VII. Investment Climate The Burkinabe government of President Blaise Compaore welcomes foreign direct investment. The development of the private sector is a key goal of the economic reforms undertaken by the government. Given the limited capital resources available in Burkina Faso, the government is actively seeking foreign direct investment. A. The Investment Code The 1992 Investment Code guarantees the equal treatment of both foreign and domestic investors. The Ministry of Industry, Commerce, and Mines approves all new investments, foreign and domestic, based on the recommendation of the national investment commission. The 1992 Investment Code established three incentive schedules. Schedule "A" is for investments of less than 200 million CFA (USD 360,000 approx.) and provides a company with an exemption from most taxes during its first five years of existence. A 50 percent tax credit is granted for the ensuing five year period. Furthermore, companies in schedule "A" are permitted to stagger payment of Burkina Faso's registration tax over a four year period. The registration tax is equal to 3 percent of the total capital invested. Schedule "B" is for larger investments (over CFA 200 million) and provides a company with an 8 year tax exemption from most Burkinabe taxes. It also enables a company to spread the payment of the registration tax over a 5 year period. In addition, all schedule "A" and "B" investments located outside the country's two major cities, Ouagadougou and Bobo-Dioulasso, are accorded the benefits enumerated above for an additional 5 years. Schedule "C" is for export companies only and provides a permanent exemption from all Burkinabe taxes. While the new investment code is intended to provide a welcome mat to foreign investors, the government has shown itself disposed to heed potential foreign investors' concerns/priorities. The government has indicated it will consider making adjustments/revisions to the code where necessary. In this sense the code is still fluid. In June 1994, the Prime Minister announced a further revision to make the code more attractive to foreign investors. This revision, details not yet known, is expected to be available by September, 1994. B. Mining Rights in Burkina Faso The Mining Investment Code, adopted in May, 1993, regulates foreign mining operations in Burkina Faso. The code provides special customs and fiscal privileges for mining companies during both the exploration and production stages. There are three different types of licenses required to operate in the mining sector depending on both the phase and the length of operation. (1) In the developmental phase, an exploration license grants an exclusive right to explore for the specific mineral substances requested. It covers a maximum area of 2500 km2 and is valid for four years. This license may be renewed twice, each time for a period of two years, provided that the license holder can prove that at least 2/3 of the scheduled work has been completed. The license may be transferred with the authorization of the Minister responsible for mines. The possession of an exploration license allows the license holder to obtain a mining license or a mining concession once the existence of extractable mineral deposits is proven. (2) In the production phase, a mining license grants the holder the right to establish and operate a mine according to the precepts of the mining code. An industrial mining license is granted when mining operations are to be carried out over a short period of time (4 years, renewable). For long term investment projects, a mining concession is granted by the government and is valid for 25 years and renewable for 10 year periods. C. The Mining Investment Code The Burkinabe Mining Code remains subject to change as the government attempts to be responsive to foreign investors' concerns and needs. The government has indicated its willingness to consider amending/adjusting the mining code to attract investment. Nevertheless, we offer the following additional and sometimes cautionary points: 1. Exploration An exploration license grants certain benefits to the holder. For instance, the holder is exempt from customs fees on professional equipment imported to aid in the exploration process. Furthermore, petroleum products, spare parts and other products imported during this stage are also exempt. In addition, the holder is exempt from the following: the forfeit tax (IMFPIC), the patent tax, and the apprenticeship tax. 2. Installation and Production The holder of a mining license/concession is accorded the following tax abatements during the installation period: - total exemption from customs fees on raw materials, components, and equipment necessary for production as well as the first set of spare parts for necessary machinery.However, this exemption does not include personal vehicles or office furniture. - total exemption from custom fees on imported raw materials for the first three years following the officially recognized date of production. - total exemption from customs fees on most products and equipment necessary to build houses. Note, however, that paint, hydraulic mixers, and air conditioners are not exempt. - total exemption from customs fees on petroleum products and lubricants necessary to operate the mine. - total exemption from customs fees on equipment purchased for expansion purposes or replacement equipment ordered due to technical malfunctions/accidents. In general, the holder of a mining license is granted the following tax benefits: - a seven year exemption from the forfeit tax (IMFPIC), the patent tax ("patente"), the apprenticeship tax (TPA), and the transfer tax (TBM). The TBM is applied to the rental value of the buildings. - a five year