allege the SAG violated their IPR and the confidentiality of trade data by licensing local firms to produce competing generic pharmaceuticals without approval. Industry attempts to engage the SAG on these issues have not led to satisfactory outcomes for the affected companies, while legal recourse and repercussions for IPR violations remain poorly defined. Primarily for these reasons, the U.S. Trade Representative included Saudi Arabia on its Special 301 Priority Watch List for the second consecutive year.

Infrastructure development remains a priority component of Saudi Arabia’s Vision 2030 aspiration to become the most important logistics hub in the region, linking Asia, Europe, and Africa. By establishing new business partnerships and facilitating the flow of goods, people, and capital, the country seeks to increase interconnectivity and economic integration with other Gulf Cooperation Council (GCC) countries. Improvements to transportation, such as the $23 billion Riyadh metro, are intended to support this plan. In addition, Saudi Arabia continues to create and expand “economic cities” – including plans for special economic zones – throughout the Kingdom as hubs for petrochemicals, mining, logistics, manufacturing, and digital industries. The Kingdom also continued its early-stage work on infrastructure for NEOM, a futuristic city in northwest Saudi Arabia that Saudi officials have said will cost $500 billion to develop.

Saudi Arabia is launching an $800 billion project to double the size of Riyadh city in the next decade and transform it into an economic, social, and cultural hub for the region. The project includes 18 “mega-projects” in the capital city to improve livability, strengthen economic growth, and more than double the population to 15-20 million by 2030. The SAG is seeking private sector financing of $250 billion for these projects with similar contributions from income generated by its financial, tourism, and entertainment sectors. While specific details of a new initiative announced in February 2021 to attract multinational companies’ regional headquarters offices to Saudi Arabia have not been finalized, senior SAG officials have said publicly that beginning in 2024, government contracts will only be awarded to companies whose regional headquarters are located in the Kingdom. “Saudization” polices requiring certain businesses to employ a quota of Saudi workers have led to disruptions in some private sector activities.

In recognition of the progress made in its investment and business climate, Saudi Arabia’s rankings on several world indexes improved between 2019 and 2021. The country jumped 13 places on the IMD World Competitiveness Yearbook 2019, the biggest gain of any country surveyed, and increased two more spots in 2020 to 24th place, supported by improvements to government and business efficiency. The World Bank ranked Saudi Arabia the world’s top reformer and improver in its Doing Business 2020 report. The Kingdom rose 30 places, from 92nd to 62nd, and improved in 9 out of 10 areas measured in the report. World Economic Forum’s 2020 Global Competitiveness Report Special Edition ranked Saudi Arabia among the top 10 countries in the world for digital skills. The report attributed this progress to a number of factors including the adoption of information and communication technology, flexible work arrangements, national digital skills, and the legal digital framework.

On the social front, the removal of guardianship laws and travel restrictions for adult women, the introduction of workplace protections, and recent judicial reforms that provide additional protection have enabled more women to enter the labor force. From 2016 to 2020, the Saudi female labor participation rate increased from 19 percent to 33 percent.

Development of the Saudi tourism sector is also a priority under Vision 2030, with plans to develop tourist attractions that meet the highest international standards and develop potential UNESCO World Heritage Sites. In addition to introducing a new tourism visa in 2019 for non-religious travelers, the SAG no longer requires that foreign travelers staying in the same hotel room provide proof of marriage or family relations. Construction of several multi-billion dollar giga-projects focused on tourism, including Qiddiya, the Red Sea Project, and Amaala, continue to progress. The SAG is seeking private investments through its Tourist Investment Fund, which has initial capital of $4 billion, and the Kafalah program, which provides loan guarantees of up to $400 million. In addition, the Tourism Fund signed MOUs with local banks to finance projects valued up to $40 billion in an effort to stimulate tourism investment and increase the sector’s contribution to GDP. Due to the global pandemic, the SAG paused its Saudi Seasons initiative comprised of 11 annual tourism ‘seasons’ held in each region of the country, but has announced the program will resume in November 2021.

The Saudi entertainment and sporting events sector is growing rapidly. AMC, Vox, and other cinema companies continue to develop hundreds of movie theaters. The SAG is seeking to sign agreements for film production studios in Saudi Arabia for end-to-end film production. Saudi film festivals, like the Red Sea Film Festival, are being developed to meet the SAG’s Vision 2030 Quality of Life objectives. The SAG has also hosted several world class sporting events including the European Tour, Diriyah ePrix, Dakar Rally, Saudi Formula One Grand Prix, Diriyah Tennis Cup, WWE Crown Jewel, and Supercoppa. In addition, several festivals and concerts have demonstrated strong demand for a variety of art and culture content.

Investor concerns persist, however, over the rule of law, business predictability, and political risk. Although some have recently been released, the continued detention and prosecution of activists, including prominent women’s rights activists, remains a significant concern, while there has been little progress on fundamental freedoms of speech and religion. Pressure on Saudi Arabia’s fiscal situation from the sharp downturn in oil prices and demand in 2020, as well as the unexpected spending needed to respond to COVID-19, will likely dampen some of the SAG’s ambitious plans. Despite budget cuts imposed in 2020 and the possibility that further spending reductions may be forthcoming, companies working on the SAG’s giga-projects reported the ongoing availability of funding in 2020. Revenues generated by the tripling of Saudi Arabia’s value-added tax rate from 5 to 15 percent in July 2020 have helped ease fiscal stress.

The pressure to generate non-oil revenue and provide more jobs for Saudi citizens have prompted the SAG to implement measures that may weaken the country’s investment climate going forward. Increased fees for expatriate workers and their dependents, as well as “Saudization” polices requiring certain businesses to employ a quota of Saudi workers, have led to disruptions in some private sector activities and may lead to a decrease in domestic consumption levels.

Finally, while some U.S. companies, including those with significant experience in Saudi Arabia, continue to experience payment delays for SAG contracts, many were paid in full from late 2020 through the beginning of 2021. The SAG has committed to speed up its internal payment process and pay companies in a timely manner.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 52 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 62 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 66 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $10,826 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $22,840 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The SAG seeks foreign investment that explicitly promotes economic development, transfers foreign expertise and technology to Saudi Arabia, creates jobs for Saudi nationals, and increases Saudi Arabia’s non-oil exports. As part of Vision 2030, the SAG targets increasing foreign investments in Saudi Arabia to $3 trillion. The government encourages investment in nearly all economic sectors, with priority given to chemicals, industrial, and manufacturing; transport and logistics; information and communication technology; healthcare and life sciences; water and waste management; energy; education; tourism, entertainment and sports; real estate; financial services; and mining and metals. In March 2021, the SAG announced it is seeking to attract $420 billion in foreign investments over the next 10 years in the infrastructure and transportation sectors alone.

The Ministry of Investment of Saudi Arabia (MISA), formerly the Saudi Arabian General Investment Authority (SAGIA), governs and regulates foreign investment in the Kingdom, issues licenses to prospective investors, and works to foster and promote investment opportunities across the economy. Established originally as a regulatory agency, MISA has increasingly shifted its focus to investment promotion and assistance, offering potential investors detailed guidance and a catalogue of current investment opportunities on its website (https://investsaudi.sa/en/sectors-opportunities/).

MISA promotes efforts to improve the Kingdom’s attractiveness as an investment destination: e-licenses to provide a more efficient and user-friendly process; an online “instant” license issuance or renewal service to foreign investors that are listed on a local or international stock market and meet certain conditions; a reduction in the license approval period from days to hours; a reduction in required customs documents; 100 percent foreign ownership in most sectors; a reduction in customs clearance period from weeks to hours; the launch of Saudi Center for Commercial Arbitration; and an increase in the investor license period to five years. MISA’s reforms appear to be yielding results: Saudi Arabia jumped 30 places to 62nd place in the 2020 World Bank’s Ease of Doing Business Report.

In a country where most public entertainment was once forbidden, the SAG now regularly sponsors and promotes entertainment programming, including live concerts, dance exhibitions, sports competitions, and other public performances. Significantly, the audiences for many of those events are now gender-mixed, representing a larger consumer base. In addition to reopening cinemas in 2018, the SAG has hosted Formula E races, professional golf tournaments, a world heavyweight boxing title match, and a professional tennis tournament. Saudi Arabia launched the Saudi Seasons initiative in 2019 with tourism and cultural events in each of the 11 regions of the country. The Riyadh Season included first-ever car exhibition and auction in Riyadh, which attracted 350 U.S. exhibitors. Saudi Arabia’s General Entertainment Authority announced it plans to launch the second iteration of Saudi Seasons in November 2021 after a COVID pause.

The SAG is proceeding with “economic cities” and new “giga-projects” that are at various stages of development and is seeking foreign investment in them. These projects are large-scale and self-contained developments in different regions focusing on particular industries, e.g., technology, energy, logistics (airports, railways, ports, and warehouses), tourism, entertainment, and institutional (education; medical; government entities, post offices and fire stations; religious buildings, and dams and reservoirs). Principal among these projects are:

  • Qiddiya, a new, large-scale entertainment, sports, and cultural complex near Riyadh;
  • King Abdullah Financial District, a commercial center development with nearly 60 skyscrapers in Riyadh;
  • Red Sea Project, a massive tourism development on the archipelago of islands along the western Saudi coast, which aims to create 70,000 jobs and attract one million tourists per year;
  • Amaala, a wellness, healthy living, and meditation resort on the Kingdom’s northwest coast, projected to include more than 2,500 luxury hotel rooms and 700 villas; and
  • NEOM, a $500 billion long-term development project to build a futuristic “independent economic zone” in northwest Saudi Arabia. In November 2020, the SAG announced The Line; a new, 100 mile-long, $100-$200 billion development at NEOM that will have no cars, no streets, and no carbon emissions. The project aims to create 380,000 jobs and contribute $48 billon to domestic GDP by 2030.

The long term impact of the COVID-19 pandemic and sustained downturn in oil prices in 2020 on these giga-projects is not clear. While some companies working on the projects reported the ongoing availability of funding in 2020, others reported that budget cutbacks had begun to impact their operations.

In June 2020, the SAG approved a new mining investment law that aims to boost investments in the sector. The law will facilitate the establishment of a mining fund to provide sustainable finance, support geological survey and exploration programs, and optimize national mineral resources valued at $1.3 trillion. The law could increase the sector’s contribution to GDP by $64 billion, reduce imports by $9.8 billion, and create 200,000 direct and indirect jobs by 2030.

Structural impediments to foreign investment in Saudi Arabia remain.

Foreign investors must contend with increasingly strict localization requirements in bidding for certain government contracts, labor policy requirements to hire more Saudi nationals (usually at higher wages than expatriate workers), an increasingly restrictive visa policy for foreign workers, and gender segregation in business and social settings (though gender segregation is becoming more relaxed as the SAG introduces socio-economic reforms). The General Authority for Military Industries, for example, will require that all military procurements have fifty percent local content by 2030.

The SAG implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases, higher fines for traffic violations, new fees for certain billboard advertisements, and related measures. On July 1, 2020, the SAG increased the value-added tax (VAT) from five percent to 15 percent.

The SAG implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases, higher fines for traffic violations, new fees for certain billboard advertisements, and related measures. On July 1, 2020, the SAG increased the value-added tax (VAT) from five percent to 15 percent.

In February 2021, MISA and the Royal Commission for Riyadh City (RCRC) announced a new directive that companies that want to contract with the SAG must establish their regional headquarters in Saudi Arabia – preferably in Riyadh – by 2024. Companies that relocate their regional headquarters to Riyadh will receive tax breaks and other incentives. Saudi officials have confirmed that offices cannot be headquarters “in name only” but, rather, must be legitimate headquarters offices with C-level executive staff in Riyadh overseeing operations and staff in the rest of the region. Companies choosing to maintain their regional headquarters in another country will not be awarded public sector contracts – including contracts from Saudi Aramco – beginning in 2024.

Foreign investment is currently prohibited in 10 sectors on the Negative List, including:

  1. Oil exploration, drilling, and production;
  2. Catering to military sectors;
  3. Security and detective services;
  4. Real estate investment in the holy cities, Mecca and Medina;
  5. Tourist orientation and guidance services for religious tourism related to Hajj and umrah;
  6. Printing and publishing (subject to a variety of exceptions);
  7. Certain internationally classified commission agents;
  8. Services provided by midwives, nurses, physical therapy services, and quasi-doctoral services;
  9. Fisheries; and
  10. Poison centers, blood banks, and quarantine services.

In addition to the negative list, older laws that remain in effect prohibit or otherwise restrict foreign investment in some economic subsectors not on the list, including some areas of healthcare. At the same time, MISA has demonstrated some flexibility in approving exceptions to the “negative list” exclusions.

Limits on Foreign Control and Right to Private Ownership and Establishment

Saudi Arabia fully recognizes rights to private ownership and the establishment of private business. As outlined above, the SAG excludes foreign investors from some economic sectors and places some limits on foreign control.

With respect to energy, Saudi Arabia’s largest economic sector, foreign firms are barred from investing in the upstream hydrocarbon sector, but the SAG permits foreign investment in the downstream energy sector, including refining and petrochemicals. There is significant foreign investment in these sectors. ExxonMobil, Shell, China’s Sinopec, and Japan’s Sumitomo Chemical are partners with Saudi Aramco (the SAG’s state-owned oil firm) in domestic refineries. ExxonMobil, Chevron, Shell, and other international investors have joint ventures with Saudi Aramco and/or the Saudi Basic Industries Corporation (SABIC) in large-scale petrochemical plants that utilize natural gas feedstock from Saudi Aramco’s operations. The Dow Chemical Company and Saudi Aramco are partners in the $20 billion Sadara joint venture with the world’s largest integrated petrochemical production complex.

Saudi Aramco also maintains several contractors under its Long-Term Agreement (LTA) group for a series of offshore jobs that include engineering, procurement, construction, and installation. LTA firms are prioritized for offshore contracts typically ranging between $100 to $800 million in value. Saudi Aramco also maintains a smaller group of contractors to provide hook-up, commissioning and maintenance, and modifications and operations jobs for its offshore oil and gas infrastructure. These refurbishment contracts are usually valued under $100 million and tendered exclusively to this smaller group.

With respect to other non-oil natural resources, Saudi Arabia’s mining sector continues to expand. With an estimated $1.3 trillion of mineral resources, the sector expects to have significant opportunities in exploration and development projects. Saudi Arabia’s mining sector laws were recently updated to allow foreign companies to enter the mining sector and invest in the Kingdom’s vast mining resources. Saudi Arabia’s national mining company, Ma’aden, has a $12 billion joint venture with Alcoa for bauxite mining and aluminum production and a $7 billion joint venture with the leading American fertilizer firm Mosaic and SABIC to produce phosphate-based fertilizers.

Joint ventures almost always take the form of limited liability partnerships in Saudi Arabia, to which there are some disadvantages. Foreign partners in service and contracting ventures organized as limited liability partnerships must pay, in cash or in kind, 100 percent of their contribution to authorized capital. MISA’s authorization is only the first step in setting up such a partnership.

Professionals, including architects, consultants, and consulting engineers, are required to register with, and be certified by, the Ministry of Commerce. In theory, these regulations permit the registration of Saudi-foreign joint venture consulting firms. As part of its WTO commitments, Saudi Arabia generally allows consulting firms to establish a local office without a Saudi partner. Foreign engineering consulting companies, however, must have been incorporated for at least 10 years and have operations in at least four different countries to qualify. Foreign entities practicing accounting and auditing, architecture and civil planning, or providing healthcare, dental, or veterinary services, must still have a Saudi partner.

In recent years, Saudi Arabia has opened additional service markets to foreign investment, including financial and banking services; aircraft maintenance and repair; computer reservation systems; wholesale, retail, and franchise distribution services; both basic and value-added telecom services; and investment in the computer and related services sectors. In 2016, Saudi Arabia formally approved full foreign ownership of retail and wholesale businesses in the Kingdom. While some companies have already received licenses under the new rules, the restrictions attached to obtaining full ownership – including a requirement to invest over $50 million during the first five years and ensure that 30 percent of all products sold are manufactured locally – have proven difficult to meet and precluded many investors from taking full advantage of the reform.

Other Investment Policy Reviews

Saudi Arabia completed its third WTO trade policy review in March 2021, which included investment policies ( https://www.wto.org/english/tratop_e/tpr_e/tp507_e.htm ).

Business Facilitation

In addition to applying for a license from MISA, foreign and local investors must register a new business via the Ministry of Commerce (MOC), which has begun offering online registration services for limited liability companies at: https://mc.gov.sa/en/ . Though users may submit articles of association and apply for a business name within minutes on MOC’s website, final approval from the Ministry often takes a week or longer. Applicants must also complete a number of other steps to start a business, including obtaining a municipality (baladia) license for their office premises and registering separately with the Ministry of Human Resources and Social Development, Chamber of Commerce, Passport Office, Tax Department, and the General Organization for Social Insurance. From start to finish, registering a business in Saudi Arabia takes about three weeks. The country placed at 38 of 190 countries for ease of starting a business, according to the World Bank (2020 rankings). Also, improved protections for minority investors helped Saudi Arabia tie for third place globally on that World Bank indicator.

Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom. To facilitate and promote the growth of the SME sector, the SAG established the Small and Medium Enterprises General Authority in 2015 and released a new Companies Law in 2016, which was amended in 2018 to update the language vis-à-vis Joint Stock Companies (JSC) and Limited Liability Companies (LLC). It also substantially reduced the minimum capital and number of shareholders required to form a JSC from five to two. Additionally, as of 2019, women no longer need a male guardian to apply for a business license.

Outward Investment

Private Saudi citizens, Saudi companies, and SAG entities hold extensive overseas investments. The SAG has been transforming its Public Investment Fund (PIF), traditionally a holding company for government shares in state-controlled enterprises, into a major international investor and sovereign wealth fund. In 2016, the PIF made its first high-profile international investment by taking a $3.5 billion stake in Uber. The PIF has also announced a $400 million investment in Magic Leap, a Florida-based company that is developing “mixed reality” technology, and a $1 billion investment in Lucid Motors, a California-based electric car company. In 2020 and early 2021, the PIF made a number of new investments, including in Facebook, Starbucks, Disney, Boeing, Citigroup, LiveNation, Marriott, several European energy firms, Carnival Cruise Lines, Reliance Retail Ventures Limited (RRVL), and Hambro Perks Ltd’s Oryx Fund, but liquidated its position in many of these within a few months. Saudi Aramco and SABIC are also major investors in the United States. In 2017, Saudi Aramco acquired full ownership of Motiva, the largest refinery in North America, in Port Arthur, Texas. SABIC has announced a multi-billion dollar joint venture with ExxonMobil in a petrochemical facility in Corpus Christi, Texas.

3. Legal Regime

Transparency of the Regulatory System

Saudi Arabia received the lowest score possible (zero out of five) in the World Bank’s Global Indicators of Regulatory Governance Report, which places the Kingdom in the bottom 13 countries among 186 countries surveyed ( http://rulemaking.worldbank.org/ ). Few aspects of the SAG’s regulatory system are entirely transparent, although Saudi investment policy is less opaque than other areas. Bureaucratic procedures are cumbersome, but red tape can generally be overcome with persistence. Foreign portfolio investment in the Saudi stock exchange is well-regulated by the Capital Markets Authority (CMA), with clear standards for interested foreign investors to qualify to trade on the local market. The CMA has progressively liberalized requirements for “qualified foreign investors” to trade in Saudi securities. Insurance companies and banks whose shares are listed on the Saudi stock exchange are required to publish financial statements according to International Financial Reporting Standards (IFRS) accounting standards. All other companies are required to follow accounting standards issued by the Saudi Organization for Certified Public Accountants.

Stakeholder consultation on regulatory issues is inconsistent. Some Saudi organizations are diligent in consulting businesses affected by the regulatory process, while others tend to issue regulations with no consultation at all. Proposed laws and regulations are not always published in draft form for public comment. An increasing number of government agencies, however, solicit public comments through their websites. The processes and procedures for stakeholder consultation are not generally transparent or codified in law or regulations. There are no private-sector or government efforts to restrict foreign participation in the industry standards-setting consortia or organizations that are available. There are no informal regulatory processes managed by NGOs or private-sector associations.

International Regulatory Considerations

Saudi Arabia uses technical regulations developed both by the Saudi Arabian Standards Organization (SASO) and by the Gulf Standards Organization (GSO). Although the GCC member states continue to work towards common requirements and standards, each individual member state, and Saudi Arabia through SASO, continues to maintain significant autonomy in developing, implementing, and enforcing technical regulations and conformity assessment procedures in its territory. More recently, Saudi Arabia has moved towards adoption of a single standard for technical regulations. This standard is often based on International Organization for Standardization (ISO) or International Electrotechnical Commission (IEC) standards, to the exclusion of other international standards, such as those developed by U.S.-domiciled standards development organizations (SDOs).

Saudi Arabia’s exclusion of these other international standards, which are often used by U.S. manufacturers, can create significant market access barriers for industrial and consumer products exported from the United States. The United States government has engaged Saudi authorities on the principles for international standards per the WTO Technical Barriers to Trade Committee Decision and encouraged Saudi Arabia to adopt standards developed according to such principles in their technical regulations, allowing all products that meet those standards to enter the Saudi market. Several U.S.-based standards organizations, including SDOs and individual companies, have also engaged SASO, with mixed success, in an effort to preserve market access for U.S. products, ranging from electrical equipment to footwear.

A member of the WTO, Saudi Arabia must notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The Saudi legal system is derived from Islamic law, known as sharia. Saudi commercial law, meanwhile, is still developing. In 2016, Saudi Arabia took a significant step in improving its dispute settlement regime with the establishment of the Saudi Center for Commercial Arbitration (see “Dispute Settlement” below). Through its Commercial Law Development Program, the U.S. Department of Commerce has provided capacity-building programs for Saudi stakeholders in the areas of contract enforcement, public procurement, and insolvency.

The Saudi Ministry of Justice oversees the sharia-based judicial system, but most ministries have committees to rule on matters under their jurisdictions. Judicial and regulatory decisions can be appealed. Many disputes that would be handled in a court of law in the United States are handled through intra-ministerial administrative bodies and processes in Saudi Arabia. Generally, the Saudi Board of Grievances has jurisdiction over commercial disputes between the government and private contractors. The Board also reviews all foreign arbitral awards and foreign court decisions to ensure that they comply with sharia. This review process can be lengthy, and outcomes are unpredictable.

The Kingdom’s record of enforcing judgments issued by courts of other GCC states under the GCC Common Economic Agreement, and of other Arab League states under the Arab League Treaty, is somewhat better than enforcement of judgments from other foreign courts. Monetary judgments are based on the terms of the contract – e.g., if the contract is calculated in U.S. dollars, a judgment may be obtained in U.S. dollars. If unspecified, the judgment is denominated in Saudi riyals. Non-material damages and interest are not included in monetary judgments, based on the sharia prohibitions against interest and against indirect, consequential, and speculative damages.

As with any investment abroad, it is important that U.S. investors take steps to protect themselves by thoroughly researching the business record of a proposed Saudi partner, retaining legal counsel, complying scrupulously with all legal steps in the investment process, and securing a well-drafted agreement. Even after a decision is reached in a dispute, enforcement of a judgment can still take years. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and appropriate contractual provisions for dispute resolution.

In a February 8, 2021 statement, the Crown Prince announced draft legal reforms impacting personal status law, civil transactions law, evidence law, and discretionary sentencing that aim to increase predictability and transparency in the legal system, facilitating commerce and expanding protections for women. The draft proposals, expected to be approved later in 2021, would begin to codify Saudi law to introduce transparency and help ensure consistency in court rulings and improve oversight and accountability. Details remain unclear, but if implemented effectively, the reforms would be a major step in modernizing the Saudi legal system.

Laws and Regulations on Foreign Direct Investment

In January 2019, the Saudi government established the Foreign Trade General Authority (FTGA), which aims to strengthen Saudi Arabia’s non-oil exports and investment, increase the private sector’s contribution to foreign trade, and resolve obstacles encountered by Saudi exporters and investors. The new authority monitors the Kingdom’s obligations under international trade agreements and treaties, negotiates and enters into new international commercial and investment agreements, and represents the Kingdom before the World Trade Organization. The Governor of the Foreign Trade General Authority reports to the Minister of Commerce.

Despite the list of activities excluded from foreign investment (see “Policies Toward Foreign Direct Investment”), foreign minority ownership in joint ventures with Saudi partners may be allowed in some of these sectors. Foreign investors are no longer required to take local partners in many sectors and may own real estate for company activities. They are allowed to transfer money from their enterprises out of the country and can sponsor foreign employees, provided that “Saudization” quotas are met (see “Labor Section” below). Minimum capital requirements to establish business entities range from zero to 30 million Saudi riyals ($8 million), depending on the sector and the type of investment.

MISA offers detailed information on the investment process, provides licenses and support services to foreign investors, and coordinates with government ministries to facilitate investment. According to MISA, it must grant or refuse a license within five days of receiving an application and supporting documentation from a prospective investor. MISA has established and posted online its licensing guidelines, but many companies looking to invest in Saudi Arabia continue to work with local representation to navigate the bureaucratic licensing process.

