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Cablegate: Rwanda Investment Climate Statement 2008

Published: Tue 15 Jan 2008 06:08 AM
VZCZCXYZ0000
RR RUEHWEB
DE RUEHLGB #0032/01 0150608
ZNR UUUUU ZZH
R 150608Z JAN 08
FM AMEMBASSY KIGALI
TO RUEHC/SECSTATE WASHDC 5040
INFO RUEHJB/AMEMBASSY BUJUMBURA 0224
RUEHDR/AMEMBASSY DAR ES SALAAM 1042
RUEHKM/AMEMBASSY KAMPALA 1801
RUEHKI/AMEMBASSY KINSHASA 0358
RUEHNR/AMEMBASSY NAIROBI 1114
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPARTMENT OF COMMERCE WASHINGTON DC
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC
UNCLAS KIGALI 000032
SIPDIS
SIPDIS
DEPT FOR EB/IFD/OIA
DEPT PLEASE PASS TO USTR
E.O. 12958: N/A
TAGS: EINV EFIN ETRD KTDB RW
SUBJECT: RWANDA INVESTMENT CLIMATE STATEMENT 2008
REF: 07 STATE 158802
Following is the text of the Investment Climate Statement for
Rwanda for 2008:
RWANDA INVESTMENT CLIMATE STATEMENT
OPENNESS TO FOREIGN INVESTMENT
------------------------------
The Government of Rwanda (GOR) recognizes that the private
sector is an essential engine of development. The government
welcomes foreign investment in policy and in practice.
In March 2006, the government enacted an updated investment
law to facilitate necessary licenses, visas, work permits,
and tax incentives. The law provides permanent residence and
access to land for investors who deposit USD 500,000 in a
commercial bank in Rwanda for a period not less than six
months. This law also fixed the minimum initial capital
investment requirement for foreign investors at USD 250,000.
In 2007, foreign companies successfully opened operations,
merged with local companies, and participated in
privatization programs. No statutory limits on foreign
ownership or control exist, and there is no official economic
or industrial strategy that has discriminatory effects on
foreign investors. In fact, there are no statutory
restrictions on investment in any sector in Rwanda.
Nonetheless, the commercial legal infrastructure is still in
the developing stages. There are currently no specialized
commercial courts in Rwanda; they are projected to start in
early 2008.
A business law reform commission is in place to draft major
business laws including intellectual property protection,
contract law, bankruptcy regulations, and arbitration law.
There is no mandatory screening of foreign investment, but
the Rwanda Investment and Export Promotion Agency (RIEPA)
does evaluate business plans with the objective of recording
incoming foreign investments, allocating investment
incentives to qualified foreign investors, and determining
the commitment of investors. The evaluation is not mandatory
for those who do not seek tax incentives or an investment
certificate. This practice does not limit competition or
protect domestic interests.
Through tax incentives and outreach, the government welcomes
and seeks to encourage foreign investment. The only
difference in treatment between foreign and domestic
companies is the initial capital requirement for official
registration (registration is not mandatory) - USD 250,000
for foreign investors; USD100,000 for domestic investors.
This has not proven to be a barrier; there are no reports of
foreign investors declining to invest due to these differing
treatments. Foreign investors can start businesses
irrespective of the initial capital requirement.
Foreign investors can acquire real estate, but there is a
general limit on land ownership. Land is owned by the state,
but both foreign and local investors acquire land through
lease-hold agreements that extend from 50 to 99 years. These
lease-hold agreements are accepted as collateral by
commercial banks.
The Government of Rwanda established the Privatization
Secretariat and the National Tender Board to ensure
SIPDIS
transparency and foreign companies have participated equally
and successfully.
In 2005, the law establishing RIEPA was expanded to include
export promotion reflecting the Government's focus on export
driven development. No discrimination has been reported
against foreign investors who use RIEPA's "one stop" investor
services. Investors who do not use RIEPA, however, often
incur extra charges from private sector contractors such as
shipping agents or brokers. Legally, foreign firms are
treated equally with regards to taxes, access to licenses,
approvals, and procurement.