tax exemption on commercial and industrial profits (BIC), a five year, 50 percent reduction of the investment income tax (IRVM), and a 25 percent permanent reduction of the same tax for the following years. The holder of a mining concession is granted the following tax benefits: - a thirteen year exemption from the forfeit tax, the patent tax, the apprenticeship tax, and the transfer tax. - a twelve year, 50 percent from the investment income tax. The holder of a mining concession is also able to stagger the payment of the registration tax when initially forming the company, and is exempt from this tax when increasing the size of the investment (i.e., increasing the capital stock). The holder can also benefit from an Accelerated Investment Amortization Schedule as defined under the Burkinabe tax code. In litigation cases concerning the interpretation or the implementation of mining regulations between government and the investor, an amicable solution will first be sought. If an amicable solution cannot be reached, the matter will be referred to international arbitration under the rules outlined by the March 1965 Convention of the IBRD. D. Currency Conversion and Transfer Policies Burkina Faso is a member of the West African Monetary and Economic Union (UEMOA), [formerly the West African Monetary Union]. The West African Union uses a common currency, the CFA Franc, and includes the countries of Benin, Cote d'Ivoire, Mali, Niger, Senegal, and Togo. Prior to January's devaluation, the CFA Franc was freely convertible into French Francs at a rate of 50 CFA to 1 FF. At the January 1994 meeting in Dakar, Senegal, representatives from the 14-member country Franc Zone and France agreed to a change in parity. The new rate is now 100 CFA to 1 FF. Historically, the CFA Franc was freely convertible at the designated parity. However, prior to the devaluation, the convertibility of the CFA Franc outside the Franc zone was suspended in order to prevent speculation and capital flight. The suspension has yet to be rescinded. As previously implied, Burkina Faso's favorable investment code guarantees foreign investors the right to transfer abroad any funds associated with an investment, including dividends, assets, salaries, and receipts from liquidation. The transfers are authorized in the currency of the original investment, subject to the decree of December 4, 1968 governing overseas capital transfers from the FCFA zone. Such transfers are made directly by Burkinabe banks once all relevant documents have been presented to them. Transfer operations and repatriation of funds are unlimited and not subject to a waiting period. Wire transfers to an American correspondent bank generally take from one to three days (one week to a non-correspondent bank). Burkina's three main commercial banks have the following correspondent banks in the U.S.: Citibank N.A. 111 Wall Street, 28th floor, Zone 4 New York, N.Y.. 10043 F.A.B.C. World Financial Center Tower "A" 200 Liberty Street, 20th floor New York, N.Y. 10281 Societe Generale (New York branch) 50 Rockefeller Plaza, 14th floor New York, N.Y. 10020 Tel: (212) 830-6814 Multilateral Development Banks: 1. The International Bank for Reconstruction and Development (IBRD), a member of the World Bank group makes long-term loans at market- related rates primarily to developing nations. The International Development Agency (IDA), the soft loan window of the World Bank, lends to the poorest of the development countries. Both the IBRD and IDA work to promote broadly based economic growth and frequently focuses on structural adjustment, sectoral reform and individual project lending and operate under the same set of procurement guidelines. Typically the World Bank does not finance the entire cost of a project. Rather, it finances the components of a project purchased with foreign exchange, which on average is about 40 per cent of the total project cost. Each project may cover a wide variety of sectors and can involve anywhere from one to hundreds of separate contracts providing export business opportunities for suppliers worldwide. CONTACTS: U.S. Department of Commerce Liaison to the U.S. Executive Directors Office International Bank for Reconstruction and Development 1818 H. St., NW Washington D.C. 20433 Tele: (202) 458-0118 Fax: (202) 477-2967 Office of Multilateral Development Banks U.S. Foreign Commercial Service U.S. Department of Commerce Room H-1107 Washington D.C. 20230 Tele: (202) 482-3399 Fax: (202) 273-0927 2. The African Development Bank (AFDB), headquartered in Abidjan, Cote d'Ivoire, is an international financial institution created by Africans in 1963 to promote the economic and social development of its member African countries. Founded with initial capital resources of USD 250 million, it has authorized capital today of over USD 22.3 billion. The bank belongs to the African Development Bank Group (ADBG) which also includes the African Development Fund (ADF) and the Nigerian Trust Fund (NTF). The AFDB makes loans to development projects in 51 countries in Africa. The ADB provides development financing on concessionary terms to the poorer African member countries. The NTF was established by the Government of Nigeria in 1976 to assist in the development efforts of the poorer ADB members. The ADFB has 21 non-regional members. The United States joined in 1982. CONTACTS: U.S. Department of Commerce Liaison Office to the U.S. Executive Directors Office African Development Bank Ave. Joseph Anoma 01 B.P. 1387 Abidjan 01, Cote D'Ivoire Tele: (225) 21-46-16 Fax: (225) 22-24-37 Office of Multilateral Development Banks U.S. & Foreign Commercial Service U.S. Department of Commerce Room H-1107 Washington, D.C. 20230 Tele: (202) 482-3399 Fax: (202) 273-0927