MISA licenses foreign investments by sector, each with its own regulations and requirements: (i) services, which comprise a wide range of activities including IT, healthcare, and tourism; (ii) industrial, (iii) real estate, (iv) public transportation, (v) entrepreneurial, (vi) contracting, (vii) audiovisual media, (viii) science and technical office, (ix) education (colleges and universities), and (x) domestic services employment recruitment. MISA also offers several special-purpose licenses for bidding on and performance of government contracts. Foreign firms must describe their planned commercial activities in some detail and will receive a license in one of these sectors at MISA’s discretion. Depending on the type of license issued, foreign firms may also require the approval of relevant competent authorities, such as the Ministry of Health or the Ministry of Tourism.

An important MISA objective is to ensure that investors do not just acquire and hold licenses without investing, and MISA sometimes cancels licenses of foreign investors that it deems do not contribute sufficiently to the local economy. MISA’s periodic license reviews, with the possibility of cancellation, add uncertainty for investors and can provide a disincentive to longer-term investment commitments.

MISA has agreements with various SAG agencies and ministries to facilitate and streamline foreign investment. These agreements permit MISA to facilitate the granting of visas, establish MISA branch offices at Saudi embassies in different countries, prolong tariff exemptions on imported raw materials to three years and on production and manufacturing equipment to two years, and establish commercial courts. To make it easier for businesspeople to visit the Kingdom, MISA can sponsor visa requests without involving a local company. Saudi Arabia has implemented a decree providing that sponsorship is no longer required for certain business visas. While MISA has set up the infrastructure to support foreign investment, many companies report that despite some improvements, the process remains cumbersome and time-consuming.

Competition and Antitrust Laws

The General Authority for Competition (GAC) reviews merger transactions for competition-related concerns, investigates business conduct, including allegations of price fixing, can issue fines, and can approve applications for exemptions for certain business conduct.

The Competition law, as amended in 2019, applies to all entities operating in Saudi Arabia, and has a broad application covering all activities related to the production, distribution, purchase, and sale of commodities inside the Kingdom, as well as practices that occur outside of Saudi Arabia and that have an impact on domestic competition.

The competition law prohibits anti-competitive practices and agreements, which have as their object or effect the restriction of competition. This may include certain aspects of vertically-integrated business combinations. Consequently, companies doing business in Saudi Arabia may find it difficult to register exclusivity clauses in distribution agreements, but are not necessarily precluded from enforcing such clauses in Saudi courts.

Certain merger transactions must be notified to the GAC, and each entity involved in the merger is obligated to notify the GAC. GAC may approve, conditionally approve, or reject a merger transaction.

Expropriation and Compensation

The Embassy is not aware of any cases in Saudi Arabia of expropriation from foreign investors without adequate compensation. Some small- to medium-sized foreign investors, however, have complained that their investment licenses have been cancelled without justification, causing them to forfeit their investments.

Dispute Settlement

ICSID Convention and New York Convention

The Kingdom of Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994. Saudi Arabia is also a member state of the International Center for the Settlement of Investment Disputes Convention (ICSID), though under the terms of its accession it cannot be compelled to refer investment disputes to this system absent specific consent, provided on a case-by-case basis. Saudi Arabia has yet to consent to the referral of any investment dispute to the ICSID for resolution.

Investor-State Dispute Settlement

The use of any international or domestic dispute settlement mechanism within Saudi Arabia continues to be time-consuming and uncertain, as all outcomes are subject to a final review in the Saudi judicial system and carry the risk that principles of sharia law may potentially supersede a judgment or legal precedent. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and contractual provisions for dispute resolution.

International Commercial Arbitration and Foreign Courts

Traditionally, dispute settlement and enforcement of foreign arbitral awards in Saudi Arabia have proven time-consuming and uncertain, carrying the risk that sharia principles can potentially supersede any foreign judgments or legal precedents. Even after a decision is reached in a dispute, effective enforcement of the judgment can be lengthy. In several cases, disputes have caused serious problems for foreign investors. In cases of alleged fraud or debt, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or court adjudication. Courts can in theory impose precautionary restraint on personal property pending the adjudication of a commercial dispute, though this remedy has been applied sparingly.

The SAG has demonstrated a commitment to improve the quality of commercial legal proceedings and access to alternative dispute resolution mechanisms. Local attorneys indicate that the quality of final judgments in the court system has improved, but that cases still take too long to litigate. The Saudi Center for Commercial Arbitration (SCCA) offers comprehensive arbitration services to domestic and international firms. The SCCA reports that both domestic and foreign law firms have begun to include referrals to the SCCA in the arbitration clauses of their contracts. However, it is currently too early to assess the quality and effectiveness of SCCA proceedings, as the SCCA is still in the early stages of operation. Awards rendered by the SCCA can be enforced in local courts, though judges remain empowered to reject enforcement of provisions they deem noncompliant with sharia law.

In December 2017, the United Nations Commission on International Trade Law (UNCITRAL) recognized Saudi Arabia as a jurisdiction that has adopted an arbitration law based on the 2006 UNCITRAL Model Arbitration Law. UNCITRAL took this step after Saudi judges clarified that sharia would not affect the enforcement of foreign arbitral awards. In May 2020, Saudi Arabia ratified the United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the “Singapore Convention on Mediation,” becoming the fourth state to ratify the Convention. As a result of Saudi Arabia’s ratification, international settlement agreements falling under the Convention and involving assets located in Saudi Arabia may be enforced by Saudi Arabian courts.

Bankruptcy Regulations

In August 2018, the SAG implemented new bankruptcy legislation which seeks to “further facilitate a healthy business environment that encourages participation by foreign and domestic investors, as well as local small and medium enterprises.” The new law clarifies procedural processes and recognizes distinct creditor classes (e.g., secured creditors). The new law also includes procedures for continued operation of the distressed company via financial restructuring. Alternatively, the parties may pursue an orderly liquidation of company assets, which would be managed by a court-appointed licensed bankruptcy trustee. Saudi courts have begun to accept and hear cases under this new legislation.

6. Financial Sector

Capital Markets and Portfolio Investment

Saudi Arabia’s financial policies generally facilitate the free flow of private capital and currency can be transferred in and out of the Kingdom without restriction. Saudi Arabia maintains an effective regulatory system governing portfolio investment in the Kingdom. The Capital Markets Law, passed in 2003, allows for brokerages, asset managers, and other nonbank financial intermediaries to operate in the Kingdom. The law created a market regulator, the Capital Market Authority (CMA), established in 2004, and opened the Saudi stock exchange (Tadawul) to public investment.

Since 2015, the CMA has progressively relaxed the rules applicable to qualified foreign investors, easing barriers to entry and expanding the foreign investor base. The CMA adopted regulations in 2017 permitting corporate debt securities to be listed and traded on the exchange; in March 2018, the CMA authorized government debt instruments to be listed and traded on the Tadawul. The Tadawul was incorporated into the FTSE Russell Emerging Markets Index in March 2019, resulting in a foreign capital injection of $6.8 billion. Separately, the $11 billion infusion into the Tadawul from integration into the MSCI Emerging Markets Index took place in May 2019. The Tadawul was also added to the S&P Dow Jones Emerging Market Index.

Money and Banking System

The banking system in the Kingdom is generally well-capitalized and healthy. The public has easy access to deposit-taking institutions. The legal, regulatory, and accounting systems used in the banking sector are generally transparent and consistent with international norms. In November 2020, the SAG approved the Saudi Central Bank Law, which changed the name of the Saudi Arabian Monetary Authority (SAMA) to the Saudi Central Bank. Under the new law, the Saudi Central Bank is responsible for maintaining monetary stability, promoting the stability of and enhancing confidence in the financial sector, and supporting economic growth. The Saudi Central Bank will continue to use the acronym “SAMA” due to its widespread use.

SAMA generally gets high marks for its prudential oversight of commercial banks in Saudi Arabia. SAMA is a member and shareholder of the Bank for International Settlements in Basel, Switzerland.

In 2017, SAMA enhanced and updated its previous Circular on Guidelines for the Prevention of Money Laundering and Terrorist Financing. The enhanced guidelines have increased alignment with the Financial Action Task Force (FATF) 40 Recommendations, the nine Special Recommendations on Terrorist Financing, and relevant UN Security Council Resolutions. Saudi Arabia is a member of the Middle East and North Africa Financial Action Task Force (MENA-FATF). In 2019, Saudi Arabia became the first Arab country to be granted full membership of the FATF, following the organization’s recognition of the Kingdom’s efforts in combating money laundering, financing of terrorism, and proliferation of arms. Saudi Arabia had been an observer member since 2015.

The SAG has authorized increased foreign participation in its banking sector over the last several years. SAMA has granted licenses to a number of new foreign banks to operate in the Kingdom, including Deutsche Bank, J.P. Morgan Chase N.A., and Industrial and Commercial Bank of China (ICBC). A number of additional, CMA-licensed foreign banks participate in the Saudi market as investors or wealth management advisors. Citigroup, for example, returned to the Saudi market in early 2018 under a CMA license.

Credit is normally widely available to both Saudi and foreign entities from commercial banks and is allocated on market terms. The Saudi banking sector has one of the world’s lowest non-performing loan (NPL) ratios, roughly 2.0 percent in 2020. In addition, credit is available from several government institutions, such as the SIDF, which allocate credit based on government-set criteria rather than market conditions. Companies must have a legal presence in Saudi Arabia to qualify for credit. The private sector has access to term loans, and there have been a number of corporate issuances of sharia-compliant bonds, known as sukuk.

The New Government Tenders and Procurement Law (GTPL) was approved in 2019. The New GTPL applies to procurement by government entities and works and procurements executed outside of Saudi Arabia. The Ministry of Finance has a pivotal role under the new GTPL by setting policies and issuing directives, collating and distributing information, maintaining a list of boycotts, and approving tender and prequalification forms, contract forms, performance evaluation forms, and other documents. In 2018, the Ministry of Finance launched the Electronic Government Procurement System (Etimad Portal) to consolidate and facilitate the process of bidding and government procurement for all government sectors, enhancing transparency amongst sectors of government and among competing entities.

In 2021, SAMA introduced the new Instant Payment System (Sarie) to facilitate instant, 24/7 money transfers across local banks.

Foreign Exchange and Remittances

Foreign Exchange

There is no limitation in Saudi Arabia on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs, other than certain withholding taxes (withholding taxes range from five percent for technical services and dividend distributions to 15 percent for transfers to related parties, and 20 percent or more for management fees). Bulk cash shipments greater than $10,000 must be declared at entry or exit points. Since 1986, when the last currency devaluation occurred, the official exchange rate has been fixed by SAMA at 3.75 Saudi riyals per U.S. dollar. Transactions typically take place using rates very close to the official rate.

Remittance Policies

Saudi Arabia is one of the largest remitting countries in the world, with roughly 75 percent of the Saudi labor force comprised of foreign workers. Remittances totaled approximately $39.9 billion in 2020. There are currently no restrictions on converting and transferring funds associated with an investment (including remittances of investment capital, dividends, earnings, loan repayments, principal on debt, lease payments, and/or management fees) into a freely usable currency at a legal market-clearing rate. There are no waiting periods in effect for remitting investment returns through normal legal channels.

The Ministry of Human Resources and Social Development is progressively implementing a “Wage Protection System” designed to verify that expatriate workers, the predominant source of remittances, are being properly paid according to their contracts. Under this system, employers are required to transfer salary payments from a local Saudi bank account to an employee’s local bank account, from which expatriates can freely remit their earnings to their home countries.

Sovereign Wealth Funds

The Public Investment Fund (PIF, www.pif.gov.sa ) is the Kingdom’s officially designated sovereign wealth fund. While PIF lacks many of the attributes of a traditional sovereign wealth fund, it has evolved into the SAG’s primary investment vehicle.

Established in 1971 to channel oil wealth into economic development, the PIF has historically been a holding company for government shares in partially privatized state-owned enterprises (SOEs), including SABIC, the National Commercial Bank, Saudi Telecom Company, Saudi Electricity Company, and others. Crown Prince Mohammed bin Salman is the chairman of the PIF and announced his intention in April 2016 to build the PIF into a $2 trillion global investment fund, relying in part on proceeds from the initial public offering of up to five percent of Saudi Aramco shares.

Since that announcement, the PIF has made a number of high-profile international investments, including a $3.5 billion investment in Uber, a commitment to invest $45 billion into Japanese SoftBank’s VisionFund, a commitment to invest $20 billion into U.S. Blackstone’s Infrastructure Fund, a $1 billion investment in U.S. electric car company Lucid Motors, and a partnership with cinema company AMC to operate movie theaters in the Kingdom. Under the Vision 2030 reform program, the PIF is financing a number of strategic domestic development projects, including: “NEOM,” a planned $500 billion project to build an “independent economic zone” in northwest Saudi Arabia; “The Line,” a $100-$200 billion project to build an environmentally friendly, carless, zero-carbon city at NEOM; “Qiddiya,” a new, large-scale entertainment, sports, and cultural complex near Riyadh; “the Red Sea Project”, a massive tourism development on the western Saudi coast; and “Amaala,” a wellness, healthy living, and meditation resort also located on the Red Sea.

At the end of 2020, the PIF reported its investment portfolio was valued at nearly $400 billion, mainly in shares of state-controlled domestic companies. In an effort to rebalance its investment portfolio, the PIF has divided its assets into six investment pools comprising local and global investments in various sectors and asset classes: Saudi holdings; Saudi sector development; Saudi real estate and infrastructure development; Saudi giga-projects; international strategic investments; and an international diversified pool of investments.

In 2021, Crown Prince Mohammed bin Salman launched a new five-year strategy for the PIF. The 2021-2025 strategy will focus on launching new sectors, empowering the private sector, developing the PIF’s portfolio, achieving effective long-term investments, supporting the localization of sectors, and building strategic economic partnerships. Under the new strategy, by 2025, the PIF will invest $267 billion into the local economy, contribute $320 billion to non-oil GDP, and create 1.8 million jobs. The Crown Prince also stated that the SAG would increase the size of the PIF more than five-fold to $2 trillion by 2030. The SAG declared it is investing nearly $220 billion through PIF, the National Development Fund, and the Royal Commission for Riyadh to transform Riyadh into a global city with 15 to 20 million inhabitants by 2030 (from its current population of about 7.5 million), and expects to attract a similar amount of investment from the private sector. The PIF also plans to establish a new major airline that will complement the state-owned Saudia (formerly Saudi Arabian Airlines) and compete with other major aviation companies in the region.

The Ministry of Finance announced in 2020 that $40 billion was being transferred from the Kingdom’s foreign reserves, held by the central bank SAMA, to the PIF to fund investments. In addition to previous investments in Uber, Magic Leap, Lucid Motors, Facebook, Starbucks, Disney, Boeing, Citigroup, LiveNation, Marriott, several European energy firms, and Carnival Cruise Lines, the PIF made a number of new investments in the latter half of 2020 including equity investments in CloudKitchens, Activision Blizzard, Electronic Arts, and Take-Two Interactive Software.

In practice, SAMA’s foreign reserve holdings also operate as a quasi-sovereign wealth fund, accounting for the majority of the SAG’s foreign assets. SAMA invests the Kingdom’s surplus oil revenues primarily in low-risk liquid assets, such as sovereign debt instruments and fixed-income securities. SAMA’s foreign reserves fell from $502 billion in January 2020 to $450 billion in January 2021. SAMA’s foreign reserve holdings peaked at $746 billion in mid-2014.

Though not a formal member, Saudi Arabia serves as a permanent observer to the International Working Group on Sovereign Wealth Funds.

7. State-Owned Enterprises

SOEs play a leading role in the Saudi economy, particularly in water, power, oil, natural gas, petrochemicals, and transportation. Saudi Aramco, the world’s largest exporter of crude oil and a large-scale oil refiner and producer of natural gas, is 98.5 percent SAG-owned, and its revenues typically contribute the majority of the SAG’s budget. Four of the eleven representatives on Aramco’s board of directors are from the SAG, including the chairman, who serves concurrently as the Managing Director of the PIF. In December 2019, the Kingdom fulfilled its long-standing promise to publicly list shares of its crown jewel – Saudi Aramco, the most profitable company in the world. The initial public offering (IPO) of 1.5 percent of Aramco’s shares on the Saudi Tadawul stock market on December 11, 2019 was a cornerstone of Crown Prince Mohammed bin Salman’s Vision 2030 program. The largest-ever IPO valued Aramco at $1.7 trillion, the highest market capitalization of any company at the time, and generated $25.6 billion in proceeds, exceeding the $25 billion Alibaba raised in 2014 in the largest previous IPO in history.

During the annual Future Investment Initiative conference held in January 2021, the Crown Prince announced that Saudi Aramco would launch a second offering of shares as a continuation of the historical initial public offering of 2019, but did not provide additional details. Proceeds from a second floatation will be transferred to the PIF and will be reinvested domestically and internationally.

In March 2019, Saudi Aramco signed a share purchase agreement to acquire 70 percent of SABIC, Saudi Arabia’s leading petrochemical company and the fourth largest in the world, from the PIF in a transaction worth $69.1 billion. Five of the nine representatives on SABIC’s board of directors are from the SAG, including the chairman and vice chairman. The SAG is similarly well-represented in the leadership of other SOEs. The SAG either wholly owns or holds controlling shares in many other major Saudi companies, such as the Saudi Electricity Company, Saudi Arabian Airlines (Saudia), the Saline Water Conversion Company, Saudi Arabian Mining Company (Ma’aden ), the National Commercial Bank, and other leading financial institutions.

Privatization Program

Saudi Arabia has undertaken a limited privatization process for state-owned companies and assets dating back to 2002. The process, which is open to domestic and foreign investors, has resulted in partial privatizations of state-owned enterprises in the banking, mining, telecommunications, petrochemicals, water desalination, insurance, and other sectors.

As part of Vision 2030 reforms, the SAG has announced its intention to privatize additional sectors of the economy. Privatization is a key element underpinning the Vision 2030 goal of increasing the private sector’s contribution to GDP from 40 percent to 65 percent by 2030. In April 2018, the SAG launched a Vision 2030 Privatization Program that aims to: strengthen the role of the private sector by unlocking state-owned assets for investment, attract foreign direct investment, create jobs, reduce government overhead, improve the quality of public services, and strengthen the balance of payments. (The full Privatization Program report is available online at http://vision2030.gov.sa/en/ncp .)

The program report references a range of approaches to privatization, including full and partial asset sales, initial public offerings, management buy-outs, public-private partnerships (build-operate-transfer models), concessions, and outsourcing. While the privatization report outlines the general guidelines for the program and indicated 16 targeted sectors, it does not include an exhaustive list of assets to be privatized. The report does, however, reference education, healthcare, transportation, renewable energy, power generation, waste management, sports clubs, grain silos, and water desalination facilities as prime areas for privatization or public-private partnerships

In 2017, Saudi Arabia established the National Center for Privatization and Public Private Partnerships, which will oversee and manage the Privatization Program. (The Center’s website is http://www.ncp.gov.sa/en/pages/home.aspx .) The NCCP’s mandate is to introduce privatization through the development of programs, regulations, and mechanisms for facilitating private sector participation in entities now controlled by the government.

In March 2021, Saudi Arabia approved the Private Sector Participation (PSP) Law. The PSP law aims to increase private sector participation in infrastructure projects and in providing public services by supporting Public-Private-Partnerships (PPP) and privatization of public sector assets.

10. Political and Security Environment

Saudi Arabia is a monarchy ruled by King Salman bin Abdulaziz Al Saud. The King’s son, Crown Prince Mohammed bin Salman, has assumed a central role in government decision-making. The Department of State regularly reviews and updates a travel advisory to apprise U.S. citizens of the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions. In addition to a Global Travel Advisory due to COVID-19, the Department of State has a current travel advisory for Saudi Arabia that was updated in August 2020. The Travel Advisory urges U.S. citizens to exercise increased caution when traveling to Saudi Arabia due to terrorism and the threat of missile and drone attacks on civilian targets and to not travel within 50 miles of the Saudi Arabia-Yemen border.

Please visit www.travel.state.gov  for further information, including the latest Travel Advisory.

Due to risks to civil aviation operating within the Persian Gulf and the Gulf of Oman region, including Saudi Arabia, the Federal Aviation Administration (FAA) has issued an advisory Notice to Airmen (NOTAM).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $700,118  2019 $792,967 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $10,826 BEA data available at
https://apps.bea.gov/
international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $6,220 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A 2019 29.8% UNCTAD data available at
https://stats.unctad.org/
handbook/EconomicTrends/Fdi.html

* Source for Host Country Data: Saudi General Authority for Statistics   

Table 3: Sources and Destination of FDI

According to the 2020 UNCTAD World Investment Report, Saudi Arabia’s total FDI inward stock was $236.2 billion and total FDI outward stock was $123.1 billion (in both cases, as of 2019).

Detailed data for inward direct investment (below) is as of 2010, which is the latest available breakdown of inward FDI by country.

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $169,206 100% Total Outward N/A N/A
Kuwait $16,761 10% Country #1 N/A N/A
France $15,918 9% Country #2 N/A N/A
Japan $13,160 8% Country #3 N/A N/A
United Arab Emirates $12,601 7% Country #4 N/A N/A
China, P.R. $9,035 5% Country #5 N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

*Source: IMF Coordinated Direct Investment Survey (2010 – latest available complete data)

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries $308,806 100% All Countries $231,500 100% All Countries $77,306 100%
United States $108,474 35% United States $94,132 41% United States $14,342 19%
Cayman Islands $37,101 12% Cayman Islands $33,281 14% U.A.E $10,550 14%
Japan $20,827 7% China P.R $16,091 7% Turkey $7,284 9%
China P.R. $16,501 5% Japan $13,813 6% Japan $7,014 9%
U.A.E $15,464 5% Switzerland $8,964 4% Egypt $5,543 7%

Source: IMF’s Coordinated Portfolio Investment Survey (CPIS); data as of June 2020.

Serbia

Executive Summary

Serbia’s investment climate has modestly improved in recent years, driven by macroeconomic reforms, greater financial stability, fiscal discipline, and a European Union (EU) accession process that encourages legal changes that improve the business climate. The government successfully completed a 30-month Policy Coordination Instrument with the International Monetary Fund (IMF) in January 2021 and is now negotiating a new stand-by arrangement. Serbia improved four places in 2020 on the World Bank’s Doing Business index and is now ranked 44th globally. Attracting foreign investment remains an important priority for the government; and in 2021 the United States and Serbia signed a new Investment Incentive Agreement that may facilitate opportunities in a variety of sectors. U.S. investors in Serbia are generally positive due to the country’s strategic location, well-educated and affordable labor force, excellent English language skills, investment incentives, and free-trade arrangements with key markets, particularly the EU. U.S. investors generally enjoy a level playing field with their Serbian and foreign competitors. The U.S. Embassy in Belgrade often assists investors when issues arise, and Serbian leaders are responsive to investment concerns. However, challenges remain, particularly bureaucratic delays and corruption, as well as loss-making state-owned enterprises (SOEs), a large informal economy, and an inefficient judiciary. Political influence on the decisions of nominally independent regulatory agencies is also a concern.

The Serbian government has identified economic growth and job creation as top priorities and has committed to resolving several long-standing issues related to consolidating market-driven capitalism. The government has passed significant reforms to labor law, construction permitting, inspections, public procurement, and privatization that have helped improve the business environment. Companies and officials have noted that the adoption of reforms has sometimes outpaced thorough implementation of these reforms. Digitizing certain functions (e.g., construction permitting, tax administration, e-signatures, and removing the previously ubiquitous requirement for ink stamps) has not yet brought a dramatic improvement in processing times and may not be consistently implemented.

The government is slowly making progress on resolving troubled SOEs. Where possible, this has been achieved through bankruptcy or privatization actions. The government plans to privatize 78 more companies and is also slowly reducing Serbia’s bloated public-sector workforce, mainly through attrition and hiring limitations that cap new hiring at 70% of the previous year’s attrition.

If the government delivers on promised reforms during its EU accession process, business opportunities will likley continue to grow in the coming years. Sectors that stand to benefit include agriculture and agro-processing, solid waste management, sewage, environmental protection, information and communications technology (ICT), renewable energy, health care, mining, and manufacturing.

Women in Serbia generally enjoy equal treatment in business, and the government offers various programs to support women’s businesses. Starting in 2017, a Serbian government program provides approximately 1 million USD annually in grants from the government budget to support women’s innovative entrepreneurship.

Investors should monitor the government’s implementation of reforms, as well as its changing investment incentive programs.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 94 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 44 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 53 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $149 million http://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 $7,030 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Attracting FDI is a priority for the Serbian government. The Law on Investments extends national treatment to foreign investors and prohibits discriminatory practices against them. The Law also allows the repatriation of profits and dividends, provides guarantees against expropriation, allows waivers of customs duty for equipment imported as capital in-kind, and enables foreign investors to qualify for government incentives.

The Government’s investment promotion authority is the Development Agency of Serbia (Razvojna agencija Srbije – RAS: http://ras.gov.rs/ ). RAS offers a wide range of services, including support of direct investments, export promotion, and coordinating the implementation of investment projects. RAS serves as a one-stop-shop for both domestic and international companies. The government maintains a dialogue with businesses through associations such as the Serbian Chamber of Commerce, American Chamber of Commerce in Serbia, Foreign Investors’ Council (FIC), and Serbian Association of Managers (SAM).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own businesses and to engage in all forms of remunerative activity. Serbia has no investment screening or approval mechanisms for inbound foreign investment. U.S. investors are not disadvantaged or singled out by any rules or regulations.