No laws exist specifically authorizing private firms to adopt
articles of incorporation or association which limit or
prohibit foreign investment, participation, or control. No
such practices have been reported, either.
RIEPA organizes investment conferences, both in Rwanda and
abroad, in attempts to attract foreign investment into the
country. On many occasions RIEPA directors and local
businesses join the President of Rwanda in tours around the
world to attract foreign investors. RIEPA assists potential
investors in securing all required approvals, certificates,
land for their projects, work permits, and tax incentives.
In 2006, RIEPA registered 69 investment projects worth USD
245.5 million. Foreign direct investments accounted for 49
percent. By comparison, only 40 investment projects were
registered in 2005. RIEPA expects figures for 2007 to be
even higher. Dubai World, a company from United Arab
Emirates, is reportedly investing USD 240 million in a
variety of tourism projects, making it the largest investor
in the country. Some observers discount RIEPA FDI figures as
overly optimistic.
CONVERSION AND TRANSFER POLICIES
--------------------------------
There is no difficulty in obtaining foreign exchange, or
transferring funds associated with an investment into a
freely usable currency and at a legal market clearing rate.
In 1995, the Government of Rwanda established a market
-determined exchange rate system under which all lending and
deposit interest rates were liberalized. The Central Bank
holds daily foreign exchange sales freely accessed by
commercial banks.
Investors can remit payments only through authorized
commercial banks, not through any parallel markets. There is
no limit on the inflow or outflow of funds, but justification
for all transfers over USD 20,000 is required by the Central
Bank to facilitate the oversight of potential money
laundering.
There is no limitation on the inflow of funds for
remittances, but there are some restrictions on the outflow
of export earnings. Export earnings must be repatriated
within three months after the goods cross the border unless
the exporter makes arrangements to have more time. Tea
proceeds must be deposited after auctions in Mombasa (the
usual site for sale of Rwandan tea). Repatriated export
earnings deposited in commercial banks must match the exact
declaration the exporter used crossing the border.
Justifications are required to transfer more than USD 20,000
per year from Rwandan commercial banks. Rwandans working
overseas can make remittances to their home country.
It takes three days to transfer money using SWIFT financial
services and investors are allowed to use many other
financial services such as Western Union and MoneyGram, which
may be faster.
The Rwandan Franc (RwF) is convertible for essentially all
business transactions since January 2007. Rwanda has a
liberal monetary system and complies with IMF Article VIII
and all Organization for Economic Cooperation and Development
(OECD) convertibility requirements. The Rwandan Franc
exchange rate is set against a batch of currencies, including
the Euro, the Pound Sterling, and the USD.
EXPROPRIATION AND COMPENSATION
--------------------------------------------- ------------
The Government of Rwanda is authorized to expropriate
property if "in the public interest" and "for qualified
private investment" under the expropriation law adopted in
April 2007. Compensation is negotiated directly between the
buyer and the seller. Expropriation procedures in theory
take four months from the time the application is approved to
final disposition. Valuation remains non-transparent and
controversial.
Expropriation actions have been common in the capital because
Kigali is undergoing major development, although it does not
appear to be done in a discriminatory fashion. No industrial
plant has been expropriated thus far, as expropriation has
been limited to residential and small farm parcels. For
detailed information on the expropriation law, visit
www.primature.gov and official gazette law No 18/2007 of 19
April 2007.
There are no laws that require local ownership, but the
Organic Land law allows government to expropriate land that
lies fallow or is underutilized.
DISPUTE SETTLEMENT
------------------
The GOR established an arbitration center in 1998 as an
alternative dispute resolution mechanism, but it has not
lived up to expectations according to businesses that have
utilized it. Rwanda is a member of the International Center
for the Settlement of Investment Disputes (ICSID) and African
Trade Insurance Agency (ATI), which are supported by the
World Bank and Lloyds of London. ATI covers risk against
restrictions on import and export activities,
inconvertibility, expropriation, war, and civil disturbances.
Rwanda currently has no specialized commercial courts; they
will begin operation in early 2008.
