VII. Investment Climate Country investment policies and practices Openness to Foreign Investment The GRM encourages foreign investment to boost the economy and treats domestic and foreign direct investment equally. The march 1994 agreement between the IMF/World Bank and Mali encourages the mobilization of external resources to boost investment. In the framework of past and ongoing structural adjustment programs, the investment, Mining, commerce and labor codes encourage investment and seek to attract foreign investors in particular. Following the cfa franc devaluation in January 1994, the GRM adopted measures that, inter alia, encourage direct investment to start domestic industries, offer incentives for export activities, and guarantee the repatriation of capital and profit. Foreign investment can be done by starting a new business owned 100 percent by the foreign investor or by buying shares in parastatal companies being privatized or in other local companies. Foreign companies may also start joint-venture operations with Malian enterprises. Foreign investors go through the same screening process as domestic investors. All investors should go through the "Guichet Unique" (single-window procedure) in order to have a business application processed. Criteria for granting authorization under the investment code include economic (level of capital invested, value-added tax, number of jobs created, etc.) and environmental. The Malian public has had a tendency to associate American companies with structural economic reform programs - misunderstood and disliked by some - of the IMF, the World Bank and other donors. In March 1991, during pro-democracy demonstrations, the World Bank and a U.S. company's offices were sacked. Some rioters had believed that the company had close ties with the former regime they were seeking to overthrow. Some foreign investors in Mali believe that tax agents are more likely to interpret the tax laws, which remain complicated in spite of ongoing efforts to improve the Tax system, in a discriminatory way against foreign companies or companies with foreign capital. The investment code gives the same incentives to both domestic and foreign companies for approvals, procurement, tax and customs duty deferrals, and Export and import policies, and export zone status if all production is to be exported. Export taxes and import duties and price controls have been reduced or eliminated as part of ongoing economic reforms. Conversion and Transfer Policies The investment code allows the transfer of funds associated with investments, including profits. Mali belongs to the Economic and Monetary Union of West Africa (UEMOA), a monetary zone linked to the French franc. The cfa is fully convertible at a rate of cfa franc 100 = French franc 1. No parallel conversion market exists because the cfa franc is a fully convertible currency supported by the french treasury which insures a fixed rate of exchange with the french franc, and monetary policy is conservative enough to maintain reasonable currency stability. There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, etc. Central bank rules require that all remittances go through its channels, with supporting commercial documents required. Exceptions are occasionally made, as in one case where the government allowed a foreign mining company the possibility to have an offshore bank account. Also cpa franc banknotes can no longer be exchanged outside of the west African franc zone. It takes less than a week, usually 3 working days, to remit funds abroad. Several foreign companies interviewed noted that they had encountered no problems in processing remittances. The U.S. Embassy purchases local currency at a current rate of approximately cfa franc 550 per one U.S. dollar. The rate fluctuates depending on the relationship of the French franc with other hard currencies. The U.S. mission obtains currency through the regional administrative management center in Paris and a local bank. The cfa franc was devalued in January 1994 and another devaluation in the next few years is unlikely. The possibility of depreciation will depend on the strength of the U.S. Dollar relative to the French franc. Expropriation and Compensation Expropriation of private property for public purposes is very rare. When it occurs it is done according to Malian law which is in accord with established principles in international law. The expropriation process is public and transparent and compensation is awarded based on a court decision. The government may expropriate property for public projects (major road or dam construction), or in cases of bankrupt companies that have had a government guarantee for their financing, or in certain cases when a company has not complied with the requirements of an investment agreement with the government. The only known expropriation against a foreign company occurred in the early sixties. Recently, an American company which had submitted a bid on a government tender had its deposit confiscated because it failed to comply with certain agreed terms. During the eighties the government embarked on economic reforms and structural adjustment programs supported by bilateral donors, the World Bank and the IMF, which emphasized creating an environment