For some business activities, licenses are required (e.g., financial institutions must be licensed by the National Bank of Serbia prior to registration). Licensing limitations apply to both domestic and foreign companies active in finance, energy, mining, pharmaceuticals, medical devices, tobacco, arms and military equipment, road transportation, customs processing, land development, electronic communications, auditing, waste management, and production and trade of hazardous chemicals.

Serbian citizens and foreign investors enjoy full private-property ownership rights. Private entities can freely establish, acquire, and dispose of interests in business enterprises. By law, private companies compete equally with public enterprises in the market and for access to credit, supplies, licenses, and other aspects of doing business.

Agribusiness: Foreign citizens and foreign companies are prohibited from owning agricultural land in Serbia. However, foreign ownership restrictions on farmland do not apply to companies registered in Serbia, even if the company is foreign-owned. Unofficial estimates suggest that Serbian subsidiaries of foreign companies own some 20,000 hectares of farmland in the country. EU citizens are exempt from this ban, although they may only buy up to two hectares of agricultural land under certain conditions. They must permanently reside in the municipality where the land is located for at least 10 years, practice farming on the land in question for at least three years and own adequate agriculture machinery and equipment.

Defense: The Law on Investments adopted in 2015 ended discriminatory practices that prevented foreign companies from establishing companies in the production and trade of arms (for example, the defense industry) or in specific areas of the country. Further liberalization of investment in the defense industry continued via a new Law on the Production and Trade of Arms and Ammunition, adopted in May 2018. The law enables total foreign ownership of up to 49% in seven SOEs, collectively referred to as the “Defense Industry of Serbia,” so long as no single foreign shareholder exceeds 15% ownership. The law also cancels limitations on foreign ownership for arms and ammunition manufacturers.

Other Investment Policy Reviews

Serbia has not undergone any third-party investment policy reviews in the past three years.

Business Facilitation

According to the World Bank’s 2020 Doing Business report, it takes seven procedures and seven days to establish a foreign-owned limited liability company in Serbia. This is fewer days but more procedures than the average for Europe and Central Asia. In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Serbia must translate its corporate documents into Serbian.

Under the Business Registration Law, the Serbian Business Registers Agency (SBRA) oversees company registration. SBRA’s website is available in Serbian at www.apr.gov.rs/home.1435.html. All entities applying for incorporation with SBRA can use a single application form and are not required to have signatures notarized.

Companies in Serbia can open and maintain bank accounts in foreign currency, although they must also have an account in Serbian dinars (RSD). The minimum capital requirement is symbolic at RSD 100 (less than 1 USD) for limited liability companies, rising to RSD 3 million (approximately 29,900 USD) for a joint stock company. (Some foreign companies have difficulties opening a bank account due to a requirement from the Law on Prevention of Money Laundering and Terrorist Financing that requires companies to disclose their ultimate owner). A single-window registration process enables companies that register with SBRA to obtain a tax registration number (poreski identifikacioni broj – PIB) and health insurance number with registration. In addition, companies must register employees with the Pension Fund at the Fund’s premises. Since December 2017, the Labor Law requires employers to register new employees before they start their first day at work; previously, the deadline was registration within 15 days of employment. These amendments represent an attempt by the government to decrease the grey labor market by allowing labor inspectors to penalize employers if they find unregistered workers.

Pursuant to the Law on Accounting, companies in Serbia are classified as micro, small, medium, and large, depending on the number of employees, operating revenues, and value of assets.

RAS supports direct investment and promotes exports. It also implements projects aimed at improving competitiveness, supporting economic development, and supporting small-and medium-sized enterprises (SMEs) and entrepreneurs. More information is available at http://ras.gov.rs.

Serbia’s business-facilitation mechanisms provide for equitable treatment of both men and women when a registering company, according to the World Bank’s 2020 Doing Business Index. The government has declared 2017-2027 a Decade of Entrepreneurship, with special programs to support entrepreneurship by women.

3. Legal Regime

Transparency of the Regulatory System

Serbia is undertaking an extensive legislative amendment process aimed at harmonizing its laws with those of the European Union’s acquis communautaire. Harmonization of Serbian law with the acquis has created a legal and regulatory environment more consistent with international norms.

The government, ministries, and regulatory agencies develop, maintain, and publish a plan online of all anticipated legislation and regulations, as well as deadlines for their enactment. Serbian law requires that the text of proposed legislation and regulations be made available for public comment and debate if the law would significantly affect the legal regime in a specific field, or if the subject matter is an issue of a particular interest to the public. The website of Serbia’s unicameral legislature, called the National Assembly (www.parlament.gov.rs ), provides a list of both proposed and adopted legislation. There is no minimum period set by law for the text of proposed legislation or regulations to be publicly available.

In recent years, Serbia’s National Assembly has adopted many laws through an “urgent procedure”. By law, an urgent procedure can be used only “under unforeseeable circumstances,” to protect human life and health, and to harmonize legislation with the EU acquis. Bills proposed under an urgent procedure may be introduced with less than 24 hours’ notice, thus limiting public consideration and parliamentary debate. Use of the urgent procedure for the adoption of laws was concerningly frequent in the previous period. Concerns regarding the consequent lack of transparency in the legislative process were regularly reported by the European Commission and the Council of Europe’s Group of States against Corruption (GRECO). The 2019 European Commission Staff Working Document for Serbia stated that “some steps were taken to address shortcomings in the work of the parliament with the reduction of urgent procedures and previous practices of filibustering.” Urgent parliamentary procedures were reduced from 44% of all legislative acts in the previous reporting period (2018-2019) to 19% between March 2019 and March 2020.

International Financial Reporting Standards (IFRS) are required for publicly listed companies and financial institutions, as well as for the following large legal entities, regardless of whether their securities trade in a public market: insurance companies, financial leasing lessors, voluntary pension funds and their management companies, investment funds and their management companies, stock exchanges, securities brokerages, and factoring companies. Additionally, IFRS standards are required for all foreign companies whose securities trade is in any public market.

Although there are no informal regulatory processes managed by NGOs or the private sector, several Serbian organizations publish recommendations for government action to improve the transparency and efficiency of business regulations. The Foreign Investors’ Council publishes an annual White Book (http://www.fic.org.rs/projects/white-book/white-book.html ), the National Alliance for Local Economic Development (NALED) publishes a recommendations titled Eliminating Administrative Barriers to Doing Business in Serbia (https://www.slideshare.net/NALED/grey-book-10-recommendations-for-eliminating-administrative-obstacles-to-doing-business-in-serbia ), and the American Chamber of Commerce (AmCham) publishes similar materials on its website (www.amcham.rs ).

In 2018, Serbia enacted a Law on Ultimate Beneficial Owners Central Registry (“Law”). This Law was adopted to harmonize domestic legislation with international standards and to improve the existing system of detecting and preventing money laundering and the financing of terrorism. The Law on Ultimate Beneficial Owners Central Registry introduced a single, public, online electronic database maintained by the Serbian Business Registers Agency (www.apr.gov.rs), containing information on natural persons which are the ultimate beneficial owners of the companies (“Register”). Companies incorporated before December 31, 2018, are obliged to prepare and keep documentation regarding their ultimate beneficial owners at their offices, while new companies are obliged to register this information with the Register within 15 days of their incorporation. All companies were required to be registered accordingly in 2019.

In February 2018, Serbia joined the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which aims to address tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the framework, 112 countries and jurisdictions are collaborating to implement measures against BEPS.

Regulatory inspections in Serbia are numerous and decentralized despite the existence of the Coordination Commission for Inspection Supervision. Nationally, there are 37 different inspectorates, operating within the competence of 12 different ministries. They operate without any significant cooperation or coordination, there is overlapping and duplication of functions among inspectorates, and there is a lack of consistency even within individual inspectorates, which represents a source of additional burdens and difficulties for business operation. The administrative court is the legal entity that considers appeals from inspection decisions.

Serbia’s public finances are relatively transparent, as the government regularly publishes draft and adopted budgets, as well as budget revisions. The government has also published, and Parliament has adopted, all end-of-year budgets from 2002 through 2020. The government regularly publishes information related to public debt on the website www.javnidug.gov.rs. This information is updated daily.

International Regulatory Considerations

Serbia is not a member of the World Trade Organization or the EU. Serbia obtained EU candidate country status in 2012 and opened formal accession negotiations. Serbia has formally opened 18 chapters of the EU acquis communautaire and has provisionally closed two. Most recently, Chapter VI on Free movement of capital was opened on December 10, 2019. None of the remaining 17 chapters have been opened since, including the chapters on free movement of goods, competition policy, energy, taxation, environment, and transport policy. The WTO accepted Serbia’s application for accession on February 15, 2005, and Serbia currently has observer status. No accession dates have been set for Serbia’s membership in either the EU or WTO.

Legal System and Judicial Independence

Serbia has a civil law system. The National Assembly codifies laws; the courts have sole authority to interpret legislation with the exception of so-called “authentic interpretation” reserved for the legislature itself. Although judicial precedent is not a source of law, written judgments have the non-binding effect of helping to harmonize court practices. Serbia has a law on contracts and commercial law.

In general, contract enforcement is weak, and the courts responsible for enforcing property rights remain overburdened. When negotiating contracts, the parties may agree on the means of resolving disputes. Most often for domestic entities, contract dispute resolution is left to the courts and can be pursued through civil litigation. Under Serbian commercial law, the Law on Obligations regulates contractual relations (also known as the Law on Contracts and Torts). Civil Procedure Law, which details the procedure in commercial disputes, governs contract-related disputes. Serbian law need not be the governing law of a contract entered into in Serbia. Foreign courts’ judgments are enforceable in Serbia only if Serbian courts recognize them. Jurisdiction over recognition of foreign judgments rests with the Commercial Courts and Higher Courts. The Law on Resolution of Disputes with the Regulations of Other Countries, as well as by bilateral agreements, regulates the procedures for recognition of foreign court decisions.

The organization of the court system and jurisdiction of courts in Serbia are regulated by statute. The court system consists of the Constitutional Court, courts of general jurisdiction, and courts of special jurisdiction. Basic courts are courts of first instance and cover one or more municipalities. Higher courts cover the territory of one or more basic courts and are also courts of first instance, while acting as courts of second instance over basic courts. Commercial courts adjudicate commercial matters, with the Commercial Appeal Court being the second-instance court for such matters. Appellate courts are second instance courts to both basic and higher courts, except when higher courts act as second instance courts to basic courts. The Constitutional Court decides on the constitutionality and legality of laws and bylaws, and it protects human and minority rights and freedoms. The Supreme Cassation Court, the country’s highest court, is competent to decide on extraordinary judiciary remedies and to ensure uniform application of the law and equality of the parties in court proceedings. Regulations and regulatory enforcement actions are appealable within the national court system.

Serbia’s legal system distinguishes between Commercial Courts and courts of general jurisdiction. Commercial Courts have original jurisdiction over disputes arising from commercial activities, including disputes involving business organizations, business contracts, foreign investment, foreign trade, maritime law, aeronautical law, bankruptcy, civil economic offenses, intellectual property rights, and misdemeanors committed by commercial legal entities. Their jurisdiction extends to legal and natural persons only if a natural person has a joint or related interest with the legal entity (already) in dispute, in cases where both parties are economic operators. When only one of the parties is an economic operator and the other is not, such disputes are decided by courts of general civil jurisdiction and not by Commercial Courts. As an exception, in bankruptcy and reorganization proceedings, Commercial Courts have jurisdiction over all disputes where an economic operator is in bankruptcy in relation to other economic or non-economic operators.

Jurisdiction over civil commercial disputes is organized on two levels: Commercial Courts hear first instance cases; and the Appellate Commercial Court decides on appeals against lower court decisions. Commercial courts have broad jurisdiction. There are 16 trial-level Commercial Courts in Serbia. They handle disputes between legal entities, those between domestic and foreign companies; disputes concerning intellectual property and related rights; those arising under the application of Serbia’s Company Law and its regulation; and those relating to privatization and securities; relating to foreign investments, ships and aircraft, navigation at sea and on inland waters, and involving maritime and aviation law. Commercial courts also conduct bankruptcy and reorganization proceedings.

Congestion in the Commercial Courts is high. The time to case disposition in commercial litigation is in line with EU averages. However, there is inconsistent application of the law across Serbia, including in Commercial Courts.

According to the Constitution, Serbia’s judicial system is legally independent of the executive branch; but in practice, significant obstacles remain to true judicial independence. The current constitutional and legislative framework leaves room for undue political influence over the judiciary, and political pressure on the judiciary remains high. The European Commission’s 2020 Staff Working Document for Serbia re-stated that Serbia’s judicial system made no progress and that the scope for continued political influence remains a serious concern.

Laws and Regulations on Foreign Direct Investment

Significant laws for investment, business activities, and foreign companies in Serbia include the Law on Investments, the Law on Foreign Trade, the Law on Foreign Exchange Operations, the Law on Markets of Securities and other Financial Instruments, the Company Law, the Law on Registration of Commercial Entities, the Law on Banks and Other Financial Institutions, Regulations on Conditions for Establishing and Operation of Foreign Representative Offices in Serbia, the Law on Construction and Planning, the Law on Financial Leasing, the Law on Concessions, the Customs Law, and the Law on Privatization. These statutes set out the basic rules foreign companies must follow if they wish to establish subsidiaries in Serbia, invest in local companies, open representative offices in Serbia, enter into agency agreements for representation by local companies, acquire concessions, or participate in a privatization process in Serbia. Other relevant laws include:

Serbia undertook major anti-money laundering and counter-financing of terrorism regime (AML/CFT) legislative reforms following the intergovernmental Financial Action Task Force’s (FATF) February 2018 finding that Serbia had strategic deficiencies in its AML/CFT regime. To respond to the deficiencies, twelve new laws and over 60 regulations came into force. The new legislation includes a new AML/CFT Law, as well as amendments to the Criminal Code that address money laundering. Among other AML/CFT reforms, Serbia introduced a Law on Ultimate Beneficial Owners Central Registry. The Serbian Business Registers Agency maintains a single, public, online electronic database containing information on natural persons who are the ultimate beneficial owners of legal entities. FATF removed Serbia from its monitoring process in June 2019, but Serbia remains subject to enhanced follow-up procedures by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, known as MONEYVAL.

There is no primary or “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors. However, numerous Serbian firms that provide legal and other professional services publish comprehensive information for foreign investors, including PricewaterhouseCoopers, https://www.pwc.rs/en/publications/assets/Doing-Business-Guide-Serbia-2019.pdf.

Competition and Antitrust Laws

The Law on Protection of Competition was enacted in 2009 and amended in 2013. The Commission for the Protection of Competition is responsible for competition-related concerns and in principle implements the law as an independent agency reporting directly to the National Assembly. In some cases, companies have reported perceptions that political factors have influenced the Commission’s decision-making. In 2019, the Commission completed ten proceedings for violations of competition rules, approved 172 mergers (and dismissed four), and issued 23 opinions about potential breaches of competition rules. Annual reports of the Commission’s actions are published online at http://www.kzk.gov.rs/izvestaji. Laws and regulations related to market competition are available at http://www.kzk.gov.rs/en/zakon-2.

Expropriation and Compensation

A foreign investor is guaranteed national treatment, which means that any legal entity or natural person investing in Serbia enjoys full legal security and protection equal to those of local entities. A stake held by a foreign investor or a company with a foreign investment cannot be the subject of expropriation. The contribution of a foreign investor may be in the form of convertible foreign currency, contribution in kind, intellectual property rights, and securities.

Serbia’s Law on Expropriation authorizes expropriation (including eminent domain) for the following reasons: education, public health, social welfare, culture, water management, sports, transport, public utility infrastructure, national defense, local/national government needs, environmental protection, protection from weather-related damage, mineral exploration or exploitation, resettlement of persons holding mineral-rich lands, property required for certain joint ventures, and housing construction for the socially disadvantaged.

In the event of an expropriation, Serbian law requires compensation in the form of similar property or cash approximating the current market value of the expropriated property. The law sets forth various criteria for arriving at the amount of compensation applicable to different types of land (e.g., agricultural, vineyards or forests), or easements that affect land value. The local municipal court is authorized to intervene and decide the level of compensation if there is no mutually agreed resolution within two months of the expropriation order.

The Law on Investment provides safeguards against arbitrary government expropriation of investments. There have been no cases of expropriation of foreign investments in Serbia since the dissolution of the former Federal Republic of Yugoslavia in 2003. There are, however, outstanding claims against Serbia related to property nationalized under the Socialist Federal Republic of Yugoslavia, which was dissolved in 1992.

The 2014 Law on Restitution of Property and Compensation applies to property seized by the government since March 9, 1945, shortly before the end of World War II, and includes special coverage for victims of the Holocaust, who are authorized to reclaim property confiscated by Nazi occupation forces. Under the law, restitution should be in kind when possible, and otherwise in the form of state bonds. Many properties are exempt from in-kind restitution, including property previously owned by corporations. Heirless property left by victims of the Holocaust is subject to a separate law, which was approved in February 2016.

Serbia committed itself under its restitution law to allocate €2 billion, plus interest, for financial compensation to citizens in bonds and in cash. The restitution law caps the amount of compensation that any single claimant may receive at 500,000 EUR (approximately 586,400 USD). With amendments to the Law on Restitution and Compensation adopted in December 2018, the government postponed for the third time issuance of these bonds until December 2021, pending approval of necessary by-laws that would regulate bond issuance. The Law mandates that by-laws be adopted by Government of Serbia by June 2020. The bonds will be denominated in euros, carry a 2% annual interest rate, have a maturity period of 12 years, and be tradable on securities markets. The deadline for filing restitution applications was March 1, 2014. The Agency for Restitution received 75,414 property claims, and the adjudication process is still ongoing. Parliament adopted new amendments to the Law on Restitution and Compensation in December 2020. These amendments enable a special way of compensating the beneficiaries of restitution to whom, according to the final decisions on compensation, the corresponding amount of compensation does not exceed the amount of 1,000 EUR, in which case the payment will be made exclusively in cash, starting in 2022. The amendments also regulate the dynamics and technique of issuing compensation bonds, starting in 2022.

Information about the Agency for Restitution and the status of cases is available on its website at www.restitucija.gov.rs/eng/index.php.

Dispute Settlement

ICSID Convention and New York Convention

Serbia is a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, also known as the Washington Convention), and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Law on Arbitration and the Law on Management of Courts regulate proceedings and jurisdiction over the recognition of foreign arbitral awards.

Investor-State Dispute Settlement

Although Serbia is a signatory to many international treaties regarding international arbitration, enforcement of an arbitration award can be a slow and difficult process. Serbia’s Privatization Agency refused for five years (2007-2012) to recognize an International Chamber of Commerce/International Court of Arbitration award in favor of a U.S. investor. The dispute caused the U.S. Overseas Private Investment Corporation (OPIC), which had insured a portion of the investment, to severely restrict its activities in Serbia. The U.S. Embassy facilitated a settlement agreement between the Serbian government and the investor, and OPIC reinstated its programs for Serbia in February 2012, but in 2015 and early 2016 both a first instance and appellate Serbian court dismissed OPIC’s request for enforcement action to collect damages awarded to it by an international arbitration board in the same case. Serbia has no Bilateral Investment Treaty (BIT) with the United States. In the past 10 years, three publicly known investment disputes have involved U.S. citizens. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

The Law on Arbitration authorizes the use of institutional and ad hoc arbitration in all disputes, and regulates the enforcement of arbitration awards. The law is modeled after the United Nations Commission on International Trade Law (UNICTRAL Model Law).

Commercial contracts, in which at least one contracting party is a foreign legal or natural person, may incorporate arbitration clauses, invoking the jurisdiction of the Foreign Trade Court of Arbitration of the Serbian Chamber of Commerce, or any other foreign institutional arbitration body, including ad hoc arbitration bodies. International arbitration is an accepted means for settling disputes between foreign investors and the state.

Serbia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration:

  • 1923 Geneva Protocol on Arbitration Clauses
  • 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions
  • 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)
  • 1961 European Convention on International Business Arbitration
  • 1965 International Centre for the Settlement of Investment Disputes (ICSID)

Serbia allows for mediation to resolve disputes between private parties. Mediation is a voluntary process and is conducted only when both parties agree. The Law on Mediation regulates mediation procedures in disputes in the following areas of law: property, commercial, family, labor, civil, administrative and in criminal procedures where the parties act freely, unless the law stipulates exclusive authority of a court or other relevant authority.

Mediators can be chosen from the list of the Serbian National Association of Mediators, or from an official registry within the Ministry of Justice. There are two types of mediation: court-annexed and private mediation. A person can also be referred to mediation by a court, advocate, local ombudsman, employees of municipal or state authorities, an employer, or the other party to the conflict.

Bankruptcy Regulations

Serbia’s bankruptcy law is in line with international standards. According to the bankruptcy law, the goal is to provide compensation to creditors via the sale of the assets of a debtor company. The law stipulates automatic bankruptcy for legal entities whose accounts have been blocked for more than three years, and it allows debtors and creditors to initiate bankruptcy proceedings. The law ensures a faster and more equitable settlement of creditors’ claims, lowers costs, and clarifies rules regarding the role of bankruptcy trustees and creditors’ councils. Parliament adopted new amendments to the Bankruptcy Law in December 2017. These amendments enable better collection and reduced costs for creditors; provide shorter deadlines for action by bankruptcy trustees and judges; improve the position of secured creditors; anticipate new ways of assessing debtors’ assets by licensed appraisers; and introduce a special rule to lift bans on the execution of debtor assets that are under mortgage, giving rights to the secured creditor to sell such assets under rules that apply to mortgage sales. The latest amendments to the Law on Bankruptcy were adopted in December 2018, providing the amount up to which the advance payment can be determined, and guidelines to bankruptcy judges within which they can determine the advance payment in each specific case. A draft of the latest amendments to the Bankruptcy Law is being prepared. As explained by the Ministry of Economy, the purpose of these amendments is to provide conditions for creating a better business environment and more efficient implementation of bankruptcy proceedings.

Foreign creditors have the same rights as Serbian creditors with respect to initiating or participating in bankruptcy proceedings. Claims in foreign currency are calculated in dinars at the dinar exchange rate on the date the bankruptcy proceeding commenced. Serbia’s Criminal Code criminalizes intentionally causing bankruptcy, and fraud in relation to a bankruptcy proceeding. The 2020 World Bank Doing Business index ranked Serbia 41 out of 190 economies with regards to resolving insolvency, with an average time of two years needed to resolve insolvency and average cost of 20% of the estate. The recovery rate was estimated at 34.5 cents on the dollar (https://www.doingbusiness.org/content/dam/doingBusiness/country/s/serbia/SRB.pdf).

6. Financial Sector

Capital Markets and Portfolio Investment

Serbia welcomes both domestic and foreign portfolio investments and regulates them efficiently. The Government removed most restrictions on short-term portfolio investments in April 2018. Residents of Serbia, both companies and persons, are now allowed to purchase foreign short-term securities issued by EU residents and EU countries, and by international financial organizations who have EU countries in their membership. Banks registered in Serbia can also purchase short-term securities issued by OECD countries. Foreigners may only purchase short-term securities in Serbia if they have residency and/or headquarters in EU countries. Payments related to long-term securities have no restriction.

In January-November 2020, Serbia recorded net inflows of 1.5 billion USD in portfolio investment, according to the National Bank of Serbia. Analysts explain that this inflow mostly as a result of Serbia’s issuance of Eurobonds on the international market. The Serbian government regularly issues bonds to finance its budget deficit, including short-term, dinar-denominated T-bills, and dinar-denominated, euro-indexed government bonds. The total value of government debt securities issued on the domestic market reached 12.4 billion USD in December 2020, with 77% in dinars and 23% in euros. In addition, Serbia issued a total value of 5.1 billion EUR of Eurobonds on the international market. The share of dinar denominated securities held by non-residents was 26%, which was equal to 2.5 billion USD at the end of December 2020.

Total Serbian government-issued debt instruments on the domestic and international markets stood at $18 billion in December 2020.

Serbia’s international credit ratings are improving. In March 2021, Moody’s Investors Service upgraded Serbia’s long-term issuer and senior unsecured ratings from Ba3 to Ba2 while adjusting its outlook from positive to stable. In December 2019, Standard & Poor’s raised its ratings for Serbia from BB to BB+ with a positive outlook. In May 2020 S&P maintained its BB+ rating after raising it from BB in December 2019, but it modified the outlook from positive to stable; it confirmed the BB+ rating on December 14, 2020. Fitch raised Serbia’s credit rating from BB to BB+ in September 2019 and confirmed it in September 2020 with a stable outlook. The improved ratings remain below investment grade.

Serbia’s equity and bond markets are underdeveloped. Corporate securities and government bonds are traded on the Belgrade Stock Exchange (BSE) www.belex.rs. Of 990 companies listed on the exchange, shares of fewer than 100 companies are traded regularly (more than once a week). Total annual turnover on the BSE in 2020 was 455 million USD, which represents a decrease of 47%. The trading volumes have declined since 2007, when the total turnover reached 2.7 billion USD.

Established in 1995, the Securities Commission regulates the Serbian securities market. The Commission also supervises investment funds in accordance with the Investment Funds Law. As of February 2021, 19 registered investment funds operate in Serbia: http://www.sec.gov.rs/index.php/en/public-registers-of-information/register-of-investment-funds.

