VII. INVESTMENT CLIMATE Cameroon's policies, as defined in law, meet all necessary elements of an open investment regime. However, current practice does not always guarantee a fair, transparent and impartial implementation of the law. Foreign and domestic individuals and firms alike can, and do, establish and own firms and engage in all forms of activity, and freely establish, acquire and dispose of interests in business enterprises. They are further allowed to dispose of their property in whatever manner they may wish, including sale, transfers or physical repatriation of moveable property. Investors are free to organize themselves into industry associations and to set goals and objectives of interest to them without the interference of the State. Foreign and domestic investors are provided with extensive guarantees that substantially comply with international norms. Cameroon does not discriminate between nationals and foreigners. Its laws do not force local ownership. Both foreign and domestic firms compete under the same rules. Cameroon's regulatory environment is undergoing fundamental change. These changes are expected to remove price/market rigidities and distortions arising from overbearing government interference in market price fixing mechanisms and the domineering presence of parastatals in the country's economy. The reforms in the regulatory environment are also expected to introduce new institutions such as a proposed securities market. Sectoral reforms are being undertaken as well. These reforms are expected to redynamize the productive sector by restructuring "strategic" parastatals (cocoa/coffee sector), revising existing exploitation regimes (petroleum sector) and correcting past laxities and inefficiencies in the regulation of such vital sectors as forestry. Quantitative restrictions on imports have been removed, non-tariff protection has been abolished, and import licensing has been eased. Export taxes have been abolished while export licensing is expected to be removed during the current fiscal year. Cameroon has taken laudable initiatives in attracting foreign investors to the country. The cornerstone of this effort is the Investment Code, enacted in 1990 to attract greenfield investments. The new code makes investment in the country both simpler and more attractive. The code offers outstanding incentives in exchange for minimal eligibility/performance requirements. Of the five investment regimes available in the Code, the Industrial Free Zone (IFZ) regime is the most attractive. It creates conditions for IFZ investors to operate virtually on the fringes of the country's established systems and regulations. Foreign equity ownership is not limited; there are no requirements for technology transfer and no requirements to locate at specific geographical areas; investments are not screened and there is no foreign exchange rationing. Investors can transfer dividends, returns on capital, interest and capital on foreign debt, lease payments, royalties and management fees, returns on liquidation etc. The Ministry of Finance routinely authorizes such business remittances. Protection for intellectual property is available in Cameroon through national and regional institutions which cooperate with international property rights organizations. Despite Cameroon's attractive investment code and the favorable environment for private enterprise, foreign investors have not been in a hurry to locate in the country, and domestic investors (especially those transferring their reserves back to the country after speculative pre-devaluation export of such capital), are still hesitant on decisions to invest. Arbitrariness in GRC decision-making continues to create an atmosphere of insecurity for investors. The lack of consistency in the enforcement of regulations and the inability to enforce transactions and contracts in a timely manner have discouraged potential investors. The courts of law are slow-moving, cumbersome, and unpredictable. OPENNESS TO FOREIGN INVESTMENT The deterioration of Cameroon's balance of payments, and of its capital account in particular, since the mid-1980s, has induced the government to increase investments by liberalizing laws and regulations governing it. The major law governing investments in Cameroon is the Investment Code which was enacted in 1990. The Code seeks to attract mainly greenfield investments. Under this code, investment incentives are identical for foreign and domestic investors. Persistent government hopes and wishes suggest that the code was designed with foreign investors prominently in view. The new code makes investment in the country both simpler and more attractive. In a key step, the Code creates an Investment Code Management Unit (ICMU), a "one-stop-shop" for investment approval and dispute resolution. This replaces the previous procedures which required investors to seek approvals and permits from, sometimes, dozens of Ministries and agencies. The ICMU, through its network of official correspondents in the Cameroonian bureaucracy, provides: investment approvals