for private sector-led growth financed by both national and foreign investors. Mali is a state based on the rule of law. The constitution of 1992 guarantees an independent judiciary, largely eliminating the risk of "creeping expropriation". Dispute Settlement: There have been disputes over operations of certain foreign companies. Although some cases involved wrongdoing on the part of companies, administration officials have also engaged in corruption. For example a foreign firm was accused in 1987 by the government of allegedly evading U.S. dollars 1.8 million in taxes. Apparently some tax officials fabricated the charges to benefit a national group of flour importers, the main competitors to the foreign company. The government threatened to shut down the company but did not do so. Another case involved a foreign multinational accused of illegally exporting gold. The company's aircraft was grounded for a day by the then Minister of Finance. The plane was released after both parties agreed to settle the case out of court. The court system has generally been fair and objective. In November 1991, an independent commercial court was established to expedite the handling of business litigation with the active assistance of the U.S. Government. Since its inception, the commercial court has handled many cases involving foreign companies. It is staffed by professional magistrates assisted by elected Malian Chamber of Commerce and Industry representatives. Hearings are conducted by teams composed of one magistrate and two chamber of commerce and industry representatives. The magistrate's role is to ensure that decisions are rendered in accordance with applicable commercial laws, including internationally recognized bankruptcy laws, and that the court decision would be enforceable under the law. The investment code allows a foreign company that has signed an agreement with the government to refer to international arbitration any case which the local courts are unable to resolve. Performance Requirements/Incentives. Incentives exist in the investment code for a company which reinvests its profits to expand its business. The use of local sources of inputs is also encouraged. Local value added is one criteria used for approving investment projects and in calculating a tax exemption period. There is no requirement that a Malian own shares in a foreign investment or that foreign equity be reduced over time. In the case of joint ventures with the government, the government share may not exceed 20 percent ownership. Because most businesses are located in the capital city, the investment code encourages new businesses to locate in other areas, using incentives which may include income tax exemptions for 5-8 years, supply of energy at a reduced cost, or facilitating the establishment of electric power lines to an area lacking energy. The government has identified priority sectors for furthering economic development. Special incentives are offered investment in the following areas: --agribusiness --fishing and fish processing --livestock and forestry --mining and metallurgical industries --water and energy production industries --tourism and hotel industries --communication --housing development --transportation --human and animal health promotion enterprises --vocational and technical training enterprises --cultural promotion enterprises The employment of Malians is a criteria used for qualifying for tax exemptions and other incentives. The hiring of young graduates results automatically in a decrease in the rate of social security taxes paid by the employer. Right to Private Ownership and Establishment: Any domestic or foreign investor, on an equal basis, has the right to private ownership and establishment as long as the investor goes through the approval process and abides by relevant regulations. The government's policy is to let the free market determine prices. Fair competition is the standard applied to domestic or foreign companies in competition with public enterprises. The government is liquidating or privatizing many public enterprises, creating opportunities for private firms, domestic or foreign, to acquire those entities through open international bidding. Protection of Property Rights: Property rights are protected and the "Direction Nationale des Industries" through its "Division Protection de la Propriete Intellectuelle" is the government agency which implements the legal system of protection. This division works with international agencies recognized by UNIDO which are concerned with these issues. Patents, copyrights, trademarks, etc. Are covered. Regulatory System: Laws and Procedures Reflected in agreements with the IMF and World Bank, the government of Mali has adopted a transparent policy and effective laws to foster competition. The commerce and labor codes adopted in 1992 are designed to meet the requirements of fair competition, to ease bureaucratic procedures, and facilitate the hiring and firing of employees. The new investment code shortens the application process to establish a business (maximum 30 days turnaround time), and it favors investment which promote handicrafts, exports, and labor-intensive businesses. The mining code encourages investments in medium and small mining