Market terms determine credit allocation. In September 2020, the total volume of issued loans in the financial sector stood at 26 billion USD. Average interest rates are decreasing but still higher than the EU average. The business community cites tight credit policies and expensive commercial borrowing for all but the largest corporations as impediments to business expansion. Around 62% of all lending is denominated in euros, an additional 0.1% in Swiss francs, and 0.2% in U.S. dollars, all of which provide lower rates, but also shift exchange-rate risk to borrowers.

Foreign investors are able to obtain credit on the domestic market. The government and central bank respect IMF Article VIII, and do not place restrictions on payments or transfers for current international transactions.

Hostile takeovers are extremely rare in Serbia. The Law on Takeover of Shareholding Companies regulates defense mechanisms. Frequently after privatization, the new strategic owners of formerly state-controlled companies have sought to buy out minority shareholders.

Money and Banking System

Serbian companies often do not access credit, instead turning to friends or family when they need investment and operational funds. Only a few corporate and municipal bonds have been issued, and the financial market is not well developed. In April 2020, the government amended corporate-bond issuance legislation to increase companies’ access to financing in response to COVID-19’s economic impact. According to a statement from the Finance Minister, the amendments aim to cut the timeline for issuing corporate bonds from 77 to 17 days and cut the price to issue a corporate bond from 88,000 USD to 11,000 USD. State-owned Telekom Srbija issued corporate bonds for the first time with a total value of 200 million EUR, of which the National Bank of Serbia (NBS) purchased around 70 million EUR.

The NBS regulates the banking sector. Foreign banks may establish operations in Serbia, and foreigners may freely open both local currency and hard currency non-resident accounts. The banking sector comprises 91% of the total assets of the financial sector. As of September 2020, consolidation had reduced the sector to 26 banks with total assets of 43 billion USD (about 80% of GDP), with 86% of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets, are Banca Intesa (Italy, 6.8 billion USD in assets); UniCredit (Italy, 5.1 billion USD); Komercijalna Banka (recently sold to Slovenia’s NLB Bank, 4.6 billion USD); OTP (Hungary, 3.7 billion USD); Raiffeisen (Austria, 3.7 billion USD); Erste Bank (Austria, 2.8 billion USD) AIK Banka Nis (Serbia, 2.3 billion USD); Eurobank EFG (Greece, 1.9 billion USD); Vojvodjanska Banka (Hungary, 2.4 billion USD); and Postanska Stedionica (Serbian government, 2.7 billion USD). For more information, see:

Four state-owned banks in Serbia went bankrupt after the global financial crisis in 2008. The state compensated the banks’ depositors with payouts of nearly 1 billion USD. A number of state-controlled banks have had financial difficulties since the crisis because of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of withdrawn deposits to the banking system. In December 2020, savings deposits in the banking sector reached 14.4 billion USD, exceeding pre-crisis levels.

The IMF assessed in its January 2021 report on Serbia’s Policy Coordination Instrument that the financial sector has shown improved resilience since the 2017 Article IV Consultation. As of June 2020, banks’ capital adequacy was stable at 22.7%, well above the regulatory minimum, while asset quality is improving. Banks’ profitability remains robust with return on assets and return on equity ratios of 1.1% and 6.5% respectively in December 2020. The IMF assessed in 2018 that authorities had made important progress, with the aggregate stock of non-performing loans (NPLs) falling both in nominal terms and relative to total loans. Since the adoption of an NPL resolution strategy in mid-2015, NPLs have declined from 21.6% to 3.7% of the total loan portfolio as of December 2020. NPLs remain fully provisioned. In addition, there are significant foreign-exchange risks, as 67% of all outstanding loans are indexed to foreign currencies (primarily the euro). In April 2019, the government adopted a law that protected consumers who had taken mortgage loans denominated in Swiss francs by converting them into euros. Banks and the state shared losses resulting from a reduction of outstanding principal and interest balances. This law enabled borrowers to continue servicing debt on more favorable terms.

The parliament adopted Serbia’s first Law on Cryptocurrencies in December 2020 to be implemented as of June 29, 2021. The law regulates the issuance, trade, and service provision of digital assets, as well as the NBS and Securities Commission’s supervision of digital assets. The law will regulate cryptocurrencies market and protect consumers, as it defines standards which every cryptocurrencies service provider must fulfill. Companies trading in this area must be licensed. The law limits issuance of digital assets per issuer at 3 million EUR per year. While trading in cryptocurrencies is free for persons and most companies, the law prohibits possession and trade of digital assets for financial institutions under NBS supervision. The government must adopt related bylaws before the law can be implemented. The Serbian Administration for Prevention of Money Laundering and Terrorist Financing oversees every transaction in cryptocurrencies performed on ATMs or online in Serbia. As of February 2021, there were total of 24 ATMs for cryptocurrencies in Serbia installed in Belgrade, Novi Sad, Nis, Subotica, Indjija and Kopaonik.

The company ECD Group has installed an online platform for trading in cryptocurrencies (Bitcoin BTC, Litecoin LTC, Ethereum ETH, Tether, and Bitcoin Cash) at https://ecd.rs/ . The company claims to have over 20,000 registered users of the platform, while the Chief Operating Officer of the company claims that a total of 50,000 people in Serbia have opened an account and executed at least one transaction. EDC claims that it has executed over 100,000 transactions since it was established in 2012. As of June 2019, Xcalibra established a new digital platform (Xcalibra.com) to trade cryptocurrencies in Serbian dinars without mediator currencies, which will avoid currency exchange loss. There is also a Bitcoin Association of Serbia.- http://www.bitcoinasocijacija.org .

Foreign Exchange and Remittances

Foreign Exchange

Serbia’s Foreign Investment Law guarantees the right to transfer and repatriate profits from Serbia, and foreign exchange is available. Serbia permits the free flow of capital, including for investment, such as the acquisition of real estate and equipment. Non-residents may maintain both foreign-currency and dinar-denominated bank accounts without restrictions. Investors may use these accounts to make or receive payments in foreign currency. The government amended the Foreign Exchange Law in December 2014 to authorize Serbian citizens to conclude transactions abroad through internet payment systems such as PayPal.

Many companies have raised concerns that the NBS uses excessive enforcement of the Foreign Exchange Law to individually examine all cross-currency financial transactions – including intra-company transfers between foreign headquarters and local subsidiaries, as well as loan disbursements to international firms – thus raising the cost and bureaucratic burden of transactions and inhibiting the development of e-commerce within Serbia. For this reason, international financial institutions and the business community have urged revision of the law. The NBS has defended the measure as necessary to prevent money laundering and other financial crimes.

The NBS targets inflation in its monetary policy and regularly intervenes in the foreign-exchange market to that end. In 2020, the NBS made net sales of 1.4 billion EUR on the interbank currency market to prevent sharp fluctuations of the dinar. In 2020, the dinar remained stable against the euro and appreciated 10% against the U.S. dollar. No evidence has been reported that Serbia engages in currency manipulation. According to the IMF, Serbia maintains a system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings abroad. In February 2021, JP Morgan announced it would include Serbian government bonds into the JP Morgan GBI-EM Index of Emerging Market bonds beginning June 30, 2021.

Remittance Policies

Personal remittances constitute a significant source of income for Serbian households. In 2020, total remittances from abroad reached 3 billion USD, approximately 6% of GDP.

The Law on Foreign Exchange Operations regulates investment remittances, which can occur freely and without limits. The Investment Law allows foreign investors to freely and without delay transfer all financial and other assets related to the investment to a foreign country, including profit, assets, dividends, royalties, interest, earnings share sales, proceeds from sale of capital and other receivables. The Foreign Investors’ Council, a business association of foreign investors, confirms that Serbia has no limitations on investment remittances.

Sovereign Wealth Funds

Serbia does not have a sovereign wealth fund.

10. Political and Security Environment

Since October 2000, Serbia has had democratically elected governments that have committed publicly to supporting regional stability and security. Governments, however, frequently call early elections at the local and national level, which often leave politicians and elected officials focused on the next campaign. During the 2020 COVID-19 crisis, Serbia’s first regularly scheduled parliamentary elections in several cycles were postponed due to the state of emergency declared by President Vucic. When elections were finally held in June 2020, most opposition parties boycotted the elections, claiming an unfair media and electoral environment which favored the ruling party. As a result, the current Parliament is overwhelmingly controlled by the ruling Serbian Progressive Party (SNS), and 97% of current MPs are part of the ruling coalition. Although the current Parliament has a four-year mandate, President Vucic has already announced that he plans to call early parliamentary elections in 2022. Elections in Serbia are generally free and without incidents of violence, although observers have noted irregularities at polling stations and incidents of vote-buying and pressure on voters during past elections. After the 2020 elections, Serbia’s Republic Electoral Commission decided to hold new elections in 234 of the country’s 8,253 polling stations – an unusually high number – after finding calculation errors, missing records, and other irregularities.

The government has made EU membership a primary goal, but progress toward that goal is slow, with only 18 out of 35 chapters open in Serbia’s EU acquis and only two chapters provisionally closed. The European Commission did not recommend opening any new chapters in 2020, indicative of the stagnation in Serbia’s accession process. Corruption is widespread, and despite some anti-corruption reforms by the government, arrests and investigations generally focus on low or mid-level technocrats, and corruption-related trials are typically drawn out and subject to a lengthy appeal process.

Protests are not uncommon, particularly in urban areas, and most protests are peaceful. In July 2020 significant protests occurred over the government’s handling of the COVID-19 crisis, including lockdown measures. Protests in Belgrade were at times violent, with protestors attempting to enter the parliament building. Press noted that in addition to concerns regarding COVID, many of the demonstrators were also protesting political corruption.

Although previous years had seen some assaults against participants in LGBTQI events in Serbia, following its sixth successive incident-free Pride Parade, Serbia was selected to host EuroPride in 2022. Although this indicates some confidence that a recurrence of wide-scale violence against Serbia’s LGBTQI community is unlikely, discrimination and physical attacks continue.

Since 2017, there has been an increase in criminal activity linked to transnational organized crime groups. Sport hooliganism in Serbia is often associated with organized crime, and violent hooliganism remains a concern at matches of rival soccer teams within Serbia. A significant police operation in January 2021 against a major organized crime group, linked to Belgrade’s Partizan football club, resulted in the arrest of the group’s leader, who was suspected of multiple crimes. A number of ultra-nationalist organizations, such as Obraz and Nasi, are present in Serbia. These organizations have harassed Serbian political leaders, local NGOs, minority groups, and media outlets considered to be pro-Western, but these incidents are infrequent. Incidents include attacks on Roma settlements and anti-Roma riots in 2010, 2012, and 2013, and attacks on shops and bakeries owned by ethnic Albanians in Vojvodina in 2014.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International
Source of Data:
BEA; IMF; Eurostat;
UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD) 2020 $53,039 2018 $50,597 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international
Source of data:
BEA; IMF; Eurostat;
UNCTAD, Other
U.S. FDI in partner country (M USD, stock positions) 2020 $63 2019 $149 BEA data available at
https://apps.bea.gov/
international/factsheet/ 
Host country’s FDI in the United States (M USD, stock positions) 2020 $1.5 2019 $5 BEA data available at
http://bea.gov/international/
direct_investment_
multinational_companies_
comprehensive_data.htm 
Total inbound stock of FDI as % host GDP 2020 5% 2019 7.8% UNCTAD data available at
https://stats.unctad.org/
handbook/Economic
Trends/Fdi.html

*Source of GDP data: Ministry of Finance of the Republic of Serbia at https://www.mfin.gov.rs/wp-content/uploads/2021/01/Tabela-1-Osnovni-makroekonomski-indikatori-2020.xlsx.

*Source of FDI data: National Bank of Serbia (NBS) at https://www.nbs.rs/export/sites/NBS_site/documents/statistika/ino_ekonomski_odnosi/platni_bilans/fdi_po_zemljama_20.xls.

Source for Host Country Data:

NBS data on FDI significantly differ from U.S. data. The NBS calculates FDI according to the country from which the investment arrives, rather than by the ownership of the investing company. Frequently, U.S. investments in Serbia are carried out through subsidiaries of U.S. companies located in another European country. If a U.S. company invests in Serbia through a Dutch subsidiary, for example, the NBS records the investment as coming from the Netherlands rather than from the United States.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions), 2019
Inward Direct Investment Outward Direct Investment
Total Inward $43,845 100% Total Outward $4,123 100%
The Netherlands $8,183 19% Bosnia and Herzegovina $1,027 25%
Austria $4,574 10% Montenegro $742 18%
Germany $2,919 7% Slovenia $659 16%
Cyprus $2,791 6% Switzerland $244 6%
Russia $2,664 6% Russian Federation $212 5%
“0” reflects amounts rounded to +/- $500,000.

Table 4: Sources of Portfolio Investment

Data not available.

Seychelles

Executive Summary

Seychelles is an island nation located off the eastern coast of Africa in the Indian Ocean with a population of 98,462. Seychelles gained its independence from the United Kingdom in 1976, at which time the population lived at near subsistence level. Today, Seychelles’ main economic activities are tourism and fishing, and the country aspires to be a financial hub. Although the World Bank designated Seychelles as a “high income” country in 2015, its wealth is not evenly distributed. According to the United Nations Development Program’s (UNDP) Human Development Report for 2020, the share of income held by the richest 10 percent in Seychelles amounts to 40 percent.

Seychelles experienced a socialist takeover in 1977, which resulted in a centrally planned economy and, in the short term, rapid economic development. However, serious imbalances such as large deficits and mounting debt contributed to persistent foreign exchange shortages and slow growth that plagued Seychelles through the first decade of the 21st century. After defaulting on interest payments due on a $230 million bond in 2008, the Government of Seychelles turned to the International Monetary Fund (IMF) for support. To meet the IMF’s conditions for a stand-by loan, the government implemented a program of reforms, including a liberalization of the exchange rate regime, devaluing and floating the Seychellois Rupee (SCR), and eliminating all foreign exchange controls. As a result, the country experienced economic growth, lower inflation, a stabilized exchange rate, declining public debt, and increased international reserves, until the COVID-19 global pandemic in 2020.

Drivers of economic growth include fisheries, tourism, and construction. Heavy reliance on the tourism industry, which directly and indirectly contributed to over 60 percent of GDP in 2019, made the overall economy vulnerable to external shocks, such as the COVID-19 global pandemic. In January 2021, the Central Bank of Seychelles (CBS) announced that January – November 2020 tourism revenues decreased by 78 percent. According to the CBS, the economy is estimated to have contracted by 11.3 percent in 2020 compared to 3.0 percent growth in 2019. The IMF forecasts that real GDP will increase by 4.2 percent in 2021. In 2019, the government was on track to reduce the debt-to-GDP ratio to 50 percent by the end of 2021; however, by the end of 2020, the debt-to-GDP ratio had spiked to 99.4 percent, according to the Ministry of Finance. By the end of 2021, the Ministry of Finance expected public debt to increase to 108.4 percent of GDP, prompting the government to re-engage with the IMF on reform negotiations. Despite the government’s attempts to diversify the economy, it remains focused on fishing and tourism. Seychelles’ vast Exclusive Economic Zone (EEZ), which spans 1.3 million square kilometers of the western Indian Ocean, is a potential source of untapped oil reserves and represents potential business opportunities for U.S. companies. Seychelles also has a small but growing offshore financial sector. There is also potential for U.S. investment in renewable energy as Seychelles seeks to reduce its heavy dependence on imported fossil fuels while preserving its naturally beautiful environment.

Seychelles welcomes foreign investment though the Seychelles Investment Act, and related regulations restrict foreign investment in a number of sectors where local businesses are active, including artisanal fishing, small boat charters, taxi driving, and scuba diving instruction. The country’s investment policies encourage the development of Seychelles’ natural resources, improvements in infrastructure, and an increase in productivity levels, but stress that this must be done in an environmentally sound and sustainable manner. Indeed, Seychelles puts a premium on maintaining its unique ecosystems and screens all potential investment projects to ensure that any economic, social, or industrial benefits will not compromise the country’s international reputation for environmental stewardship.

Politically, Seychelles’ first multiparty presidential election was held in 1993, after the adoption of a new constitution. In October 2020 elections deemed peaceful, orderly, and transparent by international election observers, opposition coalition party Linyon Demokratik Seselwa (LDS) won both the presidential and legislative elections. LDS holds 25 of the 35 assembly seats and includes four main parties: the Seychelles National Party (SNP); Lalyans Seselwa (Seychellois Alliance); the Seychelles Party for Social Justice and Democracy (SPSD) and; the Seychelles United Party (SUP). For the first time since the return of multiparty elections in 1993, United Seychelles Party (USP) is not the ruling party and currently holds 10 seats in the National Assembly. Prior to 1993, the United Seychelles Party (formerly the People’s Party/Parti Lepep) was the sole legal party in Seychelles. The next presidential and legislative elections will be held in 2025.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 27 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 100 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 NA https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 325 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $16,900 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Seychelles has a favorable attitude toward most foreign direct investment, though the government reserves certain types of business activities for domestic investors only. The Reserved Economic Activity Policy April 2020 provides a detailed list of the types of business in which only Seychellois may invest and is available here:  https://www.investinseychelles.com/component/edocman/reserved-economic-activities-policy,-april-2020/download . The Seychelles Investment (Economic Activities) Regulations also provide details on the limitations on foreign equity for certain types of businesses and a list of economic activities in which need-based investment may be allowed by a foreigner: https://www.wto.org/english/thewto_e/acc_e/syc_e/WTACCSYC61_LEG_4.pdf . In June 2015, Seychelles implemented a moratorium on the construction of large hotels of 25 rooms and above on the country’s inner islands, which includes the three most-populated islands of Mahé, Praslin, and La Digue.

The Seychelles Investment Board (SIB) is the national single gateway agency for the promotion and facilitation of investment in Seychelles. The government’s objective is to promote economic and commercial relationships to diversify the economy, as well as to sustain its tourism and fishing industries, which are currently the main drivers of economic growth. The SIB organizes sector specific meetings with investors periodically and hosts a National Business Forum every two years to engage with the private sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Seychelles Investment Act of 2010 and Seychelles Investment (Economic Activities) Regulations 2014 govern foreign direct investment (FDI) in Seychelles and are available at:   https://www.investinseychelles.com/investors-guide/investor-resources/policies-guidelines-acts . Since the financial crisis of 2008 and the implementation of subsequent IMF reforms, Seychelles has successfully attracted FDI. According to the Central Bank of Seychelles, gross FDI inflows in 2020 amounted to $149 million, representing a decrease of $105 million compared to 2019. This decrease is principally due to investments that were put on hold because of the pandemic. The SIB advises foreign investors on the laws, regulations, and procedures for their activities in Seychelles.

The Seychelles Investment (Economic Activities) Regulations of 2014 and the Reserved Economic Activity Policy of 2020 lists the economic activities in which only Seychellois can invest. This regulation is currently being reviewed to convert the list into a list of foreign activities in which foreigners can invest to allow for increased transparency and better governance. In the 2021 budget speech, the Minister of Finance highlighted that the current government aims to protect Seychellois business persons and plans to review the business categories in which Seychellois only can invest. Seychelles also places financial limits on foreign equity in certain types of resident companies – these limits are detailed in the Seychelles Investment (Economic Activities) Regulations 2014. The Regulations also provide a list of economic activities in which need-based foreign investment may be allowed. While the SIB and the government encourage foreign investors to collaborate with a local partner, there is no formal requirement.

The SIB also assists in screening potential investment projects in cooperation with other government agencies. For a business to operate, investors must apply for a license from the Seychelles Licensing Authority. The government established an Investment Appeal Panel in 2012 to provide an appeal mechanism for investors to challenge the government’s decisions regarding investments or proposed investments in Seychelles. More information is available in the Seychelles Investment Act 2010:  https://www.investinseychelles.com/component/edocman/seychelles-investment-act-2010/download?Itemid=0 .

Other Investment Policy Reviews

To date, Seychelles has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD) or the World Trade Organization (WTO). Seychelles became the 161st WTO member in April 2015. The investment policy review of Seychelles by UNCTAD was published in November 2020: https://investmentpolicy.unctad.org/publications/1238/investment-policy-review-of-seychelles .

Business Facilitation

The Seychellois government committed to improving the business environment through measures such as using public-private partnerships (PPP) to upgrade the country’s infrastructure. The government announced a draft PPP law in 2018. As of March 2021, the National Assembly had not yet voted on the measure. In March 2021, the Cabinet of Ministers approved the migration from the 2017 version Harmonized System of classification to the 2022 version. It is anticipated that this change will come into effect in February 2022. The government is also currently reviewing the Companies Act of 1972.

Seychelles is ranked 100th in the World Bank’s 2020 Ease of Doing Business Report. On average, it takes eight days to obtain a certificate of incorporation and 14 days to obtain a business license. Details on starting a business in Seychelles are available on the World Bank website: https://www.doingbusiness.org/en/data/exploreeconomies/seychelles# .

Information on registering a business in Seychelles can be obtained on the SIB website: https://www.investinseychelles.com/investors-guide/start-your-business . Companies, including those foreign-owned, can register business names online through the business registration portal:  http://www.sqa.sc/BizRegistration/WebBusinessRegsitration.aspx . However, part of the registration process, such as payment of fees, still must be completed in-person.

The Enterprise Seychelles Agency (ESA) is responsible for providing business development services to improve the performance of micro, small, and medium enterprises in Seychelles. Services provided by ESA include business planning, training, marketing expertise, and identification of business opportunities for SMEs.

Outward Investment

The GOS does not promote or incentivize outward investment. However, it does not restrict local investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

Although the government has made considerable efforts to liberalize the economy, Seychelles continues to suffer from overregulation. Concerns over government corruption have focused on the lack of transparency in the privatization and allocation of government-owned land and businesses. In an attempt to promote transparency in the public procurement system, Seychelles’ National Tender Board publishes all tenders both on its website ( http://www.ntb.sc ) and in local newspapers. It publicizes contracts that have been awarded and includes the name of successful bidders and bid amounts. The government has also set up a Procurement Oversight Unit, which serves as a public procurement policy and monitoring body ( http://www.pou.gov.sc/ ).

During the September 2016 parliamentary elections, then opposition coalition party Linyon Demokratik Seselwa (LDS) won a majority in the National Assembly for the first time in 40 years, resulting in significant procedural changes. The government also took a number of measures to combat corruption and nepotism, including establishing the Anti-Corruption Commission, more frequently publishing special audits by the Auditor General’s Office of questionable government transactions, and appointing opposition supporters to various boards of national organizations and important positions. Since 2017, the government has held budget preparation focus group discussions, including key stakeholders such as the business community and civil society organizations. Additionally, there has been considerably more legislative debate on the annual government budget. Increased budget debate and scrutiny has continued following the October 2020 presidential and legislative elections in which LDS won the presidency for the first time in the country’s history, and again won a majority in the National Assembly. Every government agency is called to the National Assembly to answer questions on their proposed budgets, as well as general questions related to their organization.

Proposed laws and regulations, as well as final laws, are published in the Official Gazette on a monthly basis and are available online at https://www.gazette.sc/ . Regulatory transparency improved with the 2016 balance of power between the opposition-controlled National Assembly and ruling party-controlled presidency, including several new laws, such as the Freedom of Information Act. In 2018, the access to information law came into force. In 2019, the government appointed a chief executive officer for the Seychelles Information Commission, and appointed information officers in all ministries and departments. The law makes provisions for how citizens may access government information that is not classified sensitive for security and defense reasons, how agencies should respond to requests, mandates proactive disclosure and a duty to assist requestors, and defines information that is deemed classified for security and defense. In 2020, the government published a manual to guide citizens on how to use the Freedom of Information Act and access information. Additionally, ministries are now required to submit white papers and consult with stakeholders before legislation is adopted.

Seychelles’ budget is easily accessible to the general public:   http://www.finance.gov.sc/national-budget/43 . Budget documents, including the executive budget proposal and the enacted budget, provide a substantially full picture of Seychelles’ planned expenditures and revenue streams. Publicly available budgets included expenditures broken down by ministry and revenues broken down by source and type. Information on debt obligations is also readily available. In 2019, for the first time, the government included a fiscal risk statement, which identified substantial fiscal risks emanating from public enterprises in Seychelles. Details on explicit and contingent liabilities are available in the fiscal risk statement, which is available on the following link:   http://www.finance.gov.sc/uploads/national_budget/Fiscal%20Risk%20Statement%202019.pdf .

International Regulatory Considerations

Seychelles has signed trade agreements with regional blocs such as COMESA, SADC, and the EU. Seychelles has also signed the Tripartite Free Trade Agreement (TFTA) and the African Continental Free Trade Agreement (AfCFTA) but has not yet ratified these agreements. In January 2019, four Eastern and Southern African (ESA) countries including Seychelles signed the UK-ESA Economic Partnership Agreement, which safeguards trade preferences currently enjoyed under iEPA after Brexit.

Seychelles joined the WTO in 2015, becoming the 161st member. Seychelles does notify draft technical regulations to the WTO Committee on Technical Barriers to Trade. In 2016, Seychelles ratified the Trade Facilitation Agreement (TFA). Further details on Seychelles’ TFA notifications to the WTO can be found here:   https://tfadatabase.org/members/seychelles .