Until commercial courts begin operation and new business
codes are enacted and operate appropriately, there will be no
effective means for enforcing property and contractual
rights. Laws governing commercial establishments,
investments, privatization and public investment, land, and
protection and conservation of the environment are the main
statutes governing investments in Rwanda. Laws on privately
financed infrastructure projects, insurance and mining are
still lacking.
Judgments of foreign courts and governing law clauses in
agreements are accepted and enforced by local courts. There
have been growing numbers of private investment disputes in
Rwanda. The Government has never been involved as a
complainant or respondent in a World Trade Organization
dispute settlement.
A U.S. investor is currently involved in a commercial dispute
that has not been resolved through arbitration.
Restructuring of the court system has created continuous
delays and frustration for the investor, whose case has been
in the court system since 2002. Settlement negotiations
continue between the government and the investor. Rwanda
signed and ratified the Multilateral Investment Guarantee
Agency (MIGA) convention on October 27, 1989. MIGA issues
guarantees against non-commercial risks to enterprises that
invest in member countries.
PERFORMANCE REQUIREMENTS AND INCENTIVES
---------------------------------------
The Government maintains measures that allegedly violate the
WTO's TRIMs (Trade Related Investment Measures). There are
parallel imports of goods where patents and original trade
marks are not registered and recognized. However, as a least
developed country Rwanda has up to 2013 to abide by specific
WTO TRIMs.
Unless stipulated in a memorandum of understanding that
concerns the purchase of privatized enterprises, performance
requirements are not imposed as a condition for establishing,
maintaining, or expanding other investments. They are mostly
imposed as a condition to access tax and investment
incentives. Investors who demonstrate capacity to add more
value, and invest in priority sectors enjoy more tax and
investment incentives which include VAT exemptions on all
imported raw materials, 100 percent write-off on research and
development costs, 5 percent to 7 percent reduction in
corporate income tax if the company exports products and
services valued from USD 3 million to USD 5 million, duty
exemption on equipment, and a favorable accelerated rate of
depreciation of 50 percent in the first year.
Although there are no legal obligations regarding these
matters, foreign investors are encouraged to transfer
technology and expertise to local staff in the development of
human resources. Work permits are granted to foreign
expatriates as long as they are key personnel and fall into
categories of skilled labor where Rwandans are not available.
RIEPA has been relatively successful in developing important
incentives and publicizing investment opportunities.
Registered investors obtain certificates that bring benefits,
including exemption from value-added tax and duties when
importing machinery, equipment, and raw materials. RIEPA
also assists with the issuance of expatriate work permits,
securing all the required government permits, and assisting
with land acquisition if required. Grants and special access
to credit is provided to investors promoting rural areas.
There no import quotas for investors.
There is no legal requirement that investors purchase from
local sources or export a certain percentage of their output.
In order to benefit from incentives of the planned free
export zone, a certain percentage of the finished product
must be exported. There is regulation regarding access to
foreign exchange in relation to exports.
More tax incentives are given to investors who create
significant export-oriented growth. Determination is made
upon request and is based on several factors: exports must
total at least 80 percent of production (or must be at least
10 percent if manufactured under bond); capital investment
must be at least USD 100,000 (local investors and COMESA
members) or USD 250,000 (non-COMESA investors).
There is no legal obligation that nationals own shares in
foreign investments or that shares of foreign equity be
reduced over time. Technology transfer can only be imparted
to local employees. There is no condition that technology be
transferred on certain terms.
The Government is not involved in assessing the type and
source of raw materials for performance but the National
Bureau of Standard determines quality standards. Investors
are not required to disclose proprietary information to
government authorities.
U.S. and other foreign firms are allowed to participate in
government financed and/or subsidized research and
development programs. In practice, foreign firms are given
special priority in research projects because Rwanda has not
yet fully developed a highly trained cadre of research
professionals.
There are no onerous visa residence or work permit
requirements that inhibit foreign investors' mobility. U.S.
nationals are not required to have visas for the first 90
days of their stay in Rwanda. Other foreign nationals have
their visas processed in a timely manner. As a result of
joining the East African Community, East Africans are not
required to have work permits in Rwanda. RIEPA facilitates
visas and work permits for potential investors.
