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Country Commercial Guides for FY 2000: Senegal Report prepared by U.S. Embassy Dakar, released July 1999    Note*

CHAPTER VII. INVESTMENT CLIMATE

Openness to Foreign Investment

The Government officially welcomes foreign investment, but administrative regulations combined with high factor costs have been obstacles. There is no discrimination against businesses conducted or owned by foreign investors. In fact, there are no barriers regarding 100 percent ownership of businesses by foreign investors in most sectors. The government has stopped participating in foreign investment projects.

Senegal's investment code provides equitable treatment for foreign and local firms, as well as special incentives to companies willing to locate outside the Dakar Region. The Code defines eligibility for investment incentives according to a firm's size and type of activity, the amount of the potential investment and the location of the project. To qualify for incentives, the investment must be of at least CFA five million (USD 7,000) and must create a minimum of three jobs. Enterprises operating in "priority" sectors are eligible for investment code advantages. These sectors include agriculture, fishing, animal-rearing and related industries, manufacturing, tourism, mineral exploration and mining, banking, trading complexes, and cultural activities. All benefit from the "Common Regime" which includes two years exoneration from duties on imports of goods not produced locally for small and medium sized firms, and three years for all others. Also included is exoneration from direct and indirect taxes for the same period.

Exoneration from the Minimum Personal Income Tax and from the Business License Tax is granted to investors who use local resources for at least 65 percent of their total inputs within a fiscal year. Enterprises that locate in less-industrialized areas of Senegal benefit from exemption of the lump sum payroll tax of three percent, with the exoneration running from five to 12 years, depending on the location of the investment. The investment code provides for exemption from income tax, duties and other taxes, phased out progressively over the last three years of the exoneration period. Incentives are automatically granted to investment projects meeting the above criteria.

The establishment of the Agency for the Promotion of Investments and Infrastructure is designed to replace the one-stop window ("Guichet Unique") at the Ministry of Finance and reduce administrative regulations. Senegal has also approved a new strategy for support for private sector growth which includes rationalization of numerous and for the most part, moribund private sector support structures. The government is also committed to implementing recommendations from a USAID-funded investor's "Road Map" study in order to make the investment registration process simpler and speedier.

Right to Private Ownership and Establishment

In addition to the traditional guarantees offered to investors, e.g. free transfer of capital and income and equal treatment (foreign and domestic private entities are permitted to establish and own business and to engage in most forms of remunerative activity), other advantages granted cover both a firm's investment and operation. Local majority ownership is not necessary. Of the state-owned firms recently privatized, several were sold in part or in whole to foreign entities.

Protection of Property Rights

The Senegalese legal system based on the French model enforces private property rights. Senegal is a member of the African Organization of Intellectual Property (OAPI), a grouping of thirteen Francophone African countries, which has established among its member states a common system for obtaining and maintaining protection for patents, trademarks and industrial designs. Senegal has been a member of the World Intellectual Property Organization since its inception and is a member of the Bern Copyright Convention. Local statutes recognize reciprocal protection for authors or artists who are nationals of countries adhering to the 1991 Paris Convention on Intellectual Property Rights.

I. Patents: Patents are protected for twenty years. An annual charge is levied during this period. Trade secrets and computer chip designs are respected.

II. Trademarks: Registered trademarks are protected for a period of twenty years. Trademarks may be renewed indefinitely by subsequent registrations.

III. Copyrights: Senegal is a signatory to the Bern Copyright Convention. The Senegalese Office of Authors' Rights, part of the Ministry of Culture, enforces copyright obligations.

Foreign Trade Zones/Free Ports

There are no foreign trade zones or free ports in Senegal. Bonded warehouses exist for goods to be surface-shipped to Mali.

Performance Requirements/Incentives

In order to qualify for investment incentives, small and medium-sized firms are required to invest at least CFA five million (USD 7,000), employ at least 3 Senegalese nationals full-time, and keep regular accounts in the standard Senegalese format. Further, a new firm or an existing firm requesting an extension of such incentives must be at least 20 percent self-financed. Self-financing of 30 percent is required for other types of firms. Large firms (those with at least CFA 200 million in equity capital or USD 285,000) are required to create at least 50 full time positions for Senegalese nationals, to contribute hard currency equivalent to at least CFA 100 million (approximately USD 145,000) and to keep regular accounts that conform to Senegalese standards. Further, firms must report company products, production, employment and consumption of raw material.

Regulatory System: Laws and Procedures

The Government of Senegal favors the principles of free competition. Senegal is reforming and developing its regulatory framework as a part of its effort to attract private sector investment. Measures implemented to date include the abolition of monopolistic agreements in major industries, and suppression of the requirement for prior government authorization to lay off workers during economic downturns.