Legal System and Judicial Independence

Seychelles’ legal system is a blend of English common law, the Napoleonic Code, and customary law. Civil matters, such as contracts and torts, are governed by the Civil Code of Seychelles, which is derived from the French Napoleonic Code. However, the company law and criminal laws are based on British law. In both civil and criminal matters, the procedural rules derive from British law. Seychelles does not maintain a specialized commercial court. Judgments of foreign courts are governed by Section 3 of the Foreign Judgments (Reciprocal Enforcement) Act of 1961. The World Bank ranked Seychelles 128th out of 190 countries in enforcing contracts in its 2020 Ease of Doing Business Report. Under the current government, the perception among Seychellois is that the judiciary is no longer influenced by the executive.

Laws and Regulations on Foreign Direct Investment

The Seychellois government established the SIB ( https://www.investinseychelles.com/  ) as a one-stop shop for all matters relating to business and investment in Seychelles. The SIB’s main functions are to promote investment and facilitate the investment process within the country’s administrative and legal framework. The SIB also assists in screening potential investment projects in cooperation with other government agencies. The government is keen to ensure that business activities are not conducted at the expense of Seychelles’ natural environment. For a business to operate, investors must apply for a license from the Seychelles Licensing Authority ( http://www.sla.gov.sc/ ). The government established an Investment Appeal Panel in 2012 to provide an appeal mechanism for investors to challenge the government’s decisions regarding investments or proposed investments in Seychelles.

Competition and Antitrust Laws

The SIB only reviews competition cases initiated by other government authorities, private sector entities, or investors. Current legislation does not empower SIB to sua sponte review all transactions for competition-related concerns. The Fair Trading Commission ( http://ftc.sc/ ) is responsible for investigating competition-related concerns. Such investigations may be initiated by the Commission or may be carried out following a complaint.

Expropriation and Compensation

The Lands Acquisition Act 1978, last amended in 1990, states that when the government takes possession of property, it must pay prompt and full compensation for the property. The government may expropriate property in cases of public interest or for public safety. Following the 1977 socialist takeover, the government engaged in expropriation of land for redistribution or for use by the state. With the return of a multi-party political system in 1993, the government compensated some of those who had lost land to expropriation/redistribution in the late 1970s. In 2017, Seychelles established a Land Compensation Tribunal to investigate cases where compulsory land acquisition was made by the government without adequate compensation. Seychellois whose land was taken by the government from 1977 to 1993 had until June 2020 to make their claims. The Land Compensation Tribunal also works in close collaboration with the Truth Reconciliation and National Unity Commission (TRNUC) which is investigating cases of human rights abuses prior to and after the 1977 takeover. Due to the Covid-19 pandemic, both the Land Compensation Tribunal and the TRNUC have not been able to function as planned. The TRNUC’s work is further hindered by an insufficient budget. Illegal land acquisition by the government also forms part of the TRNUC’s mandate. The embassy does not anticipate major expropriations in the near future, nor is it aware of any pattern of discrimination against U.S. persons.

Dispute Settlement

ICSID Convention and New York Convention

In 1978, Seychelles joined the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). In February 2020, Seychelles deposited its instrument of accession to the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), which entered into force in May 2020.

Investor-State Dispute Settlement

The embassy is aware of at least one investor-government dispute in the reporting period. The dispute involves the operation of a large hotel resort by a company with U.S. shareholders, in which the Seychellois government also owned a small percentage share. In 2008, the Seychellois government sought to wind up the company on the grounds that it “had disappeared in its ability to operate as a hotel resort,” allowing it to fall into disrepair. The government’s effort was successful and resulted in the cancellation of the hotel’s operating license. The liquidation and subsequent sell-off of the hotel, formerly the country’s second largest hotel, raised suspicions of government corruption among local press outlets and business institutions, including the chamber of commerce. The former owner of the hotel claimed that he was threatened into selling the hotel by a businessman with ties to the government. The purchasers of the hotel were the lowest bidder, a newly formed group allegedly led by the same businessman who threatened the previous owner. In October 2019, the Supreme Court recommended that the Seychellois president establish a Commission of Inquiry to investigate the sale of the hotel, and in June 2020, former President Danny Faure appointed such a Commission. The Commission’s report is expected to be published by the end of May 2021.

Parties involved in investment disputes are encouraged to resolve their disputes through arbitration and negotiation. The Seychelles Investment Act created an Investment Appeal Panel to which aggrieved investors may appeal a decision made by a public sector agency regarding their investments or proposed investments in Seychelles. In addition, investors may appeal to the Court of Appeal in the event they are not satisfied with the decision of the Investment Appeal Panel. Seychelles has acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which entered into force on May 3, 2020. In the World Bank’s 2020 Ease of Doing Business Report, Seychelles ranked 143rd out of 190 countries for protecting minority investors.

International Commercial Arbitration and Foreign Courts

Due to Seychelles’ small size and relatively short recent history with foreign direct investment, there is no precedent for international arbitration in Seychelles, although the legal framework exists through the Seychelles Investment Act.

Bankruptcy Regulations

Bankruptcy in Seychelles is governed under the Insolvency Act of 2013 ( https://www.seylii.org/sc/legislation/act/2013/4  ). According to the Act, an individual may be discharged from bankruptcy three years from the date of its declaration. Bankruptcy is not criminalized in Seychelles. According to the 2020 World Bank Doing Business Report, Seychelles ranks 75th out of 190 countries on the resolving insolvency index. It takes on average two years to complete a bankruptcy.

6. Financial Sector

Capital Markets and Portfolio Investment

Seychelles welcomes foreign portfolio investment. The Seychelles Securities Act ( https://fsaseychelles.sc/component/edocman/securities-act-2007/download?Itemid=0 ) provides the legal framework for the Seychelles stock market. The Seychelles Securities Exchange, now known as MERJ Exchange, has operated since 2012. Listing and trading are available in Euros, Pounds Sterling, Seychelles Rupees, South African Rand, and Australian Dollars. MERJ is an affiliate of the World Federation of Exchanges, a full member of ANNA and a partner exchange of the Sustainable Stock Exchange Initiative. In Q1 2021, there were 47 equity listings with a total market capitalization of $1.244 billion and three debt listings with a market capitalization of $246 million. Portfolio investment in Seychelles is limited by the small size of the economy and banking sector. The buying and selling of sizeable positions may have an outsized impact on the Seychelles Rupee and the economy in general. There are no restrictions on trading by foreigners.

Existing policies facilitate the free flow of financial resources in and out of the economy. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Foreign investors are able to obtain credit on the local market and through the Seychelles banking system, and a variety of credit instruments are available to both local and foreign investors.

Money and Banking System

Seychelles has a two-tier banking system that separates the central and commercial bank functions and roles. Commercial banks, both domestic and foreign, are regulated and supervised by the Central Bank of Seychelles (CBS). According to the Central Bank of Seychelles Act 2004, the CBS is responsible for the formulation and implementation of Seychelles’ Monetary and Exchange Rate policies. The CBS is the only administrative body responsible for receiving applications for banking licenses, whether domestic or offshore, and issuing the corresponding licenses.

As of March 2021, there were eight commercial banks in operation: Absa Bank, Bank of Baroda, Mauritius Commercial Bank (Seychelles), Nouvobanq, Seychelles Commercial Bank, Al Salam Bank Seychelles Ltd, Bank of Ceylon, and Bank AL Habib Limited. According to a 2016 report by the CBS, 94 percent of Seychellois use banks. Seychelles also has three non-banking financial institutions: the Seychelles Credit Union, a savings and credit cooperative society; the Development Bank of Seychelles, which provides flexible financing for businesses and projects to promote economic growth and employment; and the Housing Finance Corporation, a government-owned company that provides financing to Seychellois for the purchase of land, the construction of homes, and financing home improvements.

Seychelles has a number of laws that govern the financial services sector: Financial Institutions Act 2004, Prevention of Terrorism Act 2004, International Business Companies Act 2016, Anti-Money Laundering and Combating the Financing of Terrorism Act 2020, Beneficial Ownership Act 2020, Data Protection Act, Mutual and Hedge Fund Act 2007, and Central Bank Act 2004. The Seychellois banking sector is generally healthy, though it is limited by small size and reliance on correspondent bank relationships. Due to concerns about money-laundering and illicit finance in the Seychellois financial sector, some local banks have lost their correspondent banking relationship with foreign banks, a phenomenon known as de-risking, making it difficult for local banks to perform international transactions. In 2017, the CBS and the Financial Services Authority visited foreign financial centers to address de-risking. The government is actively working with international experts, including the World Bank and International Monetary Fund, to ensure Seychelles is not perceived as high-risk jurisdiction.

In February 2020, the European Union added Seychelles to the list of non-cooperative jurisdictions for tax purposes as Seychelles had not implemented the tax reforms by the agreed deadline of December 2019 to which it had committed. In December 2019, France added Seychelles to its blacklist of tax havens for not providing adequate information on French offshore entities operating in the island nation’s jurisdiction. On March 5, 2020, the President signed the National Assembly passed the Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) Act 2020 and the Beneficial Ownership (BO) Act 2020. These two pieces of legislation address the deficiencies identified in the 2018 Mutual Evaluation Report of the Eastern and Southern Africa Anti Money Laundering Group (ESAAMLG). In March 2021, the International Trusts (Amendment) Bill 2021 was approved by the National Assembly and the National Anti-Money Laundering and Countering the Financing of Terrorism Committee established that the following laws will be presented to the National Assembly by June to fully comply with the Financial Action Task Force’s (FATF) recommendations:

  1. Re-enactment of the Registration of Association Act;
  2. New Asset Management Framework;
  3. Amendments to the Beneficial Ownership Act, 2020; and
  4. Virtual Assets Service Providers Bill, 2021.

According to the CBS in January 2021, non-performing loans to total gross loans in the Seychelles banking sector stood at 2.65 percent, and foreign currency deposits totaled 11,862 million Seychelles Rupees ($561 million).

A wide range of financial services such as checking accounts, savings accounts, loans, transactions in foreign currencies, and foreign currency accounts are available in the banking system. Foreigners and foreign/offshore firms must establish residency or proof of business registration to obtain a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Since the 2008 IMF reform package, the government places no restrictions or limitations on foreign investors converting, transferring, or repatriating funds associated with investment. Funds are freely converted. Seychelles maintains a floating exchange rate for the Seychelles Rupee (SCR), which fluctuated between SCR 12 and SCR 14.5 to $1 from 2015 to 2019. In 2020, the SCR depreciated by 53 percent with the average rate in January 2020 being SCR 14 to $1 compared to SCR 21.5 in December 2020, due to the unprecedented impact of the Covid-19 pandemic on the tourism sector.

Remittance Policies

Foreign exchange controls were removed in 2008 and foreign investors are free to repatriate their profits and other incomes. The embassy is unaware of any planned changes to remittance policies, time limits on remittances, or use of any legal parallel market.

Sovereign Wealth Funds

Seychelles does not maintain any sovereign wealth funds.

7. State-Owned Enterprises

Seychelles is one of 15 countries participating in the State-Owned Enterprises (SOE) Network for Southern Africa, which was launched in 2007 to support, in collaboration with the OECD, southern African countries in their efforts to improve the performance of SOEs.

According to the Public Enterprise Monitoring Commission Regulations 2019, there are currently 32 state-owned enterprises, which have either been established using public financial resources, or in which the government has a significant shareholding. These government-owned organizations are responsible for the delivery of both commercial and social objectives. They offer a range of essential services, including electricity, water, roads, seaports, fuel supply, import/export, retail, transport, civil aviation, housing, and tourism. At the end of 2019, total assets of SOEs amounted to $2.3 billion, representing 139 percent of total GDP while the total net income was $61.7 million, equivalent to 4 percent of GDP.

SOEs are generally free to purchase and/or supply goods and services from private sector and foreign firms. However, there is growing concern in the business community that SOEs such as the Seychelles Trading Company (STC) have been allowed to exceed their explicit mandate and compete unfairly. For example, the STC expanded its operations in the retail business with the opening of a hypermarket, a hardware store, and a luxury goods department selling perfumes and designer bags. Most SOEs and parastatal bodies maintain a board of directors and make regular reports to the corresponding ministry. The president and the responsible minister have authority over the size and composition of the boards of SOEs. The Public Enterprise Monitoring Commission (PEMC), set up in 2013 through the PEMC Act, is an independent institution responsible for monitoring financial, governance, and transparency issues related to public enterprises. Governance and operational assessments of six major SOEs were conducted in 2016 with World Bank assistance. On this basis, an implementation plan for governance and operational review of public enterprises for the period 2017-2019 was prepared and approved by the Cabinet of Ministers. In the 2021 State of the Nation address, President Wavel Ramkalawan announced that several public enterprises and/or their boards would be dismantled.

Audited financial statements of SOEs are published annually on the PEMC website ( https://www.pemc.sc/reports  ). The government has published a Code of Governance for Public Entities to provide guidelines to improve the governance, monitoring and control of public entities in Seychelles. The Code, which was developed by the PEMC along with other stakeholders, entered into force in April 2019 and can be accessed on its website: https://www.pemc.sc/resource-centre .

Privatization Program

The government has announced privatization plans several times, but progress has been slow. The embassy is not aware of any other formal legal barriers to foreign investors participating in privatization.

10. Political and Security Environment

The constitution provides citizens the right to change their government peacefully, and citizens exercise this right in practice through periodic elections based on universal suffrage. Seychelles has not experienced large-scale political violence since the late 1970s. The United Seychelles party, formerly known as Parti Lepep, governed Seychelles following the 1977 socialist takeover and won every election from the introduction of multi-party democracy in 1993 until 2016, when a coalition of opposition parties won the majority of the National Assembly seats. Shortly afterward, President James Michel resigned in favor of his Vice President, Danny Faure. The October 2020 election was the first time that Seychellois voters elected an opposition party candidate as president since 1976. Former President Danny Faure of the United Seychelles Party immediately accepted the election results, conceded, and supported a peaceful and smooth transfer of power. East Africa Standby Force election observers declared the election to have been peaceful, transparent, and orderly. There are no concerns over political stability at the time of writing of this report.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $1,745 2019 $1,703 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) NA NA 2019 $325 BEA data available at
https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) NA NA 2019 $0 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP NA NA 2019 186.9% UNCTAD data available at
https://stats.unctad.org/
handbook/EconomicTrends/Fdi.html

* Source for Host Country Data: Seychelles in Figures 2020, Seychelles National Bureau of Statistics

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 749 100% Data not available
Mauritius 337 45%
Cyprus 114 15%
Russian Federation 72 10%
United Kingdom 42 6%
United States 30 4%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

Sierra Leone

Executive Summary

Sierra Leone, with an estimated population of over 7.9 million people (World Population Review), is located on the coast of West Africa between the Republic of Guinea in the north and northeast, the Republic of Liberia in the south and southeast, and the Atlantic Ocean on the west, with a land area of 71,740 square kilometers. Since the civil war ended in 2002, the country has been politically stable with extraordinary religious tolerance among its people. Sierra Leone presents potential opportunities for investment and engagement. The March 2018 democratic transition in the presidency concluded with a runoff that recorded 81 percent registered voter participation. President Julius Maada Bio, who ruled briefly as head of a military regime in 1996, replaced President Ernest Bai Koroma on May 12, 2018. His “New Direction” doctrine promised a comprehensive reform agenda to revamp the economy and overturn the persistent imbalances on the current account, currency depreciation, high inflationary pressure, untenable debt distress, and high unemployment.

Sierra Leone’s economy remains heavily dependent on mineral resources, including significant deposits of iron ore, rutile, bauxite, and diamonds. Real gross domestic product (GDP) growth hit 20.1 percent in 2013, but the economy came to an abrupt halt in 2014, with the largest Ebola outbreak in history. This outbreak coincided with a slump in global commodities prices, which contracted the economy by 21.1 percent in 2015. The end of the outbreak allowed a modest recovery of 6.3 percent in 2016 with massive budgetary disparity caused by high public expenditure over revenue. This deficit compelled the government to implement austerity measures that slashed spending across the board and temporarily froze disbursements on most government projects. However, the measures failed to increase revenue collections or accumulate the expected savings, as economic growth slowed to 3.5 percent and inflation up at 18.3 percent in 2017. As the country continued to seek significant budget support from foreign donors, the International Monetary Fund (IMF), in June 2017, approved a three-year Extended Credit Facility (ECF) to help address the macroeconomic weaknesses but was suspended in December 2017. Consequently, development partners withheld their budgetary support to the government.

The economic landscape was challenging when the new administration took up governance in March 2018. Nonetheless, to achieve fiscal sustainability and medium-term growth objectives, the new government took up the challenges of revenue mobilization and expenditure control and initiated a re-activation of the suspended ECF with the IMF, to overcome emerging challenges and improve the prospects for growth projected to rebound to 4.8 percent in 2019. In February 2019, the government launched a medium-term National Development Plan (MTNDP) to span 2019 – 2023. The government hopes the plan, built on human capital development, economic diversification, and increased competitiveness in agriculture, fisheries, and tourism, will facilitate the transformation of the country from a fragile state to a stable and prosperous democracy that achieves middle-income status by 2039.

Foreign Direct Investment (FDI) plummeted in 2014/15 following the Ebola outbreak and the fall in commodity prices. After the outbreak, the flows sprouted to reach USD 599 million from its lowest level of USD 129 million in 2017 and with volatile inflows attributable to mining multinationals. According to UNCTAD’s 2020 World Investment Report, the stock increased to USD 2 billion by end of 2018 as the country was seeking to attract investment in agriculture, fisheries, tourism, natural resources, and through public-private partnerships for projects in energy, water, telecommunications, and other infrastructures. Sierra Leone, endowed with substantial natural resources, had long relied on its mineral industry, dominated by countless miners, as minerals account for more than 80 percent of exports and contribute 2.7 percent to GDP. The current President is reviewing mining contracts and considering changes to the law that would ensure the country benefits from its natural resources, a promise he made during his campaign. In 2019, the government canceled the mining licenses of the two major iron ore companies – the Chinese’s Shandong Iron & Steel Company and the U.S.-owned Gerald Group’s Sierra Leone Mining Company. The GoSL claimed that the companies were not paying all royalties. In 2020, Gerald Group subsequently brought a lawsuit against the government in an international tribunal. The government refused to recognize international arbitral rulings against it and was not complying with legal determinations, until in May 2021, when Gerald Group reached a settlement with the government. Mining operations are expected to resume in mid-2021.

While these issues do not necessarily reflect any discriminatory treatment of U.S. interests, they do underscore the challenges of all foreign businesses operating in Sierra Leone. Despite these issues, Sierra Leone offers great investment opportunities, and the government is looking for investment in all sectors of the economy and hopes for economic growth and development to be led by the private sector. To achieve this, the government continues to focus on improving the business environment to attract new foreign direct investments. Opportunities exist for investors as the country benefits from duty-free access to the Mano River Union market of more than 30 million, the African Continental Free Trade Agreement of about fifty-four African countries with a combined population of more than one billion, the European Union’s Everything But Arms initiative and the United States’ African Growth and Opportunity Act (AGOA) treaty. Achieving sustained economic growth will depend on Sierra Leone’s ability to diversify its economy, tap into under-utilized sectors like agriculture, tourism, and fisheries, and exploiting the country’s considerable natural resources in a manner to improve the lives of all citizens.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 119 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 163 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index N/A N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (stock positions) 2018 $13 million USD https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $490 USD http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies toward Foreign Direct Investment

Sierra Leone presents a favorable attitude toward FDI, which is critical to spurring the country’s economic growth and development. The Sierra Leone Investment and Export Promotion Agency (SLIEPA), supervised by the Ministry of Trade and Industry, is the government’s lead agency established to oversee trade policies, improve the investment climate, and stimulate investments. SLIEPA also provides information on business registration and assists investors in securing the relevant incentives and licenses.

In the World Bank ease of doing business report, Sierra Leone ranked 163 among 190 countries in 2020 and 2019, down from 160 in 2018, though the overall score (48.74) increased by +0.15 . For 2020, the World Bank highlighted challenges in access to credit, resolving insolvency, access to electricity, and construction permits but noted improved performance in payment of taxes and cross-border trade, with significantly improved performance in starting a business. The business registration process has been simplified into a one-stop-shop, the customs clearance procedure has been further simplified to improve on the country’s trade facilitation infrastructure, and the major seaport extended to accommodate more vessels.

The shortage in skilled labor, the lack of infrastructure, the slow legal system, the high level of corruption, political violence, and serious social disorder due to socio-economic disparities are major obstacles to FDI. Although the legal system is just and fair with foreign investors, the judiciary is often subject to financial and political influences as the enforcement of the law is a challenge. The government is constructing major roads leading to district headquarter towns and rehabilitating feeder roads linking agricultural suppliers to urban markets. In tackling corruption, the country progressed 10 places up in the Transparency International Corruption ranking from 129 out of 180 in 2018 to 119 out of 180 in 2019 and further up 2 places (117out of 180) in 2020. The country passed the Millennium Challenge Corporation’s indicator on the control of corruption scoring 71 percent in 2019, 79 percent in 2020, and 81 percent in 2021, though it failed in 2018 (49 percent).

The current administration continues to assure investors that the country is open to foreign investment and is make some efforts to address corrupt practices in procurements, land rights, customs, law enforcement, judicial proceedings, and other governance and economic sectors. Sierra Leone now focuses on investments through public-private partnerships to undertake major infrastructural projects in power, water, roads, ports, and telecommunications. The government launched the Medium-Term National Development Plan (2019-2023) in which it sets out a growth agenda and is developing a national Trade and Investment Strategy to support economic diversification, competitiveness, and continental integration geared towards promoting and developing a competitive private sector to increase participation in global trade.

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 activities. Foreigners are free to establish, acquire, and dispose of interests in business enterprises. However, foreign investors cannot invest in arms and ammunition, cement block manufacturing, granite and sandstone excavation, manufacturing of certain consumer durable goods, and military, police, and prison guards’ apparel and accouterments. Furthermore, there are limits to land ownership by foreign entities and individuals; the limitations vary depending on the location of the land being used and are discussed below in the “Real Property” section.

Sierra Leone has few specific restrictions, controls, fees, or taxes on foreign ownership of companies that can outrightly own Sierra Leonean companies subject to certain registration formalities. However, investment in mining of less than $500,000 is an exception as this requires a 25 percent Sierra Leonean holding. Foreign technical and unskilled labor can be used but approval must be sought from the Corporate Affairs Commission for the transfer of shares.

Business Facilitation

Sierra Leone has made progress in recent years in simplifying its business registration process. The Corporate Affairs Commission (CAC) now manages the registration of limited liability companies and provides a “one-stop-shop” including an online business registration system. The entire process involves five steps and takes on average ten days. Additional information is available from the CAC’s website at http://www.cac.gov.sl/.   SLIEPA also provides useful guidance on starting a business, sector-specific business licenses, mining licensing and certification fees, and marine resources and fisheries at http://sliepa.org/starting-a-business/ .

Outward Investment

Sierra Leone has no program to promote or incentivize outward investment but also places no restrictions on such activity.

3. Legal Regime

Transparency of the Regulatory System

Parliament is the country’s supreme legislative authority. Laws are enacted by Parliament and signed by the President. The Judiciary interprets and applies the laws to ensure impartial justice and provides a mechanism for dispute resolution. However, the regulatory system is not fully consistent with international norms. Laws and regulations are developed at the national level, and the Constitution requires publication of proposed laws and regulations in a government journal, the Gazette, for 21 days.

Series of legislative reforms have been carried out since the first trade policy review in 2005 to enhance a conducive business environment and attract FDI. These include the Business Registration Act, the Investment and Export Promotion Agency Act, which established the Sierra Leone Investment and Export Promotion Agency (SLIEPA), the Anti-Corruption Act, the Bankruptcy Act, the Companies Act, the Goods and Services Tax Act, the Customs Administration Act, the Payment Systems Act, the Debt Management Act and several Finance Acts, to name a few. To strengthen the legal, regulatory, and institutional frameworks, Sierra Leone established the fast-track commercial court, the Credit Reference Bureau, the Corporate Affairs Commission, revised the legislation of company activities and developed the Local Content Policy.

Also, Sierra Leone has taken steps to promote and improve regulatory transparency. The Right to Access Information Commission was established in 2014 to make government records information available to the public and imposes a penalty for failure to make information available. Sierra Leone joined the Open Government Partnership (OGP) in 2014, an initiative that empowers citizens to fight corruption, and promotes transparent and accountable governance. The Audit Service Sierra Leone, headed by an Auditor General, was established by the Audit Service Act of 1998 and further strengthened by the Audit Service Act of 2014, to carry out audits of public accounts of all public offices, including statutory corporations and organizations set up partly or wholly out of public funds. Sierra Leone joined the Extractive Industries Transparency Initiative (EITI) in 2008, became compliant with EITI rules in 2014, made progress in implementing EITI Standards, and was required to undertake corrective actions before the second validation due in December 2020. The Public Financial Management Act of 2016 reformed the budget process and improved transparency in the expenditure of public funds, while the Fiscal Management and Control Act of 2017 directed government ministries, departments, and agencies (MDAs) to transfer all revenues into the Treasury Single Account, domestically referred to the Consolidated Revenue Fund (CRF), which was fully complied within 2018 on the executive order of President Maada Bio.