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------------------------------------
Local and foreign investors have the right to own and
establish business enterprises in all forms of remunerative
activity. Private ownership is preserved in the constitution
of Rwanda. The constitution stipulates that every person has
the right to private ownership, whether personal or in
association with others. It cannot be violated except in the
public interest, and with procedures that are determined by
law, and subject to fair compensation.
Private entities are also allowed to acquire and to dispose
of interests in business enterprises. Foreign nationals may
hold shares in locally incorporated companies. Competing
with public enterprises is not a serious concern for the
private sector as the Government has privatized and continues
to privatize public enterprises that would compete with the
private sector.
PROTECTION OF PROPERTY RIGHTS
-----------------------------
The legal system protects and facilitates acquisition and
disposition of all property rights. Investors involved in
extensive agriculture have lease-hold titles to their land;
investors are able to secure other forms of property titles,
if needed. The land law passed July 14, 2005 stipulates
modalities of property registration, but no registries have
been established yet. Real property titles cannot be held
without development on the land. Title can be donated or
sold.
Rwanda adheres to key international agreements on
intellectual property rights and adequate protection of
intellectual property rights. As a least developed country,
Rwanda has up 2013 to abide by specific Trade Related
Intellectual Property (TRIP) arrangements. As a member of
the Common Market for East and Southern Africa (COMESA),
Rwanda is automatically a member of the African Regional
Intellectual Property Organization (ARIPO). It is also a
member of the World Intellectual Property Organization (WIPO)
and is currently working towards conformity of its
legislation to WTO trade-related aspects of intellectual
property. The Ministry of Commerce (MINICOM), the Rwandan
Revenue Authority (RRA), and the Rwandan Bureau of Standards
(RBS) work together to address issues involving counterfeit
products on the Rwandan market. In one instance, an American
firm was grateful to Rwandan support for destroying
contraband shoe polish that entered the country illegally.
Through the RBS and the RRA, Rwanda has earned accolades for
its protection of intellectual property rights, but many
goods make it to market that violate patents, especially
pharmaceutical drugs.
Rwanda has not yet ratified WIPO internet treaties, but steps
to implement and enforce the WTO TRIPS agreements have taken
place. Intellectual property legislation covering patents,
trademarks and copyrights have been introduced in parliament
and await action by that body. A Registration Service Agency
due to be established early in 2008 will further improve
intellectual property rights; the Agency will register all
commercial entities and their businesses.
TRANSPARENCY OF THE REGULATORY SYSTEM
-------------------------------------
The GOR generally uses transparent policies and effective
laws to foster clear rules consistent with international
norms. Institutions such as the Rwanda Revenue Authority,
the Ombudsman's office, the Bureau of Standards, the Rwanda
Utilities Regulatory Agency, the National Tender Board, and
the Privatization Secretariat all have clear rules and
procedures. Regulations concerning the Rwanda Environment
Management Agency and the Rwanda Utilities and Regulation
Agency in contrast lack the same degree of transparency and
confuse investors.
There is no formalized mechanism to publish draft laws for
public comment, although civil society is often accorded the
opportunity to review proposed laws. Nonetheless, there is
no government effort to restrict foreign participation in
industry standards-setting consortia or organizations.
Some investors complain that the strict enforcement of tax,
labor, and environmental laws impede investment, but the
complaints come mainly from local investors unaccustomed to
modern regulatory mechanisms.
Bureaucratic procedures including those for licenses and
permits are not sufficiently streamlined. A draft law
establishing a Rwanda Registration Service Agency has been
passed, and the Agency will be established early in 2008.
The law is intended to simplify procedures for obtaining
trade permits and licenses.
Rwanda established an Ombudsman's office in 2004 that
monitors transparency and compliance with regulations in all
governmental sectors. The Rwanda Utility Regulation Agency,
the Auditor General's Office, the Anticorruption Division in
the Rwanda Revenue Authority, the National Bureau of
Standards, and the National Tender Board are all in place to
enforce regulations as well. The press exposed instances of
bad debts and malfeasance in 2007 involving private citizens
and GOR officials. Government investigation and public
exposure has led to some arrests and resignations within the
GOR, and Rwanda continues to fight corruption vigorously.
