VII. INVESTMENT CLIMATE 1. Introduction C te d'Ivoire encourages foreign investment in Ivorian markets and the Ivorian Investment Code approved in June 1985 is the relevant legislation covering fiscal and tax incentives. The Code is aimed at helping small and medium-sized firms; "priority status" is given to investments of "economic interest" to C te d'Ivoire. There are special provisions pertaining to foreign investors in the Code, as well as incentives to establish new factories, aside from the general regime applicable to local investors. The government prefers, but does not actively promote, investment in areas outside of Abidjan since rural employment, particularly in agribusiness, light industry and low income housing are government priorities. Several Washington, D.C. based organizations exist to help U.S. investors enter the Ivorian market and they are listed in Section 13 below. 2. Openness to Foreign Investment General government policy is very hospitable toward foreign investment. For all practical purposes, there are no significant limits on foreign investment -- or difference in the treatment of foreign and national investors -- either in terms of levels of foreign ownership or sector of investment. There are no local content requirements or export performance requirements of significance. Among foreigners, French investors have an advantage arising from language and business culture and from the prevalence of technical standards and legal codes borrowed from France. All investments from outside the Franc Zone must be approved by the external finance and credit office of the Ministry of Economy and Finance, but this is essentially a foreign exchange control/monitoring measure. For limited partnerships, one or more shareholders must be resident in C te d'Ivoire. Though regulations exist to control land speculation by foreigners, foreigners in fact own significant amounts of land in C te d'Ivoire. Investors may opt among a foreign investment regime, a new factory regime, or the general regime applicable to local investors. Most select one of the latter two, finding the customs exemptions on capital equipment, income tax holidays, and VAT exemptions more beneficial. For most purposes, therefore, "national treatment" prevails. In cases of future privatizations, shares may be reserved for Ivorian investors. 3. Conversion and Transfer Policies C te d'Ivoire is a member of the CFA Franc Zone, which means that the convertibility of the CFA franc is guaranteed by the French Treasury. From 1948 until January 1994, the exchange rate was fixed at 50 CFA francs for one French franc; the rate is now 100 CFA francs for one French franc. Remittances within the Franc Zone are freely permitted; otherwise, prior permission is required from the Ministry of Finance via the BCEAO. For investments coming into the zone from outside, prior permission is required and routinely granted. Once an investment is established and documented, remittances of dividends or repatriation of capital must also be approved, and routinely are. The same holds true, in general, for requests for other sorts of routine transactions -- e.g., imports, license and royalty fees, etc. Occasionally, delays arise as a result of liquidity shortfalls in the banking system. 4. Expropriation and Compensation C te d'Ivoire has a general purpose public expropriation law, with built-in compensation provisions, similar to that in the United States. The embassy is not aware of any specific case of expropriation of private property by the government; there is, however, a contract dispute involving losses suffered by an American firm as the result of a change in commodity prices. The government has tacitly accepted that it has an obligation toward the American firm, and discussion of a settlement continues. 5. Dispute Settlement Enforcement of contract rights can be a time consuming and expensive process. Not all cases are decided quickly, and some do not appear to be judged on their legal or contractual merits. This has led to a widely-held view within the business community that there are elements within the judiciary which can be corrupted. Subject to the vagaries of the legal enforcement system, property rights do exist and are respected. Enforcement of real property, however, can be complicated by the clash between the traditional property rights of a village or ethnic group and the more modern system of long-term leaseholds (freehold tenure is generally not granted to private individuals or entities). There is no specific Ivorian legislation providing for arbitration for investment disputes, though the use of arbitration provisions was upheld in a 1989 Supreme Court decision. C te d'Ivoire is a member of the International Center for the Settlement of Investment Disputes (ICSID). 6. Performance Requirements/Incentives There are no general performance requirements or incentives applied to investments, though benefits accorded to an investor under one of the three investment regimes may vary depending on the nature of the investment made, and preferences may be granted to investors seeking to establish themselves outside of Abidjan. Should a company seek designation as a priority enterprise eligible for the tax and other benefits provided in the investment code, Ivorian participation becomes negotiable and the firm may be required to purchase Ivorian products. Designation as a priority enterprise is available to investors in agriculture, livestock and fishing, storage and treatment of agricultural and food products, low-cost housing construction, extractive industries, power production, and manufacturing and assembly. 