International Regulatory Considerations

Sierra Leone joined the General Agreement of Tariff and Trade (GATT) in 1961 and the World Trade Organization (WTO) in 1995. Sierra Leone is committed to the multilateral trading system and has not notified the WTO of any measures that are inconsistent with the WTO’s Trade-Related Investment Measures (TRIMs) obligations. It acceded to the Kyoto Protocol in 2006 and the International Convention on the Simplification and Harmonization of Customs Procedures otherwise referred to as the Revised Kyoto Convention in 2015. It became a contracting party to the International Convention on the Harmonized Commodity Description and Coding System (HS Convention) in 2015. It replaced its pre-shipment inspection with a destination inspection in 2009 and notified the WTO of the Agreement on Trade facilitation in May 2017. The Customs Act of 2011 upholds the WTO Customs Valuation Agreement which prohibits the use of arbitrary, or fictitious values, but continues, in practice, to use these values. It has however not notified the WTO of its sanitary and phytosanitary legislation required for the international movement of any plant materials or products or any state-trading activity.

Sierra Leone is neither a signatory nor an observer to any of the plurilateral agreements concluded under the WTO, but being firmly committed to its obligations, it established a mission to the WTO in 2011. It had ratified six multilateral investment agreements, including the International Center for Settlement of Investment Disputes (ICSID) Convention and the Convention establishing the Multilateral Investment Guarantee Agency (MIGA) so that foreign investments in Sierra Leone are covered against non-commercial risks such as currency transfer risks, expropriation risks, risks of war and civil disturbance, and repudiation risk.

Legal System and Judicial Independence

The legal system is derived from the English common law system, but outside of the capital, Freetown, local courts apply customary law to many disputes. The courts provide a venue to enforce property and contract rights. The country does not have a consolidated written commercial or contractual law, and disparate pieces of legislation sometimes lead to the uneven treatment of commercial disputes.

The Superior Court of Judicature consists of the Supreme Court, the Court of Appeal, and the High Court while the lower courts consist of the magistrate court and the local courts. In 2010, Sierra Leone created a Fast-Track Commercial Court to reduce the duration of commercial cases to a minimum of about six months. In 2017, Sierra Leone hosted a commercial law summit to address gaps in the justice system, resulting in concrete recommendations in key areas, including arbitration, anti-corruption and bribery, public-private partnerships, and reform of the court process. There is now a draft Arbitration Bill which when passed into law will bring arbitration proceedings in Sierra Leone up to international standards.

Foreign investors have equal access to the judicial system, which in practice, is slow and often subject to financial and political influence. However, Sierra Leonean courts may acknowledge foreign judgment from specific jurisdictions with reciprocal enforcement arrangements with Ghana, Nigeria, Guinea, and the Gambia. Generally, Sierra Leonean courts do not apply foreign law, but foreign judgment can be enforced when registered with the high court, though the registration may be refused when enforcement is contrary to public policy.

On depositing its instrument for accession to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), Sierra Leone became the 166th state party to the convention which will come into force in January 2021. Recommended during the inaugural Commercial Law Summit of May 2017, the accession will promote FDI by resolving disputes by arbitration without interference from local courts and will enforce arbitral awards consistently and predictably.

Laws and Regulations on Foreign Direct Investment

The Companies Act of 2009, the Registration of Business Act of 2007, and their subsequent amendments are the main laws governing the registration of all businesses before commencing operations. The Corporate Affairs Commission (CAC) deals with the incorporation of companies, while the Office of the Administrator and Registrar General (OARG) deals with sole proprietorships and partnerships with the process streamlined into a stop-shop.

Sierra Leonean law generally ensures that foreign investors may compete on the same terms as domestic firms. The Investment Promotion Act 2004 protects foreign entities from discriminatory treatment. The law creates incentives, customs exemptions, provides for investors to freely repatriate proceeds and remittances, and protects against expropriation without prompt and adequate compensation. The law establishes a dispute settlement framework that allows investors to submit disputes to arbitration under the rules of procedure of the UN Commission on International Trade Laws (UNCITRAL).

Sierra Leonean authorities do not screen, review, or approve foreign direct investments. Companies must register to do business in Sierra Leone, and there are no reports that the registration process has blocked investments or discriminated against investors. In the case of investment guarantees, the government established certain procedures with the U.S. government in agreements signed on December 28, 1962, and November 13, 1963, whereby Sierra Leone authorities approve external investment guarantees in Sierra Leone. Additional information about the laws and regulations applicable to foreign investments is available on the website of SLIEPA at http://sliepa.org/ .

Competition and Anti-Trust Laws

Sierra Leone does not have competition law. The European Union (EU) and the United Nations Conference on Trade and Development (UNCTAD) have supported the Ministry of Trade and Industry’s attempt to develop a competition policy, as this ministry oversees the regulation of anti-competitive practices. A competition policy and a consumer protection policy have been approved by the cabinet, but parliament is yet adopted the relevant legislation.

Expropriation and Compensation

There is no history of expropriation in Sierra Leone, though the government has threatened such action against a foreign investor following a commercial dispute under arbitration in an international tribunal. The Constitution authorizes the government to expropriate property only when it is necessary in the interests of national defense, public safety, order, morality, town and country planning, or the public benefit or welfare. In such cases, the Constitution guarantees the prompt payment of adequate compensation, with a right of access to a court or another independent authority to consider legality, determine the amount of compensation, and ensure prompt payment.

Dispute Settlement

ICSID and New York Convention

Sierra Leone became a party to the International Convention on the Settlement of Investment Dispute (ICSID) in 1966 to arbitrate investment disputes and enforce ICSID awards. In November 2018, Parliament approved a motion authorizing Sierra Leone to accede to the convention and to domesticate the provisions in its legal system. While it has been ratified in parliament, domestication is still pending. Sierra Leone deposited its instrument of accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) to become the 166th state party to the 62-year-old Convention in January 2021. Also, Section 13 of the Arbitration Act 1960 allows foreign arbitral awards to be registered in Sierra Leonean courts and enforced in the same manner as a domestic judgment or court order. However, registration of foreign arbitral awards is not automatic but instead left to the discretion of the presiding judge.

Investor-State Dispute Settlement

Investment disputes in Sierra Leone can take a long time to resolve, given the slow pace of bureaucracy, and substantial court backlogs. In 2016, the Embassy received multiple reports of cases where U.S. companies experienced challenges in asserting their investment interests. One company reported that the previous government denied regulatory approval for the firm’s acquisition of a Sierra Leonean entity in part because preference should be given to Sierra Leonean buyers. However, in 2018, the new administration overturned the decision and granted regulatory approval for the U.S. company to take over. The cancellation of two iron ore mining company licenses over disputed royalty payments and non-compliance with mining laws has resulted in the referral of the government to international arbitration. However, the government had continuously failed to comply with arbitral rulings.

International Commercial Arbitration and Foreign Courts

The Arbitration Act 1960 allows investors to arbitrate disputes, but the procedures outlined in the law are outdated and not in compliance with international standards. The country does not have a central arbitral institution, and instead, arbitration is conducted on an ad hoc basis, including through pre-trial settlement conferences and alternative dispute resolution mechanisms before the Commercial and Admiralty Division of the High Court. The Investment Promotion Act 2004 allows investment disputes to be referred to arbitration following UNCITRAL procedures or the framework of any applicable bilateral or multilateral investment agreement. Judgments of foreign courts can be enforced under the Foreign Judgments (Reciprocal Enforcement) Act 1960, provided the country has a bilateral or reciprocal enforcement treaty with Sierra Leone. The Public-Private Partnership Act, 2014 also provides for international arbitration in Sierra Leone.

Bankruptcy Regulations

The Bankruptcy Act 2009 establishes a process of bankruptcy for individuals and companies. Bankruptcy is a civil matter, but it may disqualify an individual from holding certain elected and public offices and from practicing certain professions. The Bankruptcy Act 2009 also encourages and facilitates reorganization as an alternative to liquidation. The World Bank ranked Sierra Leone 162, with a score of 24.7, in the ease of resolving insolvency in 2020.

Following the passing of a Credit Reference Act in 2011, Sierra Leone established a Credit Reference Bureau within the Bank of Sierra Leone, mandating all financial institutions to pass all information regarding loan applications for credit history checks. The credit history checks will detail all outstanding loans, when and where a loan was taken, and the repayment history guiding financial institutions in their loan decision. The Bureau now operates a digital identification system to control credit information and ensure citizens have secure and complete ownership of their data and information thereby transforming the financial inclusion landscape.

6. Financial Sector

Capital Markets and Portfolio Investment

Limited capital market and portfolio investment opportunities exist in Sierra Leone. The country established stock exchange in 2009 to provide a place for enterprise formation and a market for the trading of stocks and bonds. The exchange initially listed only one stock, a state-controlled bank but in early 2017, it had three listings that expressed willingness to trade their shares at the exchange.

Sierra Leone acceded to the IMF Article VIII in January 1996, which removed all restrictions on payments and transfers for current international transactions. The regulatory system does not interfere with the free flow of financial resources. Nonetheless, foreign, and domestic businesses alike have difficulty obtaining commercial credit. Foreign interests may access credit under the same market conditions as Sierra Leoneans, but banks loan small amounts at high-interest rates. Foreign investors typically bring capital in from outside the country.

Money and Banking System

Sierra Leone’s banking sector, supervised by the central bank of Sierra Leone, consists of 13 commercial banks, 69 foreign exchange bureau, 17 community banks, 32 credit-only microfinance, 5 deposit-taking microfinance including Apex Bank, 2 discount houses, a home mortgage finance company, a leasing company, three mobile financial services providers, and a stock exchange. More than 100 bank branches exist throughout the country, with activity concentrated in Freetown. The banking system currently has seven correspondent banks. While the commercial banking sector is characterized by poor performance with significant financial vulnerability, the central bank of Sierra Leone in 2018 approved the take over a commercial bank acquired in 2016 by a foreign investor.

Foreign individuals and companies are permitted to establish bank accounts. The use of mobile money is taking a central place in money transfers. Other electronic payments and ATM usage are available in urban areas but limited in rural settings, while the Bank of Sierra Leone is set to roll out a “national payment switch” to facilitate connectivity among different banks’ electronic systems. Telecommunications companies are upgrading to specifically enhance mobile money services and e-commerce.

As part of structural reforms in the banking sector under the Extended Credit Facility of the International Monetary Fund, the Bank of Sierra Leone pledged to establish a special resolution framework for troubled financial institutions, establish a deposit insurance system, strengthen its capacity to supervise, oversee the non-bank financial institution sector, and facilitate the adoption of International Financial Reporting Standards (IFRS) both internally and across the financial sector.

Inadequate supervisory oversight of financial institutions, weak regulations, and corruption have made Sierra Leone vulnerable to money laundering. While the country’s anti-money laundering (AML) controls remain underdeveloped and underfunded, the Financial Intelligence Unit (FIU) completed a national risk assessment in 2017 and is currently working with the Economic Crime Team of the Office of Technical Assistance, U.S. Department of the Treasury to enhance its capacity with a series of technical visits in 2018 and 2019, and others scheduled for 2020 with the FIU. The GIABA (a French acronym for Groupe Intergouvernemental d’Action Contre la Blanchiment d’Argent en Afrique de l’Ouest, which in English is, ‘The Inter-Government Action against Money Laundering in West Africa’) and the EU also funded a workshop on designated non-financial business and professions on Anti-Money Laundering and Combating Financing Terrorism (AML/CFT) preventive measures.

Foreign Exchange and Remittances

Sierra Leone has a floating exchange rate regime and the currency, the Leone, has depreciated slowly over the years mainly due to the increasing demand to finance current consumption and a decreasing inflow of foreign currency resulting from decreased exports and remittances.

Foreign Exchange

In August 2019, the government-mandated the exclusive use of the Leones for all contracts and payments, prohibited individuals and other entities from holding more than USD 10,000 or its equivalent in any foreign currency, and travelers must declare foreign currencies of more than USD 10,000 or its equivalent. Contravention of these directives is punishable by law as stipulated in the 2019 Bank of Sierra Leone Act. In late 2020 however, an acute shortage of domestic currency hit the market, compelling the central bank to order sufficient domestic currency to meet the market demand and lifted the restriction on foreign currency holdings to mitigate the effects of the scarcity.

The Investment Promotion Act 2004 guarantees foreign investors and expatriate employees the right to repatriate earnings and the proceeds of the sale of assets. There are no restrictions placed on converting or transferring funds associated with investments, including remittances, earnings, loan repayments, or lease payments for as long as these transactions are done through the banking system.

With the approval of the Bank of Sierra Leone, investors can withdraw any amount from commercial banks and transfer the funds into any freely convertible currency at market rates. The exchange rate is market-determined, and the Bank of Sierra Leone sometimes conducts weekly foreign exchange auctions of U.S. dollars, but only commercial banks registered in Sierra Leone may participate. Sierra Leone is a party to the ECOWAS Common Currency, the ECO, and efforts to introduce this common currency are being given serious consideration, though it has repeatedly been delayed.

Remittance Policies

The law provides that investors may freely repatriate proceeds and remittances. The Embassy is not aware of any recent complaints from investors regarding the remittance of investment returns, or any planned policy changes on this issue.

Sovereign Wealth Funds

Sierra Leone has not established a sovereign wealth fund which was legislated under the 2018 Extractive Industries Revenue Act and the 2016 Public Financial Management Act. The implementation has been delayed because of the collapse of the international iron ore prices as well as other minerals in 2014-16, which also coincided with the Ebola outbreak, both of which deteriorated the fundamentals of the economy, especially in the extractive sector.

7. State-Owned Enterprises

Sierra Leone has more than 20 state-owned enterprises (SOEs). These entities are active in the utilities, transport, and financial sectors. There is no official or comprehensive government-maintained list of SOEs. However, notable examples include the Guma Valley Water Company, the Sierra Leone Telecommunication Company, the Electricity Distribution and Supply Authority, the Electricity Generation and Transmission Company, the Sierra Leone Broadcasting Corporation, the Rokel Commercial Bank, the Sierra Leone Commercial Bank, the Sierra Leone Produce Marketing Company, to name but a few.

Sierra Leone is not a party to the Government Procurement Agreement within the WTO Framework. SOEs may engage in commerce with the private sector, but they do not compete on the same terms as private enterprises, and they often have access to government subsidies and other benefits. SOEs in Sierra Leone do not play a significant role in funding or sponsoring research and development.

Privatization Program

The National Commission for Privatization was established in 2002 to facilitate the privatization of various SOEs. With support from the World Bank, the commission has focused on the privatization of the country’s port operations, and currently seeks investments in public-private partnerships (PPPs) for port security, telecommunications, and other infrastructure projects. Privatization processes are open to foreign investors and could be integrated into plans for better capitalizing the stock exchange in Freetown via new equity listings.

10. Political and Security Environment

Sierra Leone is a constitutional republic with a directly elected president and a unicameral legislature. In March 2018, the opposition Sierra Leone People’s Party (SLPP) presidential candidate, Julius Maada Bio, won the fourth cycle of presidential elections since the civil war ended in 2002 and it was deemed “free and fair” by international observers. The Sierra Leone Police (SLP), supervised by the Ministry of Internal Affairs, is responsible for law enforcement and maintaining security within the country, but it is poorly equipped and lacked sufficient investigative and forensic capabilities. The Republic of Sierra Leone Armed Forces (RSLAF) is responsible for external security but also has some domestic security responsibilities to assist police upon request in extraordinary circumstances. The RSLAF reports to the Ministry of Defense and the Office of National Security. Civilian authorities maintained effective control over the security forces.

There is tension between social, political, and cultural institutions over power and resources. Policies and positions are sometimes sought for control over public finances. The government launched three Commissions of Inquiry (COI) to probe into the governance activities of the immediate past administration which created further tensions. The COI was concluded in March 2020 and the government came up with a White Paper in September 2020 assuring citizens of the full implementation of the recommendations, which included recovery of all monies and confiscation of all assets as detailed in the COI reports. At the outbreak of Covid-19, the government implement nationwide restrictions and curtailed movement to reduce the risk of the infection. Enforcement provoked sporadic violent clashes around the country, leaving some people dead, many hospitalized, and property destroyed. Though the President blamed it on the opposition as trying to make the country ungovernable, concerns about peace and national cohesion were raised as reverting to the dark days of the war will only make things very difficult for Sierra Leoneans.

Sierra Leone’s relations with the neighboring countries of Guinea and Liberia are peaceful. However, Guinea laid claim over the border village of Yenga, in the Kailahun District of Sierra Leone despite the several meetings between the Presidents of the two countries. There have been isolated incidents of politically motivated violence during and after the 2018 national and local elections.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

 

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) (USD) N/A N/A 2019 $4.12 billion www.worldbank.org/en/country or https://www.theglobaleconomy.com/Sierra-Leone/
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $12 million https://ustr.gov/countries-regions/africa/west-africa/sierra-leone
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A https://ustr.gov/countries-regions/africa/west-africa/sierra-leone
Total inbound stock of FDI as % host GDP N/A N/A 2017 14.83% https://www.theglobaleconomy.com/Sierra-Leone/  

Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.

Singapore

Executive Summary

Singapore maintains an open, heavily trade-dependent economy. The economy is supported through unprecedented government spending and strong supply chains in key sectors, despite the COVID-19 pandemic. The government’s predominantly open investment policies support a free market economy while actively managing and sustaining Singapore’s economic development. U.S. companies regularly cite transparency, business-friendly laws, tax structure, customs facilitation, intellectual property protection, and well-developed infrastructure as attractive investment climate features. The World Bank’s Doing Business 2020 report ranked Singapore second overall in “ease of doing business,” while the World Economic Forum ranked Singapore as the most competitive economy globally. Singapore actively enforces its robust anti-corruption laws and typically ranks as the least corrupt country in Asia. In addition, Transparency International’s 2020 Corruption Perception Index placed Singapore as the third-least corrupt nation globally. The U.S.-Singapore Free Trade Agreement (USSFTA), which came into force in 2004, expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and environmental protections.

Singapore has a diversified economy that attracts substantial foreign investment in manufacturing (petrochemical, electronics, pharmaceuticals, machinery, and equipment) and services (financial, trade, and business). The government actively promotes the country as a research and development (R&D) and innovation center for businesses by offering tax incentives, research grants, and partnership opportunities with domestic research agencies. U.S. direct investment in Singapore in 2019 totaled USD 288 billion, primarily in non-bank holding companies, manufacturing, finance, and insurance. Singapore received more than double the U.S. FDI invested in any other Asian nation. The investment outlook was positive due to Singapore’s proximity to Southeast Asia’s developing economies. Singapore remains a regional hub for thousands of multinational companies and continues to maintain its reputation as a world leader in dispute resolution, financing, and project facilitation for regional infrastructure development. In 2020, U.S. companies pledged USD 6.9 billion in future investments (over half of all-investment commitments) in the country’s manufacturing and services sectors.

Singapore is poised to attract future foreign investments in digital innovation, pharmaceutical manufacturing, sustainable development, and cybersecurity. The Government of Singapore (hereafter, “the government”) is investing heavily in automation, artificial intelligence, and integrated systems under its Smart Nation banner and seeks to establish itself as a regional hub for these technologies. Singapore is also a well-established hub for medical research and device manufacturing.

Singapore relies heavily on foreign workers who make up more than 20 percent of the workforce. The COVID-19 pandemic was initially concentrated in dormitories for low-wage foreign workers in the construction and marine industries, which resulted in strict quarantine measures that brought the construction sector to a near standstill. The government tightened foreign labor policies in 2020 to encourage firms to improve productivity and employ more Singaporean workers, and lowered most companies’ quotas for mid- and low-skilled foreign workers. Cuts, which primarily target the service sector and foreign workers’ dependents, were taken despite industry concerns about skills gaps. During the COVID-19 pandemic, the government has introduced more programs to partially subsidize wages and the cost to firms of recruiting, hiring, and training local workers

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 3 of 178 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 2 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 8 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2019 287,951 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 59,590 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Singapore maintains a heavily trade-dependent economy characterized by an open investment regime, with some licensing restrictions in the financial services, professional services, and media sectors. The government was committed to maintaining a free market, but also actively plans Singapore’s economic development, including through a network of state wholly-owned and majority-owned enterprises (SOEs). As of March 31, 2021, the top three Singapore-listed SOEs accounted for 12.3 percent of total capitalization of the Singapore Exchange (SGX). Some observers have criticized the dominant role of SOEs in the domestic economy, arguing that they have displaced or suppressed private sector entrepreneurship and investment.

Singapore’s legal framework and public policies are generally favorable toward foreign investors. Foreign investors are not required to enter joint ventures or cede management control to local interests, and local and foreign investors are subject to the same basic laws. Apart from regulatory requirements in some sectors (See also: Limits on National Treatment and Other Restrictions), eligibility for various incentive schemes depends on investment proposals meeting the criteria set by relevant government agencies. Singapore places no restrictions on reinvestment or repatriation of earnings or capital. The judicial system, which includes international arbitration and mediation centers and a commercial court, upholds the sanctity of contracts, and decisions are generally considered to be transparent and effectively enforced.

The Economic Development Board (EDB) is the lead promotion agency that facilitates foreign investment into Singapore ( https:www.edb.gov.sg ). EDB undertakes investment promotion and industry development and works with foreign and local businesses by providing information and facilitating introductions and access to government incentives for local and international investments. The government maintains close engagement with investors through the EDB, which provides feedback to other government agencies to ensure that infrastructure and public services remain efficient and cost-competitive. The EDB maintains 18 international offices, including Chicago, Houston, New York, San Francisco, and Washington D.C.

Exceptions to Singapore’s general openness to foreign investment exist in sectors considered critical to national security, including telecommunications, broadcasting, domestic news media, financial services, legal and accounting services, ports, airports, and property ownership. Under Singaporean law, articles of incorporation may include shareholding limits that restrict ownership in such entities by foreign persons.

Telecommunications 

Since 2000, the Singapore telecommunications market has been fully liberalized. This move has allowed foreign and domestic companies seeking to provide facilities-based (e.g., fixed line or mobile networks) or services-based (e.g., local and international calls and data services over leased networks) telecommunications services to apply for licenses to operate and deploy telecommunication systems and services. Singapore Telecommunications (Singtel) – majority owned by Temasek, a state-owned investment company with the Minister for Finance as its sole shareholder – faces competition in all market segments. However, its main competitors, M1 and StarHub, are also SOEs. In April 2019, Australian company TPG Telecom began rolling out telecommunications services.  Approximately 30 mobile virtual network operator services (MVNOs) have also entered the market. The four Singapore telecommunications companies compete primarily on MVNO partnerships and voice and data plans.

As of April 2021, Singapore has 76 facilities-based operators offering telecommunications services. Since 2007, Singtel has been exempted from dominant licensee obligations for the residential and commercial portions of the retail international telephone services. Singtel is also exempted from dominant licensee obligations for wholesale international telephone services, international managed data, international intellectual property transit, leased satellite bandwidth (including VSAT, DVB-IP, satellite TV Downlink, and Satellite IPLC), terrestrial international private leased circuit, and backhaul services. The Infocomm Media Development Authority (IMDA) granted Singtel’s exemption after assessing the market for these services had effective competition. IMDA operates as both the regulatory agency and the investment promotion agency for the country’s telecommunications sector. IMDA conducts public consultations on major policy reviews and provides decisions on policy changes to relevant companies.

To facilitate the 5th generation mobile network (5G) technology and service trials, IMDA waived frequency fees for companies interested in conducting 5G trials for equipment testing, research, and assessment of commercial potential. In April 2020, IMDA granted rights to build nationwide 5G networks to Singtel and a joint venture between StarHub and M1. IMDA announced a goal of full 5G coverage by the end of 2025.  These three companies, along with TPG Telecom, are also now permitted to launch smaller, specialized 5G networks to support specialized applications, such as manufacturing and port operations.  Singapore’s government did not hold a traditional spectrum auction, instead charging a moderate, flat fee to operate the networks and evaluating proposals from the MVNOs based on their ability to provide effective coverage, meet regulatory requirements, invest significant financial resources, and address cybersecurity and network resilience concerns. The announcement emphasized the importance of the winning MVNOs using multiple vendors, to ensure security and resilience.  Singapore has committed to being one of the first countries to make 5G services broadly available, and its tightly managed 5G-rollout process continues apace, despite COVID-19.  The government views this as a necessity for a country that prides itself on innovation, even as these private firms worry that the commercial potential does not yet justify the extensive upfront investment necessary to develop new networks.

Media  

The local free-to-air broadcasting, cable, and newspaper sectors are effectively closed to foreign firms. Section 44 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting in Singapore to 49 percent or less, although the act does allow for exceptions. Individuals cannot hold shares that would make up more than five percent of the total votes in a broadcasting company without the government’s prior approval. The Newspaper and Printing Presses Act restricts equity ownership (local or foreign) of newspaper companies to less than five percent per shareholder and requires that directors be Singapore citizens. Newspaper companies must issue two classes of shares, ordinary and management, with the latter available only to Singapore citizens or corporations approved by the government. Holders of management shares have an effective veto over selected board decisions.

Singapore regulates content across all major media outlets through IMDA. The government controls the distribution, importation, and sale of media sources and has curtailed or banned the circulation of some foreign publications. Singapore’s leaders have also brought defamation suits against foreign publishers and local government critics, which have resulted in the foreign publishers issuing apologies and paying damages. Several dozen publications remain prohibited under the Undesirable Publications Act, which restricts the import, sale, and circulation of publications that the government considers contrary to public interest. Examples include pornographic magazines, publications by banned religious groups, and publications containing extremist religious views. Following a routine review in 2015, the IMDA predecessor, Media Development Authority, lifted a ban on 240 publications, ranging from decades-old anti-colonial and communist material to adult interest content.