Corruption

The potential for corruption is a significant obstacle for economic development and competitiveness in Senegal, in spite of laws, regulations, penalties, and agencies to combat it. Credible allegations of corruption have been made concerning government procurement, dispute settlement, and regulatory and enforcement agencies. Corruption can range from large-scale customs fraud, including invoice under-valuation, to bribe taking by inspectors and public safety officials.

Nevertheless, giving or accepting bribes is a criminal act, and penalties may range from 5 to 10 years in prison under Senegalese law. Low pay and lack of professionalism among many public servants (police, customs agents, and some bureaucrats, among others) has led to predatory bribe-taking, particularly from small business operators, traders, private sector transporters and shippers, and other soft targets. Some wealthier merchants have been accused of using bribes to persuade customs agents to undervalue the quality or volume of their own imported goods and/or to launch harassment investigations against competitors.

Several government agencies fight corruption and fraud. These include "L'Inspection Générale d'Etat," a cabinet level office, "La Commission de Verification des Comptes," part of the Ministry of Justice, and the "Société Générale de Surveillance," and Bivac/Veritas, two pre-shipment inspection contractors.

Labor

Unskilled and semi-skilled labor is abundant in Senegal, but there are relatively few highly trained workers in the fields of engineering, information systems, and management.

Relations between employees and employers are governed by the labor code, collective bargaining agreements, company regulations and individual employment contracts. There are two powerful industry associations that represent management's interests: the National Council of Employers (CNP), and the National Employers' Association (CNES). The principal labor unions are the National Confederation of Senegalese Workers (CNTS), affiliated with the former ruling Socialist Party, and the National Association of Senegalese Union Workers (UNSAS), a federation of independent labor unions.

Efficient Capital Market and Portfolio Investment

Senegal entered the world of capital markets in 1998 with the institution of the West African Regional Stock Exchange (BRVM) headquartered in Abidjan with local offices in each of the member countries of the West African Economic and Monetary Union (UEMOA.) The Regional Council for Savings and Investment regulates the UEMOA securities exchange market. The implementation of the BRVM is seen as instrumental in Senegal's attempt to attract increased foreign capital and to give private investors access to more diversified sources of financing. As a result, the UEMOA's corporate bond market has been very active the last few years.

Legal, regulatory and accounting systems closely follow French models. As of January 1, 1998, Senegal along with the other UEMOA countries present their financial statements in accordance with the SYSCOA system, which is based on Generally Accepted Accounting Principles in France.

There is no system to encourage and facilitate portfolio investment.

Conversion and Transfer Policies

At present, there are no restrictions on the transfer or repatriation of capital and income earned or investments financed with convertible foreign exchange. Though individuals are limited for foreign currency they may obtain for trips outside of Senegal, commercial transfers are normally carried out rapidly and in full by local banking institutions. The CFA franc, used by Senegal and 13 other African countries, was devalued in January 1994, but remains pegged to the French Franc and the Euro at the rate of 100 CFA equals one FF and 0.152 Euros. Expropriation and Compensation

In recent history, there have been no major expropriations in Senegal. During the period 1973-75, the government bought out foreign interests, mostly French, in a number of areas in order to form parastatals. In each case, adequate compensation was paid to the affected foreign investors. This practice was abandoned and many of the firms involved have since been re-privatized.

Dispute Settlement

Senegal is a member of the International Center for the Settlement of Investment disputes (Washington Convention). The investment code provides for settlement of disputes via due process of the law prescribed in the cumbersome Senegalese judicial system. In order to overcome the weaknesses of the judicial system in the dispute settlement area and to speed the settlement process, Senegal has established an arbitration center administered by the Dakar Chamber of Commerce. The arbitration center is fully operational. U.S. companies entering the Senegalese market should ensure that their contracts with third parties make a provision for arbitration in case of a dispute. The government has also focused its attention on the training of judges in commercial law with the support of USAID.

Political Violence

No major political violence has been reported in Senegal.

Senegal is somewhat at odds with its neighbors, although most disputes are rhetorical rather than violent. To the south, Senegal must manage a Casamance separatist movement on its territory. This situation was further complicated in June 1998 with a military rebellion in Guinea-Bissau and intervention by Senegalese troops on the side of the elected government. The mutineers have returned to the barracks, and Bissau held presidential and legislative elections in late 1999 early 2000 that international observers determined to be largely free and fair. A civilian government has been established, but the military -- and particularly the leader of the rebellion -- remain influential in Bissau, and the potential for instability continues. In the Gambia, there has been a military junta in power since July 1994. With Mauritania, to the north, there is a continuing problem with refugees, and a recent dispute over water rights in the Senegal River basin. To the east, Mali and Senegal suffer from cross-border cattle raids by criminal elements of both countries. Diplomatic negotiations are ongoing to achieve peaceful resolutions to these problems.