There is no informal regulatory process managed by
nongovernmental organizations. Existing legal, regulatory
and accounting systems are generally transparent and
consistent with international norms. However, some public
officials lack autonomy in certain circumstances.
A key component of the GOR's regulatory system is the Auditor
General's Office, established in 1999 to audit government
adherence to fiscal controls. The Auditor General's report
for 2007 cited many accounting irregularities. The
Prosecutor General and the police are using the report to
examine official conduct of government business in several
dozen institutions.
No consumer protection associations exist. Through the
Rwanda Private Sector Federation, the business community has
been able to lobby the GOR and to provide feedback on
government policy and execution.
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
--------------------------------------------- -----
Access to affordable credit is a serious challenge in Rwanda,
as interest rates are relatively high and loans are usually
short term. Nonetheless credit is allocated on market terms
and foreign investors are able to get credit on the local
market if they have collateral and bankable projects.
The private sector has limited access to credit instruments.
Most Rwandan banks are conservative, risk-averse and trade in
limited commercial products. A variety of credit instruments
were introduced with the privatization of the commercial
banks and more products such as mortgages will expand as the
industry matures. Credit cards are still lacking but debit
cards have been introduced on a limited basis.
The Central Bank encourages and facilitates investments
through the sale of treasury bills, but capital markets and
the associated regulatory systems do not yet exist.
A 2006 United Nations Conference on Trade and Development
publication reported that the percentage of non-performing
loans in the commercial market was 24 percent.
From 2001 to 2005, the total capital requirement for
commercial banks was 1.5 billion Rwanda Francs (USD 3
million) and RF 3 billion for investments banks. In 2006,
the central bank increased the capital requirement for
commercial banks and investment banks to USD 9.2 million or 5
billion Rwanda Francs.
Since there is no public stock exchange, corporations trade
shares among themselves or with private investors. No
hostile takeovers have occurred involving foreign investors,
and both the Central Bank and the GOR have been very active
in seeking foreign investors for the banking sector. Private
firms have not engaged in arrangements to restrict foreign
investment.
Plans are underway to develop capital markets. Ministry of
Finance and Central Bank officials are working on the
creation of a bond market with assistance from the U.S.
Department of the Treasury. An effective regulatory system
is monitored by the Central Bank, which is given high marks
by the IMF.
POLITICAL VIOLENCE
-------------------
Rwanda remains a stable country with little violence. A
strong police and military provide an umbrella of security
that continues to minimize criminal activity and political
disturbances. There have been no incidents involving
politically motivated damage to projects or installations
since the 1994 genocide and war.
Presidential elections in 2003 were peaceful, although
significant voting irregularities were documented. Rwanda no
longer faces insurgent activity from rebel groups operating
in the Democratic Republic of Congo. Rwanda acts in concert
with its neighbors to fight crime and terrorism, and the GOR
actively cooperates in efforts to identify and freeze the
assets of known terrorist individuals or organizations.
CORRUPTION
----------
The GOR senior leadership maintains a consistent policy of
combating corruption within Rwanda. Although less corrupt
than many other governments, the GOR is confronted with
periodic allegations of misconduct by officials using their
office for personal gain. In general, such incidents are
investigated and punishment imposed when guilt is
established; enforcement is equal for both foreign and local
investors. When corruption involves high-ranking officials,
they are dismissed or prosecuted. Senior government
officials appear to take pride in Rwanda's reputation for
being tough on corruption, and the parliament takes an active
role in investigating public officials accused of corruption.
Rwanda has signed and ratified the UN Anticorruption
Convention. It is a signatory of the OECD Convention on
Combating Bribery and of the African Union Anticorruption
Convention. Giving and accepting a bribe is a criminal act
under law, and penalties depend on circumstances surrounding
the specific case. U.S. firms have not identified
corruption as an obstacle to investment.
Corruption is generally low, but the 2007 Auditor General
report highlighted irregularities in government procurement.