enterprises, awards two year exploration permits free of charge, and does not require a commitment from the exploring firm to lease the area explored thereafter. Efficient Capital Markets and Portfolio Investment The banking system in Mali is shaped by the statutes of the economic and monetary union Of francophone West African states and its central bank. Commercial banks enjoy considerable liquidity. They tend to prefer investing funds in western capital markets. To make capital more available locally, the government and UEMOA have engaged in restructuring the banking system (interest rates, credit ceiling, etc.). The government's sale of state-owned companies should make more credit available to the private sector. External financing and guarantee programs are also alternatives to local bank credit. Portfolio investment is not a current practice, although the legal and accounting systems are now transparent enough and are similar to the French system. The government recently instituted a system of treasury bonds available for purchase by individuals or companies. The payment of dividends or the repurchase of the bonds may be done through a compensation procedure offsetting corporate income taxes or other sums due to the government. Political Violence: The current political climate calls for both optimism and caution. The new multiparty democracy, less than three years old, has a solid policy of encouraging private enterprise and investment. Occasional disturbances fomented by students, strikers and other groups have occurred, although infrequently, but do not substantially impact on the investment climate. Frequent changes of cabinet members (3 Prime Ministers in 2 years) add some uncertainty, but do not threaten the government's commitment to its present economic policies. Indeed, agreements with the IMF and World Bank, the commitment of foreign donors to support Mali's economic reforms, and the cfa devaluation have given the private sector considerable confidence that the economy is on the right path. The northern part of the country is the scene of occasional clashes between rebels and government troops, despite the signature of a peace treaty in April 1992. Vehicles and other assets have occasionally been seized. These incidents have little impact on business activities in the more settled regions of the country. Accompanying measures taken after the cfa franc devaluation, and ongoing measures to improve the financial and tax environment for business in accordance with IMF/World Bank agreements are positive developments for investors. Bilateral Investment Agreements: Mali has signed the CIRDI treaty sponsored by the World Bank group. OPIC and other investment insurance programs: The only U.S. Eximbank program open in Mali is the private sector short-term insurance to finance such items as spare parts, consumer goods, consumables, etc. A credit analysis is done on each buyer to establish creditworthiness. Mali is eligible for certain OPIC programs. Mali has been a member of the World Bank's Multilateral Investment Guarantee Agency (MIGA) since 1990. Labor: Labor is generally available in various skill categories. Many skilled workers have been laid off from state-owned companies and are unemployed or hold jobs well below their skill level. Recent graduates, with both white and blue collars skills, are available. Workers have the right to unionize. Despite a few strikes, mostly by civil servants, relations between labor and management are generally good. Although a warning notice for strikes is not required in the private sector, mediation procedures are generally followed before a strike is resorted to. The government has signed the ILO agreement protecting the rights of workers. The labor code adopted two years ago simplified hiring and firing procedures. Foreign Trade Zones/Free Ports: Title V of the investment code relates to foreign-trade zones. Any company, domestic or foreign, that plans to export at least 80 percent of its production is entitled to tax-free status. Production that is not exported would be subject to taxation. Capital Outflow Policy: Mali is a member of the Economic and Monetary union of West Africa (UEMOA), whose currency is the cfa franc. In the cfa zone there is no restriction on the export of capital provided that adequate documentation to support a transaction is presented. Most commercial banks have direct investments on western capital markets. Mali is also a member of the larger economic community of West African States (ECOWAS), and member countries encourage investment in the community to promote economic integration. To facilitate such investments, most trade barriers are being lifted. Fair competition, profitability and economic benefits are criteria used to assess eligibility for support for investments. Foreign Direct Investment Statistics: Until recently there has been little foreign direct investment and statistics are largely non-existent. In general, a few investments were made in the mining sector (Japan, U.S., Canada) and in Manufacturing and food processing (France, Germany). Major Foreign Investors: -- BHP-minerals (Australian) -- IAMA-gold (south African-Canadian) -- KRUPP, Mercedes (German) -- Air Liquide, CFAO, SDV, Renault (French) -- Maerskline (Danish)