VII. INVESTMENT CLIMATE (A1) Openness to Foreign Investment ----------------------------------- The Government of Jamaica welcomes foreign investment and there are no policies or regulations reserving areas exclusively for Jamaicans. While foreigners are not excluded from participation in privatization/divestment activities, the government appears to favor sale of these assets to national investor(s). Each investment proposal is assessed on its own merit. However, investments in areas which may increase productive output, use domestic raw materials, earn or save foreign exchange, develop linkage industries, generate employment, or introduce new technology are greatly favored. The government's initiative in opening up the economy, increasing reliance on the private sector, divesting most of the government-owned enterprises, and offering an attractive package of incentives has generated increased capital investments over the last few years. Foreign investors are now encouraged to invest in almost any area of the economy except insurance, where the ownership is limited to 49 percent; however, the Government is currently considering the lifting of this limited ownership in the insurance sector. Telecommunications of Jamaica company, a subsidiary of the British firm Cable and Wireless, enjoys monopoly rights. The government has a debt/equity swap program under which government debt paper, purchased at a discounted rate, may be applied to local investment. Post is not aware of any economic or industrial strategy that has discriminatory effects on foreign-owned investments. The screening mechanisms are standard and nondiscriminatory. The main criterion for screening is creditworthiness of the company. Environmental impact assessments are required for new developments. All foreign investors are treated the same as domestic investors before and after the investment is made. Businesses operating in Jamaica, both local and foreign, are required to adhere to a regulatory framework to promote better quality goods, practices and processes. There are no constraints involving foreign investment with regard to acquisitions and mergers except where there will not be an expansion of capacity. The sole exception is the insurance industry. Where negotiations, mergers and takeovers are concerned, the Companies Act and rule of the Jamaica Stock Exchange (if entity is listed) would apply. A new Securities Act was passed in March 1993. Generally, investors are required to establish a local company or register a branch office of a foreign-owned enterprise under the Jamaica Companies Act. However, for those seeking incentives, applications have to be made to JAMPRO, the main Jamaican government agency responsible for promoting and processing investment proposals. (A2) Conversion and Transfer Policies -------------------------------------- The legislation regulating exchange control, the Exchange Control Act 1954, was repealed in July 1992. Since that event, there are no restrictions on transferring funds associated with an investment. However, dealings such as buying and selling of foreign currency must be done only through an authorized dealer. Although foreign exchange is freely available under the new, liberalized regime, there is generally a waiting period of two to six weeks depending upon the sum demanded, as demand usually exceeds the availability of foreign exchange. However, some of the U.S. companies recently surveyed indicated that since the recent increase in number of cambios, the sourcing of foreign exchange has noticeably improved and has facilitated the accessing of funds within a week. During the tourist winter season (from December to April) the inflow of foreign exchange -- and hence its availability -- is generally greater than during the rest of the year. There is no limitation on the inflow or outflow of funds for any transaction including remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs. Although the exchange rate has remained fairly stable over the last few months, the supply of foreign exchange is still below market demand. Hence, further devaluation of the currency cannot be ruled out. (A3) Expropriation and Compensation ------------------------------------ Property rights are protected under Section 18 of the Jamaican Constitution, which allows no expropriation except for public purpose. The law states that the purpose of any expropriation must be transparent and requires that principles be established regarding compensation for any expropriated property. Where private negotiation fails, the investor has recourse to the courts to establish his right to the property and to determine the amount of compensation. The Embassy is not aware of any serious litigation between the government and a private individual/company on expropriation or on compensation. (A4) Dispute Settlement ------------------------ The Embassy is not aware of any major investment dispute handled by the government since 1990. Disputes between two enterprises are generally dealt with in local courts. Arbitration of investment disputes between Jamaica and nonresident investors may be referred to the International Center for Settlement of Investment Disputes, of which Jamaica is a member. Its award is enforceable in the Supreme Court of Jamaica. (A5) Performance Requirements/Incentives ----------------------------------------- There are no specific performance requirements imposed as a condition for investing in Jamaica. However, investments bringing in foreign exchange and expanding employment are favorably considered in granting incentives. The Government of Jamaica offers a wide variety of fiscal and nonfiscal incentives to attract investments which have the potential to develop industry, save/earn foreign exchange, and provide employment. The principal fiscal incentive instruments currently in operation follow: (a) The