Businessmen report occurrences of petty corruption in the
customs-clearing process, but there is almost no reported
corruption in transfers, dispute settlement, the regulatory
system, taxation or investment performance requirements.
A local company cannot deduct a bribe to a foreign official
from taxes. A bribe by a local company to a foreign official
is a crime in Rwanda.
Institutions including the Ombudsman Office, the
Anti-Corruption Unit in the Rwanda Revenue Authority, and the
Auditor General's Office identify corruption cases. The
police and Prosecutor General's office prosecute the actual
acts.
Transparency International or other similar regional non
governmental organizations do not operate in Rwanda, yet
periodically issue reports.
BILATERAL INVESTMENT AGREEMENTS AND AGOA
----------------------------------------
Rwanda is eligible for trade preferences under the African
Growth and Opportunity Act (AGOA), which the United States
enacted to extend duty-free and quota-free access to the U.S.
market for nearly all textile and handicraft goods produced
in eligible beneficiary countries. A Trade and Investment
Framework Agreement (TIFA) was signed between the U.S. and
Rwanda in 2006. Negotiations continue toward a Bilateral
Investment Treaty.
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
---------------------------------------------
The Overseas Private Investment Corporation (OPIC) has
provided a single investment guarantee in Rwanda to Sorwathe,
an American-owned tea factory.
The exchange rate regime is stable. OPIC currently has one
loan program in Rwanda. Given the enduring stability in the
country and ongoing investment reform, OPIC officials have
expressed strong interest in expanding its involvement.
The Export-Import Bank (EXIM) continues its program to insure
short-term export credit transactions involving various
payment terms, including open accounts that cover exports
from the U.S. of consumer goods, services, commodities, and
certain capital goods. Rwanda is a member of the
Multilateral Investment Guarantee Agency (MIGA) and the
African Trade Insurance Agency (ATI).
LABOR
------
General labor is available and improving, but there is a
shortage of skilled labor, including accountants, lawyers,
and technicians. Higher institutes of technology, many
private universities, and vocational institutes are improving
and producing more and more graduates each year.
Rwanda adheres to International Labor Organization (ILO)
conventions protecting worker rights. Policies to protect
workers in special labor conditions exist, but enforcement
remains questionable. On-the-job training and technology
transfer to local employees is encouraged but not obligatory.
The national labor code was revised in 2000 to eliminate
gender discrimination, restrictions on the mobility of labor,
and wage controls. Laws relating to insurance are being
prepared. Companies will find skills deficits in many
sectors when hiring, but these deficits will continue to
shrink as literacy rates increase and more qualified people
graduate from Rwandan institutions of higher learning. The
general population's literacy rate continues to improve each
year since the 1994 genocide and war.
FOREIGN TRADE ZONES/FREE PORTS
------------------------------
Rwanda is a member of several sub-regional economic
organizations, such as the Economic Community of the Great
Lakes (CEPGL), the Common Market for Eastern and Southern
Africa (COMESA), and the East African Community (EAC).
Member countries in COMESA operate under a free trade
agreement. Goods originating from COMESA countries that
fulfill conditions of rules of origin qualify for duty free
status (value addition on imported raw materials must be 35
percent to qualify for duty free status). Rwanda plans to
establish a free trade zone in the near future. Free trade
between East African Community members is scheduled to start
in 2009 and should boost investment in Rwanda.
FOREIGN DIRECT INVESTMENT STATISTICS
------------------------------------
Foreign direct investment statistics from 2001 to 2004 as
provided by UNCTAD are as follows. In 2001 FDI was USD 3.8
million or $ 2.30 per $1000 of GDP. In 2002 it was USD 7.4
millions or $4.50 per $1000 of GDP. In 2003 FDI was USD 4.7
millions or 3.00 in per $1000 of GDP. In 2004, FDI was USD
10.9 million or $5.90 in per $1000 of GDP. RIEPA reports FDI
of $115.1 million for 2005 and $104.9 million for 2006.
However, most observers consider RIEPA estimates to be
inflated.
ARIETTI
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