7. Right to Private Ownership and Establishment Generally speaking, foreign investors have access to all forms of remunerative activity on terms equal to those granted private Ivorians. Foreign investment in privatization of parastatal firms is encouraged, though there are plans to reserve shares for Ivorian citizens in certain key sectors. The government procurement code favors Ivorian firms, however. 8. Protection of Property Rights The acquisition and disposition of property rights, including intellectual property, is covered by the Ivorian Civil Code. C te d'Ivoire is a party to the Paris Convention, its 1958 revision, and the 1977 Bangui agreement grouping thirteen Francophone African countries in the African Intellectual Property Organization (OAPI). In OAPI, rights registered in one member country are valid in all. Patent validity is ten years, with two five year extensions possible. Trademarks are valid for ten years and are renewable indefinitely. Literary copyrights are protected for fifty years following the author's death (or posthumous publication). Other intellectual property rights are valid for five years with various renewal periods; we are not, however, aware of domestic legislation specifically covering semiconductor chip layout design. Though in theory prohibited, counterfeit clothing, textiles, footwear, watches, and audio and video tapes can be found, particularly among street vendors. 9. Regulatory System: Laws and Procedures Both the current and former Ivorian governments have taken a number of steps to encourage a more transparent and competitive economic environment. Nevertheless, much remains to be done. Corruption is widely assumed to exist in all branches of government, and -- despite considerable progress - - the marketing of the country's key export crops and imported cereals remains subject to control by vested interests. Tax and duty rates have been significantly lowered, yet they remain, on balance, high as the government seeks to earn revenues with which to clear its large arrears; until those rates come down further, they will continue to distort the allocation of resources and encourage corruption. Bureaucratic procedures have also been simplified in a number of cases, but they remain cumbersome. The government has shown a laudable interest in streamlining the regulatory system, and its programs with the IMF and World Bank address most of the problems identified above. Among objectives that have been set by the government are: a lowering of tax and duty rates along with a broadening of the tax base; the drafting of new investment, labor, and mining codes; establishment of a one-stop investment registration bureau; and audits of a number of parastatal entities. If these plans are pursued with vigor, the regulatory environment will probably improve significantly. 10. Efficient Capital Markets and Portfolio Investment There are no formal limits on access by foreigners to the local credit market. Despite high real interest rates, access to credit was for years difficult due to a lack of liquidity in the banking system -- the result of the banks' large stock of non-performing loans and of investors' reluctance to hold CFA francs while rumors of a devaluation circulated. As of the end of 1992, total assets of the commercial banking system amounted to approximately $6 billion, of which about three quarters were held by the four largest banks. After the January 1994 devaluation, money returned to the banking system -- attracted by high interest rates -- leaving banks awash in liquidity. Rates, however, have been kept high by the Central Bank in order to keep the lid on inflation in the wake of the devaluation. Much of the overall weakness of the banking sector is linked to the large arrears of the central government and parastatal organizations; the World Bank has therefore made the recapitalization of the banks and the payment of government arrears conditions of its structural adjustment lending program. Commercial lenders tend to lend against collateral, not prospective income and cash flow; the efficient allocation of credit suffers as a result. Abidjan boasts a stock market, but turnover and market capitalization are negligible. 11. Political Violence There have been a few incidents of civil disturbances over the past several years, but they have generally taken place in the context of the newly introduced system of multiparty democracy or of student demands for better conditions and more financial support. One exception was a brief mutiny by the Presidential guard over pay and benefits issues; the situation was quickly resolved by the President. Another exception, and the most severe incident, involved a soccer match against a Ghanaian team. Notably, the fifty percent devaluation of the CFA franc was not accompanied by disturbances, despite the government's decision to hold average wage increases to only 10 percent. As the 1995 elections approach, there is some possibility of further disturbances, but violence has not characterized Ivorian political life in the past and is not expected to do so in the foreseeable future. When there have been incidents, private investment has not been targeted by those involved. 