Export Industry Encouragement Act (EIEA): An approved company that manufactures products exclusively for export to countries other than the Caribbean Common Market is entitled to benefits which include exemption from income and dividends taxes for up to ten years and exemption from import duties on raw material and machinery during the incentive period. Since 1990, service industries have also been included for incentives. (b) The Hotel Incentives Act (HIA): The owner, tenant, or operator of an approved hotel enterprise is entitled to relief from income and dividend tax for a period of up to 10 years. The owner may also benefit from a duty exemption on imports for constructing or expanding hotels. To be eligible for benefits, hotels must have at least ten rooms as well as facilities for other activities. Relief from income tax for 15 years is granted for approved hotels with 10 - 350 bedrooms, facilities for holding conferences, and those operated by a qualified general manager and which maintain adequate security, among other requirements. (d) The Resort Cottages Incentives Act (RCIA): This act allows for income and dividends tax relief and duty-free importation of articles required for the construction and equiping of resort cottages for a period of up to 7 years. (e) The Motion Picture Industry Encouragement Law: An approved motion picture producer benefits from duty relief on imported goods and equipment for use in motion picture production and income tax exemption from the date of the first release or exhibition of each motion picture produced in Jamaica for a period of 9 years. The incentives are granted for six-month intervals and are renewable. In addition, a producer is granted an investment tax deduction of 70 percent of the capital expenditure incurred in acquiring facilities either in the year in which the cost is incurred or in any subsequent year at the option of the producer. (f) Approved farmer status under the Income Tax Act: Any certified person or company engaged in growing food or seed crops, trees for timber, tobacco, horticulture, fish farming, and animal husbandry is eligible for income tax relief for a period up to 10 years; this is renewable. Approved farmers are granted a reduced duty rate of 20 percent on farm vehicles and concessionary duty rates on tractors. (g) The Factory Construction Law: Companies which construct factories and lease them to approved manufacturers operating under the EIEA may be provided relief from import duties (for items that are not locally available) and income tax on income from factory leasing or gains made on sales. (g) The International Finance Company Act: To be eligible for benefits under the Act, the finance company should be a corporate entity carrying on business only with foreigners. It may deal with Jamaican residents only in relation to domestic operations, and at least 95 percent of loan capital must be held by nonresidents. Profits made by an approved corporate body are taxed at a rate of only 2.5 percent. (h) Venture Capital: Investment activities including loan financing in new or developing enterprises (with a high risk element) that benefit the economic development of Jamaica are subject to special tax treatment. (i) The Shipping Incentives Act: Under this act, approved shipping corporations are granted import duty and income tax concessions for a period of ten years. (j) The Foreign Sales Corporation Act: This act provides exemption from income tax for qualified income arising from foreign trade transactions. This Jamaican incentive is reinforced by U.S. law in that it is one of the benefits provided under the Tax Information Exchange Agreement which the United States has signed with Jamaica. American companies seeking to protect some of their export income from U.S. taxes may consider forming a Foreign Sales Corporation (FSC) outside the U.S. customs zone. An FSC is a foreign corporation that is allowed to earn some exempt and nontaxable income on its exports from the United States. (k) The Industry Modernization Program: This program was instituted to assist some manufacturing firms to adopt productivity-oriented techniques. It provides exemptions from general consumption duty for capital goods acquired in relation to the modernization program. (l) Moratorium on Duties: The Minister of Finance may award a period of moratorium on the payment of import duties on capital items for a period of up to three years. (m) Nonfiscal Incentives: Several organizations have been established in Jamaica to assist the process of industrial development. The National Development Bank, the Agricultural Credit Bank, and the National Export-Import Bank provide different types of concessionary financing to investment projects. Investment projects engaged in exports are greatly favored in terms of loan financing. As a growth incentive, the government recently announced a USD 5.5 million program (involving a USD 4.4 million loan from the World Bank) to assist exporters. Apart from the World Bank program, the government has launched a special interest rebate program valued at jdols 100 million, which will be administered by the development banks to assist farmers having a total acreage of less than 25 acres and nonfarmers having less than 35 employees. (A6) Right to Private Ownership and Establishment -------------------------------------------------- Both foreign and domestic private entities have the right to establish and own business enterprises and to engage in all forms of remunerative activity. Private entities are free to establish, acquire and dispose of interest in business enterprises. All companies are required to register with the Registrar of Companies. Public and private enterprises have equal access to markets, credit, and other business operations, such as licenses and supplies. (A7) Protection of Property Rights ---------------------------------- Jamaica