Singaporeans generally face few restrictions on the internet, which is readily accessible. The government, however, subjected all internet content to similar rules and standards as traditional media, as defined by the IMDA’s Internet Code of Practice. Internet service providers are required to ensure that content complies with the code. The IMDA licenses the internet service providers through which local users are required to route their internet connections. However, the IMDA has blocked various websites containing objectionable material, such as pornography and racist and religious-hatred sites. Online news websites that report regularly on Singapore and have a significant reach are individually licensed, which requires adherence to requirements to remove prohibited content within 24 hours of notification from IMDA. Some view this regulation as a way to censor online critics of the government.

In April 2019, the government introduced legislation in Parliament to counter “deliberate online falsehoods.” The legislation, called the Protection from Online Falsehoods and Manipulation Act (POFMA) entered into force on October 2, 2019, requires online platforms to publish correction notifications or remove online information that government ministers classify as factually false or misleading, and which they deem likely to threaten national security, diminish public confidence in the government, incite feelings of ill will between people, or influence an election. Non-compliance is punishable by fines and/or imprisonment and the government can use stricter measures such as disabling access to end-users in Singapore and forcing online platforms to disallow persons in question from using its services in Singapore. Opposition politicians, bloggers, and alternative news websites have been the target of the majority of POFMA cases thus far and many of them used U.S. social media platforms. Besides those individuals, U.S. social media companies were issued most POFMA correction orders and complied with them. U.S. media and social media sites continue to operate in Singapore, but a few major players have ceased running political ads after the government announced that it would impose penalties on sites or individuals that spread “misinformation,” as determined by the government.

Pay-Television 

Mediacorp TV is the only free-to-air TV broadcaster and is 100 percent owned by the government via Temasek Holdings (Temasek). Mediacorp reported that its free-to-air channels are viewed weekly by 80 percent of residents. Local pay-TV providers are StarHub and Singtel, which are both partially owned by Temasek or its subsidiaries. Local free-to-air radio broadcasters are Mediacorp Radio Singapore, which is also owned by Temasek Holdings, SPH Radio, owned by the publicly held Singapore Press Holdings, and So Drama! Entertainment, owned by the Singapore Ministry of Defense. BBC World Services is the only foreign free-to-air radio broadcaster in Singapore.

To rectify the high degree of content fragmentation in the Singapore pay-TV market and shift the focus of competition from an exclusivity-centric strategy to other aspects such as service differentiation and competitive packaging, the IMDA implemented cross-carriage measures in 2011, requiring pay-TV companies designated by IMDA to be Receiving Qualified Licensees (RQL) – currently Singtel and StarHub – to cross-carry content subject to exclusive carriage provisions. Correspondingly, Supplying Qualified Licensees (SQLs) with an exclusive contract for a channel are required to carry that content on other RQL pay-TV companies. In February 2019, the IMDA proposed to continue the current cross-carriage measures. The Motion Picture Association (MPA) has expressed concern this measure restricts copyright exclusivity. Content providers consider the measures an unnecessary interference in a competitive market that denies content holders the ability to negotiate freely in the marketplace, and an interference with their ability to manage and protect their intellectual property. More common content is now available across the different pay-TV platforms, and the operators are beginning to differentiate themselves by originating their own content, offering subscribed content online via personal and tablet computers, and delivering content via fiber networks.

Streaming services have entered the market, which MPA has found leads to a significant reduction in intellectual property infringements. StarHub and Singtel have both partnered with multiple content providers, including U.S. companies, to provide streaming content in Singapore and around the region.

Banking and Finance 

The Monetary Authority of Singapore (MAS) regulates all banking activities as provided for under the Banking Act. Singapore maintains legal distinctions between foreign and local banks and the type of license (i.e., full service, wholesale, and offshore banks) held by foreign commercial banks. As of April 2021, 30 foreign full-service licensees and 90 wholesale banks operated in Singapore. An additional 24 merchant banks are licensed to conduct corporate finance, investment banking, and other fee-based activities. Offshore and wholesale banks are not allowed to operate Singapore dollar retail banking activities. Only full banks and “Qualifying Full Banks” (QFBs) can operate Singapore dollar retail banking activities but are subject to restrictions on their number of places of business, ATMs, and ATM networks. Additional QFB licenses may be granted to a subset of full banks, which provide greater branching privileges and greater access to the retail market than other full banks. As of April 2021, there are 10 banks operating QFB licenses. China Construction Bank received the most recent QFB award in December 2020.

Following a series of public consultations conducted by MAS over a three year period, the Banking Act 2020 came into operation on February 14, 2020. The amendments include, among other things, the removal of the Domestic Banking Unit (DBU) and Asian Currency Unit (ACU) divide, consolidation of the regulatory framework of merchant banks, expansion of the grounds for revoking bank licenses and strengthening oversight of banks’ outsourcing arrangements. Newly granted digital banking licenses under foreign ownership apply only to wholesale transactions.

The government initiated a banking liberalization program in 1999 to ease restrictions on foreign banks and has supplemented this with phased-in provisions under the USSFTA, including removal of a 40 percent ceiling on foreign ownership of local banks and a 20 percent aggregate foreign shareholding limit on finance companies. The minister in charge of MAS must approve the merger or takeover of a local bank or financial holding company, as well as the acquisition of voting shares in such institutions above specific thresholds of 5, 12, or 20 percent of shareholdings.

Although Singapore’s government has lifted the formal ceilings on foreign ownership of local banks and finance companies, the approval for controllers of local banks ensures that this control rests with individuals or groups whose interests are aligned with the long-term interests of the Singapore economy and Singapore’s national interests. Of the 30 full-service licenses granted to foreign banks, three have gone to U.S. banks. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, only one U.S.-licensed full-service banks has obtained QFB status. U.S. and foreign full-service banks with QFB status can freely relocate existing branches and share ATMs among themselves. They can also provide electronic funds transfer and point-of-sale debit services and accept services related to Singapore’s compulsory pension fund. In 2007, Singapore lifted the quota on new licenses for U.S. wholesale banks.

Locally and non-locally incorporated subsidiaries of U.S. full-service banks with QFB status can apply for access to local ATM networks. However, no U.S. bank has come to a commercial agreement to gain such access. Despite liberalization, U.S. and other foreign banks in the domestic retail-banking sector still face barriers. Under the enhanced QFB program launched in 2012, MAS requires QFBs it deems systemically significant to incorporate locally. If those locally incorporated entities are deemed “significantly rooted” in Singapore, with a majority of Singaporean or permanent resident members, Singapore may grant approval for an additional 25 places of business, of which up to ten may be branches. Local retail banks do not face similar constraints on customer service locations or access to the local ATM network. As noted above, U.S. banks are not subject to quotas on service locations under the terms of the USSFTA.

Credit card holders from U.S. banks incorporated in Singapore cannot access their accounts through the local ATM networks. They are also unable to access their accounts for cash withdrawals, transfers, or bill payments at ATMs operated by banks other than those operated by their own bank or at foreign banks’ shared ATM network. Nevertheless, full-service foreign banks have made significant inroads in other retail banking areas, with substantial market share in products like credit cards and personal and housing loans.

In January 2019, MAS announced the passage of the Payment Services Bill after soliciting public feedback. The bill requires more payment services such as digital payment tokens, dealing in virtual currency, and merchant acquisition, to be licensed and regulated by MAS. In order to reduce the risk of misuse for illicit purposes, the new law also limits the amount of funds that can be held in or transferred out of a personal payment account (e.g., mobile wallets) in a year. Regulations are tailored to the type of activity preformed and addresses issues related to terrorism financing, money laundering, and cyber risks. In December 2020, MAS granted four digital bank licenses: two to Sea Limited and a Grab/Singtel consortium for full retail banking and two to Ant Group and the Greenland consortium (a China-based conglomerate).

Singapore has no trading restrictions on foreign-owned stockbrokers. There is no cap on the aggregate investment by foreigners regarding the paid-up capital of dealers that are members of the SGX. Direct registration of foreign mutual funds is allowed provided MAS approves the prospectus and the fund. The USSFTA relaxed conditions foreign asset managers must meet in order to offer products under the government-managed compulsory pension fund (Central Provident Fund Investment Scheme).

Legal Services 

The Legal Services Regulatory Authority (LSRA) under the Ministry of Law oversees the regulation, licensing, and compliance of all law practice entities and the registration of foreign lawyers in Singapore. Foreign law firms with a licensed Foreign Law Practice (FLP) may offer the full range of legal services in foreign law and international law, but cannot practice Singapore law except in the context of international commercial arbitration. U.S. and foreign attorneys are allowed to represent parties in arbitration without the need for a Singapore attorney to be present. To offer Singapore law, FLPs require either a Qualifying Foreign Law Practice (QFLP) license, a Joint Law Venture (JLV) with a Singapore Law Practice (SLP), or a Formal Law Alliance (FLA) with a SLP. The vast majority of Singapore’s 130 foreign law firms operate FLPs, while QFLPs and JLVs each number in the single digits.

The QFLP licenses allow foreign law firms to practice in permitted areas of Singapore law, which excludes constitutional and administrative law, conveyancing, criminal law, family law, succession law, and trust law. As of December 2020, there are nine QFLPs in Singapore, including five U.S. firms. In January 2019, the Ministry of Law announced the deferral to 2020 of the decision to renew the licenses of five QFLPs, which were set to expire in 2019, so the government can better assess their contribution to Singapore along with the other four firms whose licenses were also extended to 2020. Decisions on the renewal considers the firms’ quantitative and qualitative performance such as the value of work that the Singapore office will generate, the extent to which the Singapore office will function as the firm’s headquarter for the region, the firm’s contributions to Singapore, and the firm’s proposal for the new license period.

A JLV is a collaboration between a Foreign Law Practice and Singapore Law Practice, which may be constituted as a partnership or company. The director of legal services in the LSRA will consider all the relevant circumstances including the proposed structure and its overall suitability to achieve the objectives for which Joint Law Ventures are permitted to be established. There is no clear indication on the percentage of shares that each JLV partner may hold in the JLV.

Law degrees from designated U.S., British, Australian, and New Zealand universities are recognized for purposes of admission to practice law in Singapore. Under the USSFTA, Singapore recognizes law degrees from Harvard University, Columbia University, New York University, and the University of Michigan. Singapore will admit to the Singapore Bar law school graduates of those designated universities who are Singapore citizens or permanent residents, and ranked among the top 70 percent of their graduating class or have obtained lower-second class honors (under the British system).

Engineering and Architectural Services 

Engineering and architectural firms can be 100 percent foreign-owned. Engineers and architects are required to register with the Professional Engineers Board and the Board of Architects, respectively, to practice in Singapore. All applicants (both local and foreign) must have at least four years of practical experience in engineering, of which two are acquired in Singapore. Alternatively, students can attend two years of practical training in architectural works and pass written and/or oral examinations set by the respective board.

Accounting and Tax Services 

Many major international accounting firms operate in Singapore. Registration as a public accountant under the Accountants Act is required to provide public accountancy services (i.e., the audit and reporting on financial statements and other acts that are required by any written law to be done by a public accountant) in Singapore, although registration as a public accountant is not required to provide other accountancy services, such as accounting, tax, and corporate advisory work. All accounting entities that provide public accountancy services must be approved under the Accountants Act and their supply of public accountancy services in Singapore must be under the control and management of partners or directors who are public accountants ordinarily resident in Singapore. In addition, if the accounting entity firm has two partners or directors, at least one of them must be a public accountant. If the business entity has more than two accounting partners or directors, two-thirds of the partners or directors must be public accountants.

Energy 

Singapore further liberalized its gas market with the amendment of the Gas Act and implementation of a Gas Network Code in 2008, which were designed to give gas retailers and importers direct access to the onshore gas pipeline infrastructure. However, key parts of the local gas market, such as town gas retailing and gas transportation through pipelines remain controlled by incumbent Singaporean firms. Singapore has sought to grow its supply of liquefied natural gas (LNG), and BG Singapore Gas Marketing Pte Ltd (acquired by Royal Dutch Shell in February 2016) was appointed in 2008 as the first aggregator with an exclusive franchise to import LNG to be sold in its re-gasified form in Singapore. In October 2017, Shell Eastern Trading Pte Ltd and Pavilion Gase Pte Ltd were awarded import licenses to market up to 1 million tons per annum or for three years, whichever occurs first. This also marked the conclusion of the first exclusive franchise awarded to BG Singapore Gas Marketing Pte Ltd.

Beginning in November 2018 and concluding in May 2019, Singapore launched an open electricity market (OEM). Previously, Singapore Power was the only electricity retailer. As of October 2019, 40 percent of resident consumers had switched to a new electricity retailer and were saving between 20 and 30 percent on their monthly bills.  During the second half of 2020, the government significantly reduced tariffs for household consumption and encouraged consumer OEM adoption. To participate in OEM, licensed retailers must satisfy additional credit, technical, and financial requirements set by Energy Market Authority in order to sell electricity to households and small businesses. There are two types of electricity retailers: Market Participant Retailers (MPRs) and Non-Market Participant Retailers (NMPRs). MPRs have to be registered with the Energy Market Company (EMC) to purchase electricity from the National Electricity Market of Singapore (NEMS) to sell to contestable consumers. NMPRs need not register with EMC to participate in the NEMS since they will purchase electricity indirectly from the NEMS through the Market Support Services Licensee (MSSL). As of April 2020, there were 12 retailers in the market, including foreign and local entities.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and local entities may readily establish, operate, and dispose of their own enterprises in Singapore subject to certain requirements. A foreigner who wants to incorporate a company in Singapore is required to appoint a local resident director; foreigners may continue to reside outside of Singapore. Foreigners who wish to incorporate a company and be present in Singapore to manage its operations are strongly advised to seek approval from the Ministry of Manpower (MOM) before incorporation. Except for representative offices (where foreign firms maintain a local representative but do not conduct commercial transactions in Singapore) there are no restrictions on carrying out remunerative activities. As of October 2017, foreign companies may seek to transfer their place of registration and be registered as companies limited by shares in Singapore under Part XA (Transfer of Registration) of the Companies Act ( https://sso.agc.gov.sg/Act/CoA1967 ). Such transferred foreign companies are subject to the same requirements as locally incorporated companies.

All businesses in Singapore must be registered with the Accounting and Corporate Regulatory Authority (ACRA). Foreign investors can operate their businesses in one of the following forms: sole proprietorship, partnership, limited partnership, limited liability partnership, incorporated company, foreign company branch or representative office. Stricter disclosure requirements were passed in March 2017 requiring foreign company branches registered in Singapore to maintain public registers of their members. All companies incorporated in Singapore, foreign companies, and limited liability partnerships registered in Singapore are also required to maintain beneficial ownership in the form of a register of controllers (generally individuals or legal entities with more than 25 percent interest or control of the companies and foreign companies) aimed at preventing money laundering.

While there is currently no cross-sectional screening process for foreign investments, investors are required to seek approval from specific sector regulators for investments in certain firms. These sectors include energy, telecommunications, broadcasting, the domestic news media, financial services, legal services, public accounting services, ports and airports, and property ownership. Under Singapore law, Articles of Incorporation may include shareholding limits that restrict ownership in corporations by foreign persons.

Singapore does not maintain a formalized investment screening mechanism for inbound foreign investment. There are no reports of U.S. investors being especially disadvantaged or singled out relative to other foreign investors.

Other Investment Policy Reviews

Singapore underwent a trade policy review with the World Trade Organization (WTO) in July 2016, after which no major policy recommendations were raised. (https://www.wto.org/english/thewto_e/countries_e/singapore_e.htm )

The OECD and United Nations Industrial Development Organization (UNIDO) released a joint report in February 2019 on the ASEAN-OECD Investment Program. The program aims to foster dialogue and experience sharing between OECD countries and Southeast Asian economies on issues relating to the business and investment climate. The program is implemented through regional policy dialogue, country investment policy reviews, and training seminars. (http://www.oecd.org/investment/countryreviews.htm )

The OECD released a Transfer Pricing Country Profile for Singapore in June 2018. The country profiles focus on countries’ domestic legislation regarding key transfer pricing principles, including the arm’s length principle, transfer pricing methods, comparability analysis, intangible property, intra-group services, cost contribution agreements, transfer pricing documentation, administrative approaches to avoiding and resolving disputes, safe harbors and other implementation measures. (https://www.oecd.org/tax/transfer-pricing/transfer-pricing-country-profile-singapore.pdf)

The OECD released a peer review report in March 2018 on Singapore’s implementation of internationally agreed tax standards under Action Plan 14 of the base erosion and profit shifting (BEPS) project. Action 14 strengthens the effectiveness and efficiency of the mutual agreement procedure, a cross-border tax dispute resolution mechanism. (http://www.oecd.org/corruption-integrity/reports/singapore-2018-peer-review-report-transparency-exchange-information-aci.html )

As of April 2021, the United Nations Conference on Trade and Development (UNCTAD) has not conducted a policy review of Singapore’s intellectual property rights regime. (http://unctad.org/en/Pages/DIAE/Investment%20Policy%20Reviews/Investment-Policy-Reviews.aspx )

Business Facilitation

Singapore’s online business registration process is clear and efficient and allows foreign companies to register branches. All businesses must be registered with ACRA through Bizfile, its online registration and information retrieval portal ( https://www.bizfile.gov.sg/),  including any individual, firm or corporation that carries out business for a foreign company. Applications are typically processed immediately after the application fee is paid, but could take between 14 to 60 days, if the application is referred to another agency for approval or review. The process of establishing a foreign-owned limited liability company in Singapore is among the fastest in the world.

ACRA ( www.acra.gov.sg ) provides a single window for business registration. Additional regulatory approvals (e.g., licensing or visa requirements) are obtained via individual applications to the respective ministries or statutory boards. Further information and business support on registering a branch of a foreign company is available through the EDB ( https://www.edb.gov.sg/en/how-we-help/setting-up.html ) and GuideMeSingapore, a corporate services firm Hawskford ( https://www.guidemesingapore.com /).

Foreign companies may lease or buy privately or publicly held land in Singapore, though there are some restrictions on foreign property ownership. Foreign companies are free to open and maintain bank accounts in foreign currency. There is no minimum paid-in capital requirement, but at least one subscriber share must be issued for valid consideration at incorporation.

Business facilitation processes provide for fair and equal treatment of women and minorities, and there are no mechanisms that provide special assistance to women and minorities.

Outward Investment

Singapore places no restrictions on domestic investors investing abroad. The government promotes outward investment through Enterprise Singapore, a statutory board under the Ministry of Trade and Industry. It provides market information, business contacts, and financial assistance and grants for internationalizing companies. While it has a global reach and runs overseas centers in major cities across the world, a large share of its overseas centers are located in major trading and investment partners and regional markets like China, India, the United States, and ASEAN.

3. Legal Regime

Transparency of the Regulatory System

The government establishes clear rules that foster competition. The USSFTA enhances transparency by requiring regulatory authorities to consult with interested parties before issuing regulations, and to provide advance notice and comment periods for proposed rules, as well as to publish all regulations. Singapore’s legal, regulatory, and accounting systems are transparent and consistent with international norms.

Rule-making authority is vested in the parliament to pass laws that determine the regulatory scope, purpose, rights and powers of the regulator and the legal framework for the industry. Regulatory authority is vested in government ministries or in statutory boards, which are organizations that have been given autonomy to perform an operational function by legal statutes passed as acts of parliament, and report to a specific ministry. Local laws give regulatory bodies wide discretion to modify regulations and impose new conditions, but in practice agencies use this positively to adapt incentives or other services on a case-by-case basis to meet the needs of foreign as well as domestic companies. Acts of parliament also confer certain powers on a minister or other similar persons or authorities to make rules or regulations in order to put the act into practice; these rules are known as subsidiary legislation.  National-level regulations are the most relevant for foreign businesses. Singapore, being a city-state, has no local or state regulatory layers.

Before a ministry instructs the Attorney-General’s Chambers (AGC) to draft a new bill or make an amendment to a bill, the ministry has to seek in-principle approval from the cabinet for the proposed bill. The AGC legislation division advises and helps vet or draft bills in conjunction with policymakers from relevant ministries.  Public and private consultations are often requested for proposed draft legislative amendments. Thereafter, the cabinet’s approval is required before the bill can be introduced in parliament.  All bills passed by parliament (with some exceptions) must be forwarded to the Presidential Council for Minority Rights for scrutiny, and thereafter presented to the President for assent. Only after the President has assented to the bill does it become law.

While ministries or regulatory agencies do conduct internal impact assessments of proposed regulations, there are no criteria used for determining which proposed regulations are subjected to an impact assessment, and there are no specific regulatory impact assessment guidelines. There is no independent agency tasked with reviewing and monitoring regulatory impact assessments and distributing findings to the public. The Ministry of Finance publishes a biennial Singapore Public Sector Outcomes Review (http://www.mof.gov.sg/Resources/Singapore-Public-Sector-Outcomes-Review-SPOR ), focusing on broad outcomes and indicators rather than policy evaluation. Results of scientific studies or quantitative analysis conducted in review of policies and regulations are not made publicly available.

Industry self-regulation occurs in several areas, including advertising and corporate governance.  Advertising Standards Authority of Singapore (ASAS) (https://asas.org.sg/), an advisory council under the Consumers Association of Singapore, administers the Singapore Code of Advertising Practice, which focuses on ensuring that advertisements are legal, decent, and truthful. Listed companies are required under the Singapore Exchange (SGX) Listing Rules to describe in their annual reports their corporate governance practices with specific reference to the principles and provisions of the Code. Listed companies must comply with the principles of the Code, and, if their practices vary from any provisions of the Code, they must note the reason for the variation and explain how the practices they have adopted are consistent with the intent of the relevant principle. The SGX plays the role of a self-regulatory organization (SRO) in listings, market surveillance, and member supervision to uphold the integrity of the market and ensure participants’ adherence to trading and clearing rules. There have been no reports of discriminatory practices aimed at foreign investors.

Singapore’s legal and accounting procedures are transparent and consistent with international norms and rank similar to the U.S. in international comparisons (http://worldjusticeproject.org/rule-of-law-index ). The prescribed accounting standards for Singapore-incorporated companies applying to be or are listed in the public market, Singapore Exchange, are known as Singapore Financial Reporting Standards (SFRS(I)), which are identical to those of the International Accounting Standards Board (IASB). Non-listed Singapore-incorporated companies can voluntarily apply for SFRS(I). Otherwise, they are required to comply with Singapore Financial Reporting Standards (SFRS), which are also aligned with those of IASB. For the use of foreign accounting standards, the companies are required to seek approval of the Accounting and Corporate Regulatory Authority (ACRA).

For foreign companies with primary listings on the Singapore Exchange, the SGX Listing Rules allow the use of alternative standards such as International Financial Reporting Standards (IFRS) or the U.S. Generally Accepted Accounting Principles (U.S. GAAP). Accounts prepared in accordance with IFRS or U.S. GAAP need not be reconciled to SFRS(1). Companies with secondary listings on the Singapore Exchange need only reconcile their accounts to SFRS(I), IFRS, or U.S. GAAP.

Notices of proposed legislation to be considered by parliament are published, including the text of the laws, the dates of the readings, and whether or not the laws eventually pass. The government has established a centralized Internet portal (www.reach.gov.sg ) to solicit feedback on selected draft legislation and regulations, a process that is being used with increasing frequency. There is no stipulated consultative period.  Results of consultations are usually consolidated and published on relevant websites. As noted in the “Openness to Foreign Investment” section, some U.S. companies, in particular in the telecommunications and media sectors, are concerned about the government’s lack of transparency in its regulatory and rule-making process.  However, many U.S. firms report they have opportunities to weigh in on pending legislation that affects their industries.  These mechanisms also apply to investment laws and regulations.

The Parliament of Singapore website (https://www.parliament.gov.sg/parliamentary-business/bills-introduced ) publishes a database of all bills introduced, read, and passed in Parliament in chronological order as of 2006. The contents are the actual draft texts of the proposed legislation/legislative amendments. All statutes are also publicly available in the Singapore Statutes Online website (https://sso.agc.gov.sg ). However, there is no centralized online location where key regulatory actions are published. Regulatory actions are published separately on websites of Statutory Boards.

Enforcement of regulatory offences is governed by both acts of parliament and subsidiary legislation. Enforcement powers of government statutory bodies are typically enshrined in the act of Parliament constituting that statutory body. There is accountability to Parliament for enforcement action through question time, where members of parliament may raise questions with the ministers on their respective ministries’ responsibilities.

Singapore’s judicial system and courts serve as the oversight mechanism in respect of executive action (such as the enforcement of regulatory offences) and dispense justice based on law. The Supreme Court, which is made up of the Court of Appeal and the High Court, hears both civil and criminal matters. The Chief Justice heads the Judiciary. The President appoints the Chief Justice, the Judges of Appeal and the Judges of the High Court if she, acting at her discretion, concurs with the advice of the Prime Minister.