and authorizations; administrative documents regarding imports; authorizations for local procurement of raw materials and capital goods; visas for expatriate personnel; special legal waivers, and access to public services related to the production process. The Code provides 14 key guarantees to investors, including property ownership, ability to repatriate capital and income, prior compensation in case of expropriation, freedom of movement within Cameroon, free exit for personnel, and protection from non-commercial risk as per the Multilateral Investment Guarantee Agency's Treaty with Cameroon. The Code also provides for dispute resolution. At the time of incorporation or application for investment code benefits, a firm may opt for one of various procedures to settle future conflicts. These procedures include arbitration and settlement according to existing treaties and agreements between Cameroon and the investor's home country; settlements according to the rules of the International Chamber of Commerce, or settlements according to the Convention governing the Center for Settlement of Investment Disputes. General benefits of the Investment Code are available to all new and existing enterprises in Cameroon which process goods for export or use inputs from the local or regional (UDEAC) market. There are no elegibility requirements to acquire the general benefits. Export-oriented enterprises automatically receive, under the fiscal code, an exoneration from all export duties (when export duties were still in force), and from all taxes related to insurance and transportation. In addition, they receive a deduction of five percent of the value of the finished or semi-finished exports from the firm's taxable income. Firms using local inputs for the production of goods for the local and UDEAC markets automatically receive exoneration from duties and taxes on local raw materials and utilities, and a flat 15 percent tax on imported, non-UDEAC, raw materials. In addition to these general benefits, firms may qualify for one of five special investment regimes which offer more advantages. The five are : (1) the Basic Regime, (2) the Small and Medium-Size Enterprise Regime, (3) the Strategic Enterprise Regime, (4) the Re-investment Regime, and (5) the Free Zone Regime. The Code sets out in detail the specific criteria a firm must meet to qualify for the regimes as well as the benefits provided under each. The outstanding feature of Cameroon's investment code is the Free Zone (IFZ) regime. It was developed with the assistance of OPIC and USAID and promulgated in law through a special Presidential Decree in 1990. It began operations in 1992. To qualify for IFZ status, a firm must produce goods or services that are 80 percent export-bound and which must not have deleterious effects on the environment. These are the only eligibility requirements of the IFZ regime. Upon qualifying, an enterprise may either locate in an industrial free zone park or qualify as a factory-specific free zone if its activities must be located close to the source of raw materials. IFZ investors are shielded from the larger Cameroonian bureaucracy by a special "one-stop-shop" which currently operates in Douala. Unlike the ICMU which accomplishes it mandate through correspondents in government, the IFZ management unit has the authority to decide. It is obliged to act on, and deliver, authorizations within 30 days. IFZ investors are further shielded from the Cameroonian environment by a provision which allows them (if they so wish) to install autonomous power generation, water and telecommunications facilities on the site of their factories. They can also stay clear of Cameroon's exchange problems (if such problems are perceived) by opening foreign exchange accounts in local banks. An on-site customs inspection service is available to them. They are not restrained by the Labor Code in hiring, firing, wage-setting and fringe benefits, and they can import as many expatriate personnel as they wish during the first five years of operation (after which expatriate personnnel is pegged at 20 percent of the payroll). Miscellaneous incentives available to IFZ investors include preferential electricity and port charges, exemption from rent controls, and in case of disputes, the right to appeal to the Courts of First Instance in Cameroon and to the International Arbitration Association. Qualifying IFZ firms receive a 10-year holiday on taxes and are subject only to a flat tax of 15 percent on corporate profits beginning in the eleventh year. They have a right to tax-free repatriation of all funds earned and invested in Cameroon, and are exempt from foreign exchange regulations. They are exempt also from existing and future customs duties and taxes as well as from all taxes related to locally purchased inputs to production. An IFZ site is located in the economic capital, Douala, but its development has been delayed as a result of the withdrawal of American assistance to the IFZ project. Since 1992 when the IFZ began operations, it has received 18 applications