is a member of the World Intellectual Property Organization (WIPO) and respects intellectual property rights. The constitution guarantees property rights and has laws to protect and facilitate acquisition and disposition of all property rights, including intellectual property. Jamaica and the United States signed an Intellectual Property Rights Agreement in March, 1994. Patents: Patent laws in Jamaica are based on old English laws (1857 Act). There are plans to modernize the patents legislation. However, under the present regulations, patents are available for all areas of technology for a duration of 14 years and can be further extended by seven years. The periods of examination are generally long and it can take years for a patent to be issued. Copyrights: The Senate passed a new copyright act in February 1993 which came into force September 1, 1993. The new Act adheres to the principles of the Bern Convention and covers a wide range of works, including books, music, broadcasts, computer programs, and databases. Trademarks: Protection under trademarks law is granted to distinctive marks. Users are required to register with the Registrar of Companies in Jamaica. Trademark rights are initially granted for seven years and may be renewed from time to time for an extended period of 14 years. Trade Secrets/Semiconductor Chip Layout Design: There is no statute with regard to trade secrets or semiconductor chip layout design. Jamaica follows common law principles as established in the U.K. Breaches of such laws may be dealt with either by court order or through filing damages. (A8) Regulatory System: Laws and Procedures -------------------------------------------- In order to foster competition, Jamaica's Parliament passed the Fair Competition Act in September 1993. It deals with consumer protection, misleading advertisements, price-fixing, collusion, unfair trading practices, and interlocking directorships. There are tax, labor, health and safety, and other laws and policies to avoid distortions or impediments to the efficient mobilization and allocation of investment. (A9) Efficient Capital Markets and Portfolio Investment -------------------------------------------------------- There is no restriction on the free flow of financial resources to support product and input markets. However, over the last two years the government has used the tight monetary measures of increasing liquid asset and cash reserve ratios (total of 50 percent) and issues of certificates of deposits and treasury bills (interests as high as 48 percent recently) in order to reduce the demand for foreign exchange. Credit is generally allocated on market terms with equal access to both local and foreign companies. However, high rates of interest, ranging between 45-70 percent, limit borrowing. The House of Representatives passed several important pieces of financial legislation during 1992: the new Bank of Jamaica Act, the Banking Act, and the Financial Institution Act (replaces Protection of Depositors Act). Jamaica is a member of the Basel Group of Supervisory Authority, as well as the Latin American and Caribbean Supervisory Institution. There is an effective regulatory system which governs the conduct of brokers and companies. The Securities Act was passed and implemented in 1993 to legalize the overall regulation of securities. All foreign companies other than Caricom are required to be incorporated in Caricom and registered in Jamaica in order to enter the Jamaican Stock Exchange market. However, to be consistent with the exchange control liberalization, the Jamaica Stock Exchange is contemplating opening up to all foreign companies with only a registration requirement. Total assets of the country's five largest banks (National Commercial Bank, Bank of Nova Scotia, Mutual Security Bank, Citizens Bank, and Century National Bank) amounted to jdols 58.1 billion (about usd 2.3 billion) in December 1993. The banking system is sound. According to the Bank of Jamaica, about two percent of the total asset base is estimated as nonperforming. (A10) Investment Data: ------------------------ (A) Political Violence: There have been no recent incidents involving politically-motivated damage to projects and/or installations. Any civil disturbances which might damage foreign investment would be caused by general economic unrest, and would not be politically motivated, i.e., directed against foreign investment. (B) Bilateral Investment Agreements: Jamaica has treaties with eight countries - the United States (Feb. 1994), Argentina (Feb 1994), France (Jan 1993), Italy (Sep 1993), Germany (Sep. 1992), Netherlands (Apr. 1991), Switzerland (Dec. 1990), and the United Kingdom (Jan. 1987), and is presently in negotiations with three other nations - China, Republic of Korea, and Mexico. (C) OPIC and other investment insurance Programs: OPIC has insured a variety of manufacturing, services, and hospitality industry projects in Jamaica. OPIC insurance of investment projects is subject to a USD 50 million cap. OPIC insurance of Section 936-funded projects is subject to a USD 20 million cap. As of December 1993, 13 projects (telecommunications, metal and related products, tourism, low-income housing, food, and other services) with 936 funding of USD 278.8 million were being implemented in Jamaica. (D) Labor: Jamaica's labor force in 1993 was estimated at 1,083,000, of which 16.3 percent were unemployed. Jamaica's unemployment is heavily concentrated among youth and women. Labor is generally available at relatively low cost. However, there is a shortage of technically-skilled labor. Although the general education system (including vocational education) has improved local job placements in most sectors, top managers are almost exclusively educated overseas. Jamaica has an active trade union movement with membership of an estimated 15-20 