12. Bilateral Investment Agreements There are no formal investment treaties in force. The U.S. has neither investment nor tax treaties but does have an OPIC agreement in force. C te d'Ivoire has double taxation treaties (based on the OECD model treaty) in force with France, Belgium, Germany, Great Britain, Norway, Canada, Italy, and in Africa with Benin, Burkina Faso, Congo, the Central African Republic, Gabon, Mauritius, Mali, Mauritania, Niger, Rwanda, Senegal and Togo. These treaties relate to both personal and corporate income taxes. 13. OPIC and Other Investment Insurance Programs OPIC insures a number of U.S. investments in C te d'Ivoire and became part owner of a hotel that had gone bankrupt. OPIC sent an Investment Mission to C te d'Ivoire in 1991, and is involved in a gold mine which began production in 1992. Nevertheless, its exposure is relatively small. In addition to OPIC, the African Project Development Facility (APDF) and the African Investment Program of the International Finance Corporation and the Africa Growth Fund are sources of information for interested investors. C te d'Ivoire signed, in 1993, the convention to join the Multilateral Investment Guarantee Agency (MIGA), but implementing arrangements still need to be completed. 14. Labor The government has traditionally encouraged the hiring of Ivorian nationals, or "Ivorianization," and used to require that new jobs be filled through the Office of Manpower in the Ministry of Labor. In 1992 and 1993, this office was stripped of some of its authority and then abolished and replaced with an entity which, in theory anyway, could no longer impose candidates. "Ivorianization" remains a priority, however, and work permits for expatriates from outside of the franc zone are hard to obtain. The Ivorian labor market is segmented. Unskilled and day labor is readily available, while clerical, technical, managerial, and professional talent is more difficult to find. Labor laws are relatively generous to employees, and separating employees for cause can be difficult. Wage rates are relatively high by regional standards, but costs of capital goods, transport, and energy are also high by world standards; it is, therefore, not obvious that high labor cost provokes overspending on labor-saving technology. Relations with the ILO were complicated by a complaint brought before the ILO governing board involving a group seeking to become a recognized trade federation. Trade unions, and union activity, are legal. 15. Foreign Trade Zones/Free Ports Bonded warehouses exist, and bonded zones within factories are allowed. High port costs and maritime freight rates have inhibited the development of in-bond manufacturing or processing, and there are consequently no foreign trade zones. Bonded warehouses serve mostly for transhipment of goods to Mali and Burkina Faso. 16. Capital Outflow Policy Capital may be freely transferred within the Franc Zone, including to France. Transfer of capital outside of the zone requires prior approval, which is routinely granted to foreigners with registered investments in C te d'Ivoire. Banknotes may not be transported outside of the zone, and the Central Bank announced in late 1993 that it would no longer repurchase banknotes presented to it by other central banks. 17. Foreign Direct Investment Statistics Direct foreign investment (DFI), traditionally an important part of the Ivorian economy, grew from 1988 through 1990 despite continued recession, according to official statistics. France continues to be the most important foreign investor, owning well over half of the total stock of DFI. More recent data is not available. Total Stock of DFI (US$-millions) Country 1988 (pct) 1989 (pct) 1990(pct) France 378 (57) 415 (57) 450 (58) Great Britain 66 (10) 69 (9) 69 (9) Switzerland 29 (4) 29 (4) 42 (5) Lebanon/Syria 38 (6) 40 (5) 35 (5) United States 33 (5) 40 (5) 33 (4) Benelux 22 (3) 28 (4) 23 (3) Italy 15 (2) 18 (2) 22 (3) Fed.Rep.Germany 17 (3) 20 (3) 14 (2) Canada 1 - 6 (1) 6 (1) Japan 6 (1) 7 (1) 4 - Israel 4 (1) 4 (1) 4 - Other - Europe 13 (2) 17 (2) 17 (2) Other - Africa 25 (4) 23 (3) 22 (3) Other/undeterm. 18 (3) 18 (2) 39 (4) Total 665 735 782 Source: Financial Database, National Statistics Institute, C te d'Ivoire. Flow data on foreign direct investment, disaggregated by country, are not available. Statistics are not kept on Ivorian direct investment abroad. The total stock of DFI represents approximately eight percent of GDP. Net DFI inflows reported for balance of payments purposes (approximately 0.5 percent of GDP) are not considered to be adequately disaggregated from portfolio capital flows for purposes of accurately tracking trends in direct investment. 18. Major Foreign Investors The biggest U.S. investments in 1988, for which statistics are given above, were in the petroleum sector (Phillips Petroleum and ESSO); both have completed the process of disinvestment. A group led by United Meridien has since invested approximately US$ 30 million and will invest substantially more over the coming year to develop offshore gas and oil fields. An American-controlled Canadian firm (Marshall Minerals/Eden Roc) has invested substantially (est. over US$ 10 million) in gold mining and is expected to increase that investment several fold. The largest U.S. financial services investor -- American International Assurance -- has also departed. Important French investors include the major French banks, Total and Elf (petroleum distribution), Delmas (shipping), SGB (agriculture-bananas), and Saur/Bouygues (public utilities and construction). Values of Ivorian subsidiaries or operations of foreign investors generally are not publicly available. British investment is largely in commerce, while Swiss investment is concentrated in banking and food processing.