No systemic regulatory reforms or enforcement reforms relevant to foreign investors were announced in 2020. The Monetary Authority of Singapore focuses enforcement efforts on timely disclosure of corporate information, business conduct of financial advisors, compliance with anti-money laundering/combatting the financing of terrorism requirements, deterring stock market abuse, and insider trading. In March 2019, MAS published its inaugural Enforcement Report detailing enforcement measures and publishes recent enforcement actions on its website (https://www.mas.gov.sg/regulation/enforcement/enforcement-actions ).

International Regulatory Considerations

Singapore was the 2018 chair of the Association of Southeast Asian Nations (ASEAN). ASEAN is working towards the 2025 ASEAN Economic Community (AEC) Blueprint aimed at achieving a single market and production base, with a free flow of goods, services, and investment within the region. While ASEAN is working towards regulatory harmonization, there are no regional regulatory systems in place; instead, ASEAN agreements and regulations are enacted through each ASEAN Member State’s domestic regulatory system.  While Singapore has expressed interest in driving intra-regional trade, the dynamics of ASEAN economies are convergent.

The WTO’s 2016 trade policy review notes that Singapore’s guiding principle for standardization is to align national standards with international standards, and Singapore is an elected member of the International Organization of Standardization (ISO) and International Electrotechnical Commission (IEC) Councils. Singapore encourages the direct use of international standards whenever possible. Singapore standards (SS) are developed when there is no appropriate international standard equivalent, or when there is a need to customize standards to meet domestic requirements. At the end of 2015, Singapore had a stock of 553 SS, about 40 percent of which were references to international standards. Enterprise Singapore, the Singapore Food Agency, and the Ministry of Trade and Industry are the three national enquiry points under the TBT Agreement. There are no known reports of omissions in reporting to TBT.

A non-exhaustive list of major international norms and standards referenced or incorporated into the country’s regulatory systems include Base Erosion and Profit Shifting (BEPS) project, Common Reporting Standards (CRS), Basel III, EU Dual-Use Export Control Regulation, Exchange of Information on Request, 27 International Labor Organization (ILO) conventions on labor rights and governance, UN conventions, and WTO agreements.

Singapore is signatory to the Trade Facilitation Agreement (TFA). The WTO reports that Singapore has fully implemented the TFA (https://www.tfadatabase.org/members/singapore ).

Legal System and Judicial Independence

Singapore’s legal system has its roots in English common law and practice and is enforced by courts of law. The current judicial process is procedurally competent, fair, and reliable. In the 2020 Rule of Law Index by World Justice Project, it is ranked overall twelfth in the world, first on order and security, third on regulatory enforcement, third in absence of corruption, sixth on civil and criminal justice, twenty-ninth on constraints on government powers, twenty-sixth on open government, and thirty-second on fundamental rights. Singapore’s legal procedures are ranked first in the world in the World Bank’s 2020 Ease of Doing Business sub-indicator on contract enforcement which measures speed, cost, and quality of judicial processes to resolve a commercial dispute. The judicial system remains independent of the executive branch and the executive does not interfere in judiciary matters.

Laws and Regulations on Foreign Direct Investment

Singapore strives to promote an efficient, business-friendly regulatory environment. Tax, labor, banking and finance, industrial health and safety, arbitration, wage, and training rules and regulations are formulated and reviewed with the interests of both foreign investors and local enterprises in mind. Starting in 2005, a Rules Review Panel, comprising senior civil servants, began overseeing a review of all rules and regulations; this process will be repeated every five years. A Pro-Enterprise Panel of high-level public sector and private sector representatives examines feedback from businesses on regulatory issues and provides recommendations to the government. (https://www.mti.gov.sg/PEP/About)

The Cybersecurity Act, which came into force in August 2018, establishes a comprehensive regulatory framework for cybersecurity. The Act provides the Commissioner of Cyber Security with powers to investigate, prevent, and assess the potential impact of cyber security incidents and threats in Singapore.  These can include requiring persons and organizations to provide requested information, requiring the owner of a computer system to take any action to assist with cyber investigations, directing organizations to remediate cyber incidents, and, if safeguards have been met, authorizing officers to enter premises, and installing software and take possession of computer systems to prevent serious cyber-attacks in the event of severe threat. The Act also establishes a framework for the designation and regulation of Critical Information Infrastructure (CII). Requirements for CII owners include a mandatory incident reporting regime, regular audits and risk assessments, and participation in national cyber security stress tests. In addition, the Act will establish a regulatory regime for cyber security service providers and required licensing for penetration testing and managed security operations center (SOC) monitoring services. U.S. business chambers have expressed concern about the effects of licensing and regularly burdens on compliance costs, insufficient checks and balances on the investigatory powers of the authorities, and the absence of a multidirectional cyber threat sharing framework that includes protections from liability. Under the law, additional measures, such as the Cybersecurity Labelling Scheme, continue to be introduced.  Authorities stress that, “in view of the need to strike a good balance between industry development and cybersecurity needs, the licensing framework will take a light-touch approach.”

Competition and Antitrust Laws

The Competition and Consumer Commission of Singapore (CCCS) is a statutory board under the Ministry of Trade and Industry and is tasked with administering and enforcing the Competition Act. The act contains provisions on anti-competitive agreements, decisions, and practices; abuse of dominance; enforcement and appeals process; and mergers and acquisitions. The Competition Act was enacted in 2004 in accordance with U.S-Singapore FTA commitments, which contains specific conduct guarantees to ensure that Singapore’s government linked companies (GLC) will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the FTA. A 2018 addition to the act gives the CCCS additional administrative power to protect consumers against unfair trade practices.

The most recent infringement decision issued by CCCS occurred in January 2019 when three competing hotel operators, including a major British hospitality company, exchanged “commercially sensitive” information. The operators were fined a total financial penalty of $1.1 million for conduct potentially resulting in reduced competitive pressure on the market. No other cases tied to commercial behavior in 2019 or the first quarter of 2020 have received penalties from CCCS.

Expropriation and Compensation

Singapore has not expropriated foreign-owned property and has no laws that force foreign investors to transfer ownership to local interests. Singapore has signed investment promotion and protection agreements with a wide range of countries. These agreements mutually protect nationals or companies of either country against certain non-commercial risks, such as expropriation and nationalization and remain in effect unless otherwise terminated. The USSFTA contains strong investor protection provisions relating to expropriation of private property and the need to follow due process; provisions are in place for an owner to receive compensation based on fair market value. No disputes are pending.

Dispute Settlement

ICSID Convention and New York Convention

Singapore is party to the Convention on the Settlement of Investment Disputes (ICSID Convention) and the convention on the Recognition and Enforcement of Foreign Arbitration Awards (1958 New York Convention). Singapore passed an Arbitration (International Investment Disputes) Act to implement the ICSID Convention in 1968. Singapore acceded to the 1958 New York Convention in August 1986 and gives effect to it via the International Arbitration Act (IAA). The 1958 New York Convention is annexed to the IAA as the Second Schedule. Singapore is bound to recognize awards made in any other country that is a signatory to the 1958 New York Convention. ( http://www.lexology.com/library/detail.aspx?g=3f833e8e-722a-4fca-8393-f35e59ed1440 )

Domestic arbitration in Singapore is governed by the Arbitration Act (Cap 10). The Arbitration Act was enacted to align the laws applicable to domestic arbitration with the model law.

Singapore is also a party to the United Nations Convention on International Settlement Agreements Resulting from Mediation, further referred to as the “Convention.” This Convention provides a process for parties to enforce or invoke an international commercial mediated settlement agreement once the conditions and requirements of the Convention are met. Singapore has put in place domestic legislation, the Singapore Convention on Mediation Bill 2020, which was passed in Parliament on 4 February 2020. On 25 February 2020, Singapore and Fiji were the first two countries to deposit their respective instruments of ratification of the Convention at the United Nations Headquarters. The Convention will enter into force six months after the third State deposits its instrument of ratification, acceptance and approval or accession. Singapore’s arbitration center settled a record high number of cases in 2020 and opened a New York City office.

Investor-State Dispute Settlement

After Singapore’s accession to the New York Convention of 1958 on August 21, 1986, it re-enacted most of its provisions in Part III of the IAA. By acceding to the New York Convention, Singapore is bound to recognize awards made in any other country that is a signatory to the Convention. Singapore is a member of the Commonwealth of Nations and, under the Reciprocal Enforcement of Commonwealth Judgments Act (RECJA), recognizes judgments made in the United Kingdom, as well as jurisdictions that are part of the Commonwealth and with which Singapore has reciprocal arrangements for the recognition and enforcement of judgments. The Act lists the countries with which such arrangements exist, and of the 53 countries that are members of the Commonwealth, nine have been listed. ( https://sso.agc.gov.sg/SL/RECJA1921-N1?DocDate=19990701 ) Singapore also has reciprocal recognition of foreign judgements with Hong Kong Special Administrative Region of the People’s Republic of China.

Singapore is party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Singapore passed an Arbitration (International Investment Disputes) Act to implement the ICSID Convention in 1968. The ICSID Convention has an enforcement mechanism for arbitration awards rendered pursuant to ICSID rules that is separate from the 1958 arbitration awards rendered pursuant to ICSID rules that is separate from the 1958 New York Convention. Investor-State dispute settlement provisions in Singapore’s trade agreements, including the USSFTA, refer to ICSIID rules as one of the possible options for resolving disputes. Investor-State arbitration under rules other than ICSID’s would result in an arbitration award that may be enforced using the 1958 New York Convention.

Singapore has had no investment disputes with U.S. persons or other foreign investors in the past ten years that have proceeded to litigation. Any disputes settled by arbitration/mediation would remain confidential. There have been no claims made by U.S. investors under the USSFTA. There is no history of extrajudicial action against foreign investors. The government is investing in establishing Singapore as a global mediation hub.

International Commercial Arbitration and Foreign Courts

Dispute resolution (DR) institutions include the Singapore International Arbitration Centre (SIAC), Singapore International Mediation Centre (SIMC), Singapore International Commercial Court (SICC), and the Singapore Chamber of Maritime Arbitration (SCMA). Singapore’s extensive dispute resolution institutions and integrated dispute resolution facilities at Maxwell Chambers have contributed to its development as a regional hub for alternative dispute resolution mechanisms. The SIAC is the major arbitral institution and its increasing caseload reflects Singapore’s policy of encouraging the use of alternative modes of dispute resolution, including arbitration.

Arbitral awards in Singapore, for either domestic or international arbitration, are legally binding and enforceable in Singapore domestic courts, as well as in jurisdictions that have ratified the 1958 New York Convention.

The International Arbitration Act (IAA) regulates international arbitrations in Singapore. Domestic arbitrations are regulated by the Arbitration Act (AA). The IAA is heavily based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, with a few significant differences. For example, arbitration agreements must be in writing. This requirement is deemed to be satisfied if the content is recorded in any form, including electronic communication, regardless of whether the arbitration agreement was concluded orally, by conduct, or by other means (e.g. an arbitration clause in a contract or a separate agreement can be incorporated into a contract by reference). The AA is also primarily based on the UNCITRAL Model Law. There have been no reported complaints about the partiality or transparency of court processes in investment and commercial disputes.

Bankruptcy Regulations

Singapore has bankruptcy laws allowing both debtors and creditors to file a bankruptcy claim. Singapore ranks number 27 for resolving insolvency in the World Bank’s 2020 Doing Business Index. While Singapore performed well in recovery rate and time of recovery following bankruptcies, the country did not score well on cost of proceedings or insolvency frameworks. In particular, the insolvency framework does not require approval by the creditors for sale of substantial assets of the debtor or approval by the creditors for selection or appointment of the insolvency representative.

Singapore has made several reforms to enhance corporate rescue and restructuring processes, including features from Chapter 11 of the U.S. Bankruptcy Code. Amendments to the Companies Act, which came into force in May 2017, include additional disclosure requirements by debtors, rescue financing provisions, provisions to facilitate the approval of pre-packaged restructurings, increased debtor protections, and cram-down provisions that will allow a scheme to be approved by the court even if a class of creditors oppose the scheme, provided the dissenting class of creditors are not unfairly prejudiced by the scheme.

The Insolvency, Restructuring and Dissolution Act passed in 2018, but the expected effective date of the bill has been delayed from the first half of 2019 into 2020. It updates the insolvency legislation and introduces a significant number of new provisions, particularly with respect to corporate insolvency. It mandates licensing, qualifications, standards, and disciplinary measures for insolvency practitioners. It also includes standalone voidable transaction provisions for corporate insolvency and, a new wrongful trading provision. The act allows ‘out of court’ commencement of judicial management, permits judicial managers to assign the proceeds of certain insolvency related claims, restricts the operation of contractual ‘ipso facto clauses’ upon the commencement of certain restructuring and insolvency procedures, and modifies the operation of the scheme of arrangement cross class ‘cram down’ power. Authorities continue to seek public consultations of subsidiary legislation to be drafted under the act.

Two MAS-recognized consumer credit bureaus operate in Singapore: the Credit Bureau (Singapore) Pte Ltd and Experian Credit Bureau Singapore Pte Ltd. U.S. industry advocates enhancements to Singapore’s credit bureau system, in particular, adoption of an open admission system for all lenders, including non-banks. Bankruptcy is not criminalized in Singapore. ( https://www.acra.gov.sg/CA_2017/ )

6. Financial Sector

Capital Markets and Portfolio Investment

The government takes a favorable stance towards foreign portfolio investment and fixed asset investments. While it welcomes capital market investments, the government has introduced macro-prudential policies aimed at reducing foreign speculative inflows in the real estate sector since 2009. The government promotes Singapore’s position as an asset and wealth management center, and assets under management grew 5.4 percent in 2018 to USD 2.4 trillion (SD 3.4 trillion) – the latest year for which MAS conducted a survey.

The Government of Singapore facilitates the free flow of financial resources into product and factor markets, and the Singapore Exchange (SGX) is Singapore’s stock market. An effective regulatory system exists to encourage and facilitate portfolio investment. Credit is allocated on market terms and foreign investors can access credit, U.S. dollars, Singapore dollars (SGD), and other foreign currencies on the local market. The private sector has access to a variety of credit instruments through banks operating in Singapore. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Money and Banking System

Singapore’s banking system is sound and well regulated by MAS, and the country serves as a financial hub for the region. Banks have a very high domestic penetration rate, and according to World Bank Financial Inclusion indicators, over 97 percent of persons held a financial account in 2017. (latest year available). Local Singapore banks saw net profits rise 27 percent in the last quarter of 2019. Banks are statutorily prohibited from engaging in non-financial business. Banks can hold 10 percent or less in non-financial companies as an “equity portfolio investment.” At the end of 2019, the non-performing loans ratio (NPL ratio) of the three local banks remained at an averaged 1.5 percent since the last quarter of 2018.

Foreign banks require licenses to operate in the country. The tiered licenses, for Merchant, Offshore, Wholesale, Full Banks and Qualifying Full Banks (QFBs) subject banks to further prudential safeguards in return for offering a greater range of services. U.S. financial institutions enjoy phased-in benefits under the USSFTA. Since 2006, U.S.-licensed full-service banks that are also QFBs have been able to operate at an unlimited number of locations (branches or off-premises ATMs) versus 25 for non-U.S. full service foreign banks with QFB status.

Under the OECD Common Reporting Standards (CRS), which has been in effect since January 2017, Singapore-based Financial Institutions (SGFIs) – depository institutions such as banks, specified insurance companies, investment entities, and custodial institutions – are required to: 1) establish the tax residency status of all their account holders; 2) collect and retain CRS information for all non-Singapore tax residents in the case of new accounts; and 3) report to tax authorities the financial account information of account holders who are tax residents of jurisdictions with which Singapore has a Competent Authority Agreement (CAA) to exchange the information. As of December 2019, Singapore has established more than 80 exchange relationships, include with the United States, established in September 2018.

U.S. financial regulations do not restrict foreign banks’ ability to hold accounts for U.S. citizens. U.S. citizens are encouraged to alert the nearest U.S. Embassy of any practices they encounter with regard to the provision of financial services.

Fintech investments in Singapore rose from USD 365 million in 2018 to USD 861 million in 2019. To strengthen Singapore’s position as a global Fintech hub, MAS has created a dedicated Fintech Office as a one-stop virtual entity for all Fintech-related matters to enable experimentation and promote an open-API (Application Programming Interfaces) in the financial industry. Investment in payments start-ups accounted for about 40 percent of all funds. Singapore has more than 50 innovation labs established by global financial institutions and technology companies.

MAS also aims to be a regional leader in blockchain technologies and has worked to position Singapore as a financial technology center. MAS and the Association of Banks in Singapore are prototyping the use of Distributed Ledger Technology (DLT) for inter-bank clearing and settlement of payments and securities. Following a five-year collaborative project to understand the technology, a test network launched to facilitate collaboration in the cross-border blockchain ecosystem. Technical specifications for the functionalities and connectivity interfaces of the prototype network are publicly available. ( https://www.mas.gov.sg/schemes-and-initiatives/Project-Ubin ).

Alternative financial services include retail and corporate non-bank lending via finance companies, cooperative societies, and pawnshops; and burgeoning financial technology-based services across a wide range of sectors including: crowdfunding, initial coin offerings, and payment services and remittance. In January 2020, the Payment Services Bill went into effect, which will require all cryptocurrency service providers to be licensed with the intent to provide more user protection. Smaller payment firms will receive a different classification from larger institutions and will be less heavily regulated. Key infrastructure supporting Singapore’s financial market include interbank (MEP), Foreign exchange (CLS, CAPS), retail (SGDCCS, USDCCS, CTS, IBG, ATM, FAST, NETS, EFTPOS), securities (MEPS+-SGS, CDP, SGX-DC) and derivatives settlements (SGX-DC, APS) ( https://www.mas.gov.sg/regulation/payments/payment-systems )

Foreign Exchange and Remittances

Foreign Exchange

The USSFTA commits Singapore to the free transfer of capital, unimpeded by regulatory restrictions. Singapore places no restrictions on reinvestment or repatriation of earnings and capital, and maintains no significant restrictions on remittances, foreign exchange transactions and capital movements.

Singapore’s monetary policy has been centered on the management of the exchange rate since 1981, with the stated primary objective of promoting medium term price stability as a sound basis for sustainable economic growth. As described by MAS, there are three main features of the exchange rate system in Singapore: 1) MAS operates a managed float regime for the Singapore dollar with the trade-weighted exchange rate allowed to fluctuate within a policy band; 2) the Singapore dollar is managed against a basket of currencies of its major trading partners; and 3) the exchange rate policy band is periodically reviewed to ensure that it remains consistent with the underlying fundamentals of the economy.

Remittance Policies

There are no time or amount limitations on remittances. No significant changes to investment remittance were implemented or announced over the past year. Local and foreign banks may impose their own limitations on daily remittances.

Sovereign Wealth Funds

The Government of Singapore has three key investment entities: GIC Private Limited (GIC) is the sovereign wealth fund in Singapore that manages the government’s substantial foreign investments, fiscal, and foreign reserves, with the stated objective to achieve long-term returns and preserve the international purchasing power of the reserves. Temasek is a holding company wholly owned by the Ministry of Finance with investments in Singapore and abroad. MAS, as the central bank of Singapore, manages the Official Foreign Reserves, and a significant proportion of its portfolio is invested in liquid financial market instruments.

GIC does not publish the size of the funds under management, but some industry observers estimate its managed assets may exceed $400 billion. GIC does not invest domestically, but manages Singapore’s international investments, which are generally passive (non-controlling) investments in publicly traded entities. The United States is its top investment destination, accounting for 34 percent of GIC’s portfolio as of March 2020, while Asia (excluding Japan) accounts for 19 percent, the Eurozone 13 percent, Japan 13 percent, and UK 6 percent. Investments in the United States are diversified and include industrial and commercial properties, student housing, power transmission companies, and financial, retail and business services. GIC is a member of the International Forum of Sovereign Wealth Funds. Although not required by law, GIC has published an annual report since 2008.

Temasek began as a holding company for Singapore’s state-owned enterprises, now GLCs, but has since branched out to other asset classes and often holds significant stake in companies. As of March 2020, Temasek’s portfolio value reached $226 billion, and its asset exposure to Singapore is 24 percent; 42 percent in the rest of Asia, and 17 percent in North America. According to the Temasek Charter, Temasek delivers sustainable value over the long term for its stakeholders. Temasek has published a Temasek Review annually since 2004. The statements only provide consolidated financial statements, which aggregate all of Temasek and its subsidiaries into a single financial report. A major international audit firm audits Temasek Group’s annual statutory financial statements. GIC and Temasek uphold the Santiago Principles for sovereign investments.

Other investing entities of government funds include EDB Investments Pte Ltd, Singapore’s Housing Development Board, and other government statutory boards with funding decisions driven by goals emanating from the central government.

7. State-Owned Enterprises

Singapore has an extensive network of full and partial SOEs held under the umbrella of Temasek Holdings, a holding company with the Ministry of Finance as its sole shareholder. Singapore SOEs play a substantial role in the domestic economy, especially in strategically important sectors including telecommunications, media, healthcare, public transportation, defense, port, gas, electricity grid, and airport operations. In addition, the SOEs are also present in many other sectors of the economy, including banking, subway, airline, consumer/lifestyle, commodities trading, oil and gas engineering, postal services, infrastructure, and real estate.

The Government of Singapore emphasizes that government-linked entities operate on an equal basis with both local and foreign businesses without exception. There is no published list of SOEs.

Temasek’s annual report notes that its portfolio companies are guided and managed by their respective boards and management, and Temasek does not direct their business decisions or operations. However, as a substantial shareholder, corporate governance within government linked companies typically are guided or influenced by policies developed by Temasek. There are differences in corporate governance disclosures and practices across the GLCs, and GLC boards are allowed to determine their own governance practices, with Temasek advisors occasionally meeting with the companies to make recommendations. GLC board seats are not specifically allocated to government officials, although it “leverages on its networks to suggest qualified individuals for consideration by the respective boards,” and leaders formerly from the armed forces or civil service are often represented on boards and fill senior management positions. Temasek exercises its shareholder rights to influence the strategic directions of its companies but does not get involved in the day-to-day business and commercial decisions of its firms and subsidiaries.

GLCs operate on a commercial basis and compete on an equal basis with private businesses, both local and foreign. Singapore officials highlight that the government does not interfere with the operations of GLCs or grant them special privileges, preferential treatment or hidden subsidies, asserting that GLCs are subject to the same regulatory regime and discipline of the market as private sector companies. However, observers have been critical of cases where GLCs have entered into new lines of business or where government agencies have “corporatized” certain government functions, in both circumstances entering into competition with already existing private businesses. Some private sector companies have said they encountered unfair business practices and opaque bidding processes that appeared to favor incumbent, government-linked firms. In addition, they note that the GLC’s institutional relationships with the government give them natural advantages in terms of access to cheaper funding and opportunities to shape the economic policy agenda in ways that benefit their companies.

The USSFTA contains specific conduct guarantees to ensure that GLCs will operate on a commercial and non-discriminatory basis towards U.S. firms. GLCs with substantial revenues or assets are also subject to enhanced transparency requirements under the USSFTA. In accordance with its USSFTA commitments, Singapore enacted the Competition Act in 2004 and established the Competition Commission of Singapore in January 2005. The Competition Act contains provisions on anti-competitive agreements, decisions, and practices, abuse of dominance, enforcement and appeals process, and mergers and acquisitions.

Privatization Program

The government has privatized GLCs in multiple sectors and has not publicly announced further privatization plans, but is likely to retain controlling stakes in strategically important sectors, including telecommunications, media, public transportation, defense, port, gas, electricity grid, and airport operations. The Energy Market Authority is extending the liberalization of the retail market from commercial and industrial consumers with an average monthly electricity consumption of at least 2,000 kWh to households and smaller businesses. The Electricity Act and the Code of Conduct for Retail Electricity Licensees govern licensing and standards for electricity retail companies.

10. Political and Security Environment

Singapore’s political environment is stable and there is no recent history of incidents involving politically motivated damage to foreign investments in Singapore. The ruling People’s Action Party (PAP) has dominated Singapore’s parliamentary government since 1959 and currently controls 83 of the 89 regularly contested parliamentary seats. Singaporean opposition parties, which currently hold six regularly contested parliamentary seats and three additional seats reserved to the opposition by the constitution, do not usually espouse views that are radically different from mainstream public opinion.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $374,131 2019 $372,063 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $358,888 2019 $287,951 BEA data available at https://apps.bea.gov/international/factsheet/ 
Host country’s FDI in the United States ($M USD, stock positions) 2018 $18,295 2019 $21,060 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2019 394.3% 2020 469.3% UNCTAD data available at https://unctad.org/topic/investment/world-investment-report  

* Source for Host Country Data: https://www.singstat.gov.sg/ 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 1,465,070 100% Not Available Amount 100%
United States 297,065 20% Not Available Amount X%
Cayman Islands 157,225 11% Not Available Amount X%
British Virgin Islands 107,393 7% Not Available Amount X%
Japan 96,282 7% Not Available Amount X%
Bermuda 66,395 5% Not Available Amount X%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 1,421,608 100% All Countries 681,831 100% All Countries 739,777 100%
United States 376,454 26% United States 137,354 20% United States 239,100 32%
China 174,975 12% China 111,997 16% China 62,978 9%
Republic of Korea 60,368 4% Japan 39,856 6% Korea 33,534 5%
India 53,899 4% Cayman Islands 38,030 6% United Kingdom 23,488
Caymen Islands 52,216 4% India 31,684 5% India 22,215 3%