percent of the employed workforce. The Government of Jamaica adheres to ILO conventions, which protect workers' rights and encourage the private sector to follow suit. The government recently announced an increase in the minimum wage from jdol 300 to jdols 500, effective July 1994. The government also raised the income tax threshold from jdols 18,408 to jdols 22,464, effective January 1994. It will be raised to jdols 35,568 effective January 1995. Wages and salaries have not kept up with increases in inflation (30.1 percent in 1993) and high interest rates, which has resulted in increased strikes and work stoppages. The availability of low-cost, semi-skilled labor has tended to attract lower-technology firms such as garment assembly and keypunch/data entry operations. Proximity to the United States and an English-speaking labor force are perceived as advantages by investors. (E) Free Trade Zones/Warehouses: Jamaica is a member of the Export Processing Zone Association (EPZA). Under the Jamaican Free Zones Act, investors are allowed to operate solely with foreign exchange in certain activities such as warehousing and storing, manufacturing, redistribution, processing, refining, assembling, packaging, and service operations such as insurance, banking, and professional services. Incentives offered include a 100-percent tax holiday in perpetuity, no import licensing requirements, and exemption from customs duties on capital goods, raw materials, construction materials, and office equipment. Free zone companies that wish to sell a part of their production on the local market are required to send their request through the Free Zone Administration for approval. (F) Capital Outflow Policy: The Exchange Control Act (amended in September 1991) contains no restrictions pertaining to capital outflow policy. The present policy does not include particular measures designed to encourage outward investment by Jamaican residents. However, financial service agencies have opened branches/subsidiaries in the Caribbean region and some developed countries with large ethnic Jamaican populations with a view to earning foreign exchange. Financial institutions, insurance companies, etc., have to obtain prior approval from either the Bank of Jamaica or the Superintendent of Insurance before diversifying their investments overseas. (G) Foreign Direct Investment Statistics: According to JAMPRO (the Jamaica Promotions Corporation), foreign direct investment for the period January 1992 - February 1994 amounted to USD 36 million. Of the total foreign capital investments assisted by JAMPRO, 41.7 percent was in films, 3 percent in agriculture, 28.8 percent in the textiles and garment industry, information processing 14.2 percent, tourism 7.6 percent, services and contracts 3.5 percent, minerals and chemicals 3 percent, and manufacturing 1.1 percent. According to Department of Commerce, Bureau of Economic Analysis surveys, the US direct investment position abroad (historical cost basis) in 1993 was USD 1,077 million, up from USD 892 million in 1992, USD 763 million in 1991, and USD 625 million in 1990. The following table provides data on the approximate value of major foreign investment by country of origin promoted by JAMPRO during the period CY 1991 - 1993: COUNTRY Year Capital Investment -------------- ------ ---------------------- USD Millions Spain 1993 0.07 Switzerland 1992 0.91 U.K. 1991 0.11 1992 0.32 1993 0.31 U.S. 1991 8.99 1992 14.34 1993 9.70 Korea 1993 5.57 Canada 1993 0.38 Germany 1993 0.76 China 1993 0.80 Jamaica has a record of partnership with various foreign investors in the development of a wide range of productive industries. Some of these are: COMPANY NAME OWNERSHIP SECTOR Air Canada Canada Transportation ALPART US/Norway Bauxite mining Aluminium Co. of America US/GOJ Bauxite mining Aluminium Co. of Canada Canada Bauxite mining American Airlines US Transportation American Life Ins. Co. US Insurance Americana US Tourism Addis UK Manufacturing Arnold Otto Mayer Germany Manufacturing Berec UK Manufacturing Berger UK Manufacturing Bike Athletic US Apparel Bush, Boake, Allen UK Manufacturing Burger King US Food British Insulated UK Manufacturing Bank of Nova Scotia Canada Banking Beecham Products UK Manufacturing British Airways UK Transportation British West Indies Airline Trinidad Transportation Cable & wireless UK Communications Carreras UK Manufacturing Canadian Imperial Bank of Commerce Canada Banking CITIBANK US Banking Coates Bros. UK Manufacturing Colgate Palmolive US Manufacturing Coopers & Lybrand US Consultancy Daemyoung S. Korea Apparel Diversey-Wyandotte US Manufacturing Econ Industries US Manufacturing Esso Standard Oil US Petroleum Evergreen Line Taiwan Shipping Goodyear US Manufacturing Heinemann Publishers UK Publishing Henkel Germany Chemicals Hofman & Leavy US Apparel Holiday Inn US Tourism International Computers Ltd UK Computers International Bus. Machine US Computers Int'l Telephone & Telegraph US Communications Johnson & Johnson US Manufacturing Kajima Corp Japan Construction Kaiser US Bauxite mining Kier International UK Construction Kentucky Fried Chicken US Food Liquid Carbonics Corp US Manufacturing Lipton UK Beverages Landell Mills UK Consultancy McCann-Erickson US Advertising Mead-Johnson US Manufacturing Metal Box UK Manufacturing National Employers Mutual UK Insurance Neal & Massey Trinidad Manufacturing Norsk Hydro Norway Bauxite Mining Ononda Engineering Japan Construction Peat, Marwick, Mitchell US Consultancy Price Waterhouse US Consultancy Proctor & Gamble US Manufacturing Reckitt & Coleman UK Manufacturing Sea Land Services US Shipping Sherwin Williams US Manufacturing Shell UK Petroleum Texaco US Petroleum 3-M Inter-Americas US Manufacturing Touche, Ross US Consultancy Trust House Forte UK Tourism Wyndham Hotels & Resorts US Tourism Woolworths UK Retailers Xerox Corp. US Computers