and granted 11 authorizations. It is currently studying four applications. All 11 companies authorized are operational except for one which is still renovating its installations. All existing IFZ ventures are factory- specific. Although there is no securities market in Cameroon, American businesses can still invest through acquisitions by purchasing Cameroonian parastatals placed on the market via the country's privatization program. Of 153 non-financial parastatals existing in 1988, 44 have been liquidated and 4 have been privatized. Over 90 are still to be privatized, of which 15 have been earmarked for transition beginning in 1994. Thereafter, the government plans to place 10 parastatals every year on the market. A few parastatals have been classified as "strategic" and are not to be privatized. In mid-1992, the government decided to stop soliciting privatization tender offers publicly, ostensibly in order to avoid demoralizing parastatal employees. It instead adopted a method of distributing offers to selected prospective buyers. Cameroon has no securities market. Mergers and take-overs are, hence, operated discretely through negotiations. Current World Bank conditionality mandates the opening of a securities market which, according to recent reports in Cameroon's private and public press, will be created during the current fiscal year. Foreign investment is not screened in Cameroon, and the proportion of foreign equity ownership is not subject to limitation, except in the Small and Medium Size enterprise regime of the Investment Code where domestic participation is mandated. How effectively these regulations are applied in practice has not yet been well tested due to the paucity of foreign investment in recent years. American and firms of other nationalities are able to participate in government-financed and/or subsidized research and development programs. However, such participation is restricted to programs which, by the judgement of the government, are beyond the technical capacity of Cameroonian firms. Programs financed jointly by International Financial Institutions and the government are consistently open to unrestricted competition. Although foreign firms may not invest directly in ventures defined as "strategic" by the GRC they still have a role to play in supplying equipment to the parastatals concerned, installing and servicing the equipment, and financing these operations. The rest of Cameroon's economic environment is completely open to foreign investors who are protected by non-discriminatory, MFN-type, legislation. CONVERSION AND TRANSFER POLICIES The CFA franc (FCFA), the currency which Cameroon shares with thirteen other African member states of the franc zone, was devalued by 50 percent from a fixed parity of 50 FCFA to the French franc since 1948 to a fixed parity of 100 FCFA to one French franc in January, 1994. The Government of France guarantees the convertibility of the FCFA into French francs at this new rate. The Bank of France no longer purchases CFA notes abroad. Travellers from Cameroon are allowed to carry a maximum of FCFA 20,000 frs out of the country without Ministry of Finance authorization. Travellers checks can be drawn on any available foreign currency but the Ministry of Finance authorizes such purchases. No ceilings have yet been placed on how much foreign currency can be purchased per trip. The authorization of the Ministry of Finance is required for business transfers of whatever nature. Such authorizations are routinely granted if they are in conformity with the specified incentives of the investment and fiscal codes. Dividends, returns on capital, interest and principal on foreign debt, lease payments, royalties and management fees, returns on liquidation etc, can all be remitted abroad. It takes an average of 12 days to obtain a transfer authorization. Since the devaluation, there has been no queuing for foreign exchange in Cameroon. The gradual, but perceptible, improvement in the liquidity of Cameroon's commercial banks is dispelling lingering fears of possible foreign exchange rationing in Cameroon. The Embassy currently purchases the USD at a six-month average rate of 561 FCFA to the dollar. A second devaluation of the CFA is unlikely during the next 12 months. EXPROPRIATION AND COMPENSATION Foreign and domestic investors are provided extensive legal guarantees that substantially comply with international norms, including full and prior compensation, in the event of expropriation. In practice, however, the Embassy is aware of one case in which an American firm received compensation, without interest, seven years after the expropriation. Also, the GRC has not yet compensated for a piece of American Embassy land expropriated 12 years ago. It is not uncommon for the government to delay compensation for as long as 19 years after expropriation, especially in the case of Cameroonian farmers displaced for development projects. Expropriation is usually undertaken for public st. Undeveloped land holdings are more at risk for expropriation than developed