Bilateral Investment Agreement

Senegal and the United States signed a bilateral investment treaty in December 1983. The treaty provided for Most Favored Nations treatment for investors, internationally recognized standards of compensation in the event of expropriation, free transfer of capital and profits, and procedures for dispute settlement. Senegal has signed similar agreements for protection of investment with France, Switzerland, Denmark, Finland, Spain, Italy, the Netherlands, South Korea, Romania, Japan, and Australia. Senegal has concluded tax treaties with France, Mali and the French-speaking African member states of the UEMOA.

There is currently no tax treaty between the United States and Senegal. U.S. firms established in Senegal, U.S-affiliated NGOs, the Senegalese Government, and the U.S. Embassy in Dakar remain interested in pursuing a double taxation treaty between Senegal and the United States.

OPIC and Other Investment Insurance Programs

OPIC insures U.S. investment abroad against three types of political risks: currency inconvertibility, expropriation and political violence. OPIC has also specialized insurance programs for: financial institutions, leasing arrangements, oil and gas projects and natural resources projects. OPIC pays compensation for two types of losses: business income losses and damage to tangible property. OPIC was requested by the U.S. congress to play a major role in a new initiative to expand American investment and economic growth in Africa. Therefore, OPIC is looking actively for potential projects in Africa. In Senegal, OPIC will be most likely involved in the construction of a gas pipeline. There exist numerous OPIC-sponsored funds whose primary focus is in equity investments in infrastructure projects located in sub-Saharan Africa. These various funds range from the Africa Growth Fund I, the OPIC Allied Capital International Small Business Fund, and the OPIC Global Environment Emerging Markets Fund I and II. The Africa Growth Fund I, with USD 25 million, is currently investing in sub-Saharan Africa with typical investment of USD 500,000-USD 3 million. Targeted sectors of investment include agribusiness, cement, chemicals, communications, machinery, mining, services and trading. The Allied Capital International Small Business Fund is targeting small U.S. businesses seeking risk capital to expand overseas in manufacturing, distribution, packaging and franchising. The OPIC Global Environment Fund invests in natural resource-related sectors such as clean water and waste management. Contact information can be found in Chapter XI.

Senegal is a member of the Multilateral Investment Guarantee Agency (MIGA), an arm of the World Bank.

Capital Outflow Policy

In an effort to maintain parity between the CFA Franc and the French Franc, the West African Central Bank (BCEAO) conducts a tight monetary policy intended to reduce capital outflow by limiting liquidity. In August 1993, member countries suspended repurchase of CFA banknotes abroad, a measure meant to stem capital flight for the banks of the region. This measure also discourages portfolio investment outside of the zone.

Major Foreign Investors

The dearth of reliable investment statistics makes it difficult to provide a detailed breakdown of foreign direct investment in Senegal.

Although values of Senegalese subsidiaries or operations of foreign investors are sketchy, it is estimated that France is overwhelmingly the most important foreign investor and controls many sectors in the economy. Approximately 235 subsidiaries of French groups are present in Senegal. They account for 25 percent of all formal enterprises in Senegal. French investors are present in the major multinational import-export firms, shipping companies, banking, food production, mechanical engineering, tobacco, agribusiness, petroleum distribution, industrial equipment, vehicles, chemicals and pharmaceuticals, tourism and insurance. Privatizations in telecommunications and public utilities have confirmed and increased the predominance of France as Senegal's leading foreign investor. Bouygues is present in the water sector. French telecommunications operator France Telecom is the operating partner of SONATEL, Senegal's telecommunication company. Hydro Quebec and the French company Elyo bought out Senegal's power utility for USD 63 million, which has also made Canada a significant investor. Moroccan investment has substantially increased since Royal Air Maroc took a strategic interest into Air Senegal, the national airline company. The Senegalese bank system will soon welcome a newcomer in Senbank, a local bank with major Moroccan interests.

Investments by Senegalese citizens of Lebanese origin are primarily in light import-substituting industries such as food products, textiles, chemicals, plastics and rubber. Swiss investment is concentrated in food processing with the active presence of the multinational Nestle. Germany, Japan, and South Korea have moderate investments in Senegal. Taiwan has become active in Senegal's fish and canning industry.

U.S. direct foreign investment in Senegal has increased from an estimated USDOLS 38 million in 1997 to USDOLS 150 million in 1999. Significant U.S. investors include Colgate-Palmolive, Mobil, Parke-Davis (a subsidiary of Warner Lambert), and Citibank. The surge in U.S. direct investment is primarily due to the $68 million GE Capital power station and to Colgate-Palmolive's investment in a new toothpaste and glycerin plant.