property. Cameroonian laws do not force local ownership. There is no clear and proven tendency of the GRC to discriminate against American interests in the case of expropriation. And there are no confiscatory tax regimes and laws which can be considered as a threat to American investments. DISPUTE SETTLEMENT Two disputes involving foreign companies and their Cameroonian partners took place in 1993 and 1994. In each case, the Cameroonian partner attempted to take over either the shares of the foreign partner or to simply seize control of the joint venture through unorthodox methods. In each case, the Cameroonian partner either exerted, or attempted to exert, political pressure on the courts, and sought public sympathy through the press. In each case also, the Cameroonian partner was, or claimed to be, close to top officials of the ruling CPDM party and the State apparatus. Cameroon's judiciary remains effectively controlled by the Executive Branch, despite persistent calls for the independence of the judiciary. There have been reports of firms having difficulties obtaining a fair and expeditious hearing before the courts. Contracts are widely perceived as being difficult and costly to enforce, and property rights are widely perceived as ill-defined and inadequately protected in important respects, especially with respect to land tenure. The execution of judgements is slow and fraught with administrative and legal bottlenecks. Judgements of foreign courts are executed in Cameroon by way of a procedure which requires the issuance by a Cameroonian judge of an ordinance to serve as the basis for the execution of the foreign judgement. In general, adjudication and the execution of judgements is relatively more transparent, predictable, faster and less cumbersome in the English-speaking part of the country where Common Law is practised. Cameroon's bankrupcy law is an integral part of its commercial law. In case of bankruptcy, creditors are not covered except by way of negotiable or enforceable guarantee instruments held by the creditor. The concept of mortgage (or "hypoth que" in French) exists in Cameroonian law, and the "titre foncier" is the legal instrument for registering such security interests. Cameroon is a member of the International Centre for the Settlement of Investment Disputes and is signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It accepts binding international arbitration of investment disputes between foreign investors and the State. PERFORMANCE REQUIREMENTS/INCENTIVES Cameroon's 1990 Investment Code establishes no requirement for Cameroonian equity ownership in foreign enterprises except for the Small and Medium-Size Enterprise regime which requires that at least 35 percent of the equity must be held by a Cameroonian company or citizen. Even in this case, foreign investors are not required to reduce their shares over time. There is no foreign exchange rationing, no requirement to locate at specific geographical areas, no requirements for technology transfer, and foreign investors may seek local financing for investment purposes. The Investment Code does establish general employment requirements per amount of invested capital, but has dropped the Cameroonian policy which, in the 1984 code, required that a certain number of senior level management positions be retained by Cameroonians. The code also links benefits and incentives to the volume of exported goods as well as to the use of inputs purchased from the local or UDEAC (Central African Customs Union) markets. Benefits and incentives linked to these general performance requirements include duty, fee, and tax exemptions, reduced taxes or duties on capital goods, and transportation write-offs. Each of the five special regimes of the Code has its own specific eligibility/performance requirements and accompanying benefits. Such benefits vary in duration from three to twelve years depending on the regime, and on whether the investment is classified "start-up" or "operational". Under the current fiscal code, non-IFZ export-oriented firms automatically receive an exoneration from taxes related to insurance and transportation. Such firms also receive a tax rebate of five percent on the FOB value of the finished or semi-finished exports. Businesses qualifying for the fiscal code's "Inland Tax on Production" regime automatically receive relief from certain taxes provided local content conditions are met. IFZ investors can sell only 20 percent of their production on the local market, and they must restrict expatriate personnel to 20 percent of their payroll after five years of operation. In an effort to provide a general boost to exports, the GRC has removed all taxes on exports. Export licensing is expected to be lifted as well. Quantitative restrictions on imports have been removed and special protection mechanisms such as the "perequation" (or equalization tax) have been abolished. Price controls have also been abolished for most goods. They have been maintained on such "strategic" goods and services as electricity, water, public transportation (road and rail), telecommunications, cooking gas, petroleum products (excluding lubricants), drugs and medicines, school books, and portside activities (stevedoring etc). The Embassy has not yet investigated the procedures for enforcement of performance requirements. The government has not made any public statement concerning the maintenance, increase or decrease of performance requirements. Cameroon's laws do not require the disclosure of propriety information. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHEMENT The right of private ownership is broadly recognised but is limited in practice by the inefficiencies and deficiencies of the judiciary, inadequate definitions of property rights, and arbitrariness in GRC decision-making. In the recent past, the GRC found ways to persuade some foreign and domestic businesses to prepay taxes significantly in advance. Private publishing firms which compete with GRC-owned organs have been subjected to arbitrary GRC cost-increasing and revenue-decreasing measures as well as repeated human rights abuses against journalists and publishers. Searches and seizures of business as well as personal property are common as well as arbitrary closure of businesses ostensibly as a result of tax evasion. Foreign and domestic entrepreneurs compete under the same rules. Investors are further allowed to dispose of their property in whatever manner they may wish, including sale, transfers or physical repatriation of movable property. The Industrial Free Zone regime even authorizes private ownership of power plants, water supply facilities and autonomous telecommunications facilities (otherwise parastatal monopolies) on the sites of processing plants. PROTECTION OF PROPERTY RIGHTS Cameroon is a member of a 14-nation West African intellectual property organization, the Yaounde-based "Organisation Africaine de la Propri t Intellectuelle" (OAPI), which is a member of the World Intellectual Property Organization. Working closely with member states, OAPI offers protection for patents and trademarks. Cameroon is also a party to the Paris Convention on Industrial Property and the Universal Copyright Convention. Patents are available in Cameroon for all areas of technology with an initial ten-year validity. Renewal is required every five years against proof of use of the patent in at least one of the 14 member countries of the OAPI. Compulsory licensing is possible after three years in the absence of use. Due to the limited size of both high-tech production and the market for high-tech goods, patent enforcement in Cameroon does not appear to be of great concern to U. S. business. Trade mark protection is initially valid for 20 years with renewal possibilities every 10 years. Trade mark enforcement in the domestic market appears weak due in part to the small size of the market relative to the costs of enforcement. A GRC-licensed copyright company, SOCINADA, exists to offer protection for all types of publications, including music, books and periodicals, paintings, theatrical productions etc. SOCINADA cooperates with copyright protection agencies in other countries. REGULATORY SYSTEM: LAWS AND PROCEDURES Since it became dependent on external financing in the late 1980s, the GRC has been persuaded by donor conditionality to adopt measures to reduce some of the barriers to competition which pervaded Cameroon's. Several such measures have been included in the past three Structural Adjustment Programs (Cameroon is presently in its third program) and have contributed considerably in improving the country's regulatory environment. A new and more liberal labor code, passed in mid-1992, relaxes conditions for wage-setting, hiring and firing (the previous code made firings and layoffs very difficult, and set wages according to industry, region and formal education of the employee, regardless of labor and product market conditions). The new investment code itself lays the groundwork for a more competitive economy at the same time as the government continues with efforts to withdraw from the productive sector through liquidation and privatization of parastatals. Sectoral reform is taking place as well. The government's Coffee and Cocoa Marketing Board has been dismantled and replaced with a monitoring and coordination structure which also helps to provide international market price information to competing cooperatives and commodity export firms. A new and more liberal regulatory regime governing oil exploration and production is in place, and has stimulated a revival of offshore exploration. A recently enacted forestry code, lays the groundwork for a more rational exploitation of Cameroon's rich forest resources while taking into account concerns for ecology and conservation. Further reforms are expected in the telecommunications and other sectors of the economy. This improving regulatory environment is not perceived as producing all the desired results due to problems of inadequate enforcement. Considerable advantage can be reaped from on-going reforms, and implementation would be greatly improved, if the GRC decides to take the necessary measures to institute transparency and accountability in governance, to institute a free and independent judiciary, and to pursue the stalled democratization process. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENTS There are no liquid securities markets in Cameroon. Interest rates are set by the Central Bank (BEAC) which is controlled by the French government. Credit is rationed. Foreign investors are able to obtain credit on the local market, although few choose to do so. Cameroon's legal and regulatory systems are not transparent. There is no regulatory system in place to encourage portfolio investments. The total assets of the five largest Cameroonian banks stand at an estimated FCFA 453.2 billion as of June 30, 1993. This estimate has not been discounted for default risk. Banks are required to hold 10 percent of their assets in non-interest-bearing GRC bonds, and the industry is widely seen as inefficient. Banks lend to insufficiently creditworthy individuals and parastatals. As of late 1993, about 40 percent of the banking sector's assets were non-performing. Private firms are free to associate with any partner they choose and in whatever percentage participation they negotiate with such partners. They are also free to organize into industry associations, notwithstanding the association's goal of setting standards in its sector. Business practices which tend to restrict and/or phase out the control of foreign partners, are neither prescribed nor proscribed by the law. The Embassy is aware of two cases in which Cameroonian partners of foreign firms failed in their unorthodox take-over attempts. POLITICAL VIOLENCE Cameroon experienced a six-month-long civil disobedience campaign in 1991 which was widely supported and marked by violence against property and persons in economically important regions. The following year, political violence, followed by a State of Emergency which generated more violence, broke out after the 1992 presidential elections whose validity was questioned both by the Washington-based National Democratic Institute (NDI) and the European Community. No American investment was affected by these instances of violence. BILATERAL INVESTMENT AGREEMENTS According to its Ministry of External Relations, Cameroon has bilateral investment and/or commercial agreements with the following countries: Austria, Belgium, Canada, China, Denmark, France, Germany, Greece, Italy, Japan, Russia, South Korea, Spain, Switzerland, the United Kingdom, and the United States. Similar bilateral agreements also exist with many other countries in Africa, Asia, Latin America, and Eastern Europe. The bilateral investment agreement between Cameroon and the United States was ratified and entered into force in 1989. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS Since 1967 when the U. S. government signed an investment guarantee agreement with Cameroon, OPIC has been receptive to American firms seeking war, expropriation and inconvertibility insurance in Cameroon. Perceptions of political risk were, until 1991, very low. The Embassy is not aware of any OPIC insurance coverage extended to new American firms during the past two years. LABOR AVAILABILITY As a result of its relatively high literacy rate (65 percent), Cameroon offers a relatively well eductated labor force. There is a large surplus of both unskilled and non-technical labor. Due to inadequate mechanical and technical training, high-tech industries such as petroluem, computer science and electronics, find it difficult to satisfy labor needs locally. Cameroon's new labor code sets the stage for the development of new labor-management relationships. The code, enacted in 1992, restores collective bargaining and employee-employer primacy in the negotiation of wages; eliminates fixed zonal wage scales; abolishes employment by level of education; eliminates government control over layoffs and firings; reduces government involvement in the management of labor unions and generally sets the stage for the emergence of a flexible and efficient labor market in Cameroon. The real effects of the new code cannot yet be clearly determined as implementing regulations have not been issued by government and court decisions in labor cases since 1992 have been contradictory. FOREIGN TRADE ZONES/FREE PORTS There are no duty-free import zones in Cameroon. Duty-free imports are limited to equipment and material meant for the manufacturing of exports under the IFZ regime, and to equipment and materials meant for the execution of public contracts. CAPITAL OUTFLOW POLICY Cameroon does not encourage the export of capital. It does not have any policy on Cameroonian investments in foreign countries. However, anecdotal evidence suggests that most Cameroonian capital abroad is in European financial institutions and/or real estate. FOREIGN DIRECT INVESTMENT STATISTICS Nothing approaching a comprehensive list of foreign investments in Cameroon, with estimates of current values, is available either from the GRC or the Chamber of Commerce.