Conditions for Doing Business in Senegal
Senegal: flow of FDI in 2018 - 629,3 mln US Dollars (at current prices, UNCTAD)
FDI - Foreign Direct Invetsment
Africa Capacity Index (ACI) 2019
Since 2011, the African Capacity Building Foundation (ACBF – specialized agency of the AU, located in Harara, Zimbabwe https://www.acbf-pact.org/) publishes an annual Africa Capacity Report (ACR).
The ACR measures and examines the capacity of African countries to pursue their development agenda, focusing on key determinants and components of capacity for development. ACBF defines capacity as the “ability of people, organizations, and society as a whole to manage their affairs successfully” and capacity development as the process by which “people, organizations, and society as a whole unleash, strengthen, create, adapt, and maintain capacity over time.
Capacity of African countries, examined in ACR, is reflected by Africa Capacity Index (ACI). The ACI - is a composite index computed from a quantitative and qualitative assessment of four sub-indices or indicator “clusters” on a specially designed questionnaire. “The policy environment cluster” considers the conditions that must be in place to make transformational change and development possible. “The processes for implementation cluster” assesses the extent to which countries are prepared to deliver results and outcomes. “The development results at country level cluster” refers to tangible outputs that encourage development. And “the capacity development outcomes cluster” measures change in the human condition.
Senegal ACI 2019 Rank 21 Score 53.6
Cluster 1 Policy environment for capacity development 76.3
Cluster 2 Processes for implementation 37.4
Cluster 3 Development results at country level 100.0
Cluster 4 Capacity development outcomes 40.4
Incentives and Guarantees for foreign investors
Senegal offers investors a relatively stable political environment, democratic institutions, two-day business registration, a relatively robust telecommunications infrastructure, an advantageous geographic location, a major seaport, non-stop flights, a stable regional currency - the CFA franc (pegged to the Euro and guaranteed by the French Treasury), easy repatriation of capital and income, and abundant semi-skilled and unskilled human resources. Despite these obvious strengths, overly rigid and demanding labor laws, high factor costs, lack of clear title to property outside the greater Dakar area, an inefficient and inconsistent judiciary, and constraints in obtaining long-term credit from commercial banks have restrained private, foreign and domestic investment. Judicial, tax, customs, and regulatory decisions are frequently slow to be issued, influenced by political considerations, and non-transparent.
The country's Investment Code offers incentives to companies willing to locate off the Cap Verde peninsula. In theory, Senegal accepts binding foreign arbitration of investment disputes. French companies are the largest foreign investors, and U.S. direct investment is estimated at USD 50 million.
OPENNESS TO FOREIGN INVESTMENT
The Government of Senegal officially welcomes foreign investment, but potential investors, and indeed all businesses, face obstacles, including non-transparent regulation and high factor costs. There is no legal discrimination against businesses and business conducted or owned by foreign investors. There are no barriers regarding 100 percent ownership of businesses by foreign investors in most sectors. In some key sectors such as electricity, telecommunications, water and mining, and security-related services, foreign investors may have majority control, but may not acquire 100 percent ownership.
In recent years, Senegal has pursued major investment deals with foreign partners, both private and government-controlled companies. Some projects have been offered via public tenders and some have been negotiated privately. Foreign investors have recently secured contracts to exploit mineral resources, provide garbage services, and manage Dakar's maritime port. A law to enhance transparency in public procurement and public tenders entered into force in 2008. In September 2010 changes made to the public procurement code administered by ARMP (public procurement regulatory body) that excluded procurements by the presidency and ministries in charge of national security were criticized by the both the donor nations and the private sector.
The Government does some screening of proposed investments, mostly to verify compatibility with the country's overall development goals. Foreign investors are encouraged to utilize the "one stop" service of Senegal's Investment Promotion Agency (APIX) for registration and obtaining APIX, Ministry of Economy and Finance, Senegalese Customs, and other approvals needed to secure a business license, which can now be completed in approximately eight days. Depending on the proposed business activity, other approvals from specific Ministries, such as Agriculture and Interior, can take additional time. There is no provision in Senegalese law permitting domestic businesses to adopt articles of incorporation or association that limit or control foreign investment. There is no pattern of discrimination against foreign firms making investments in Senegal.
Senegal's 2004 Investment Code remains the main body of law regulating foreign investments. The Code provides basic guarantees for the repatriation of profit and capital and equality of treatment. It also specifies tax and customs exemptions according to the size of the investment, classification of the investor (such as small or medium-sized enterprise versus a larger corporation), and location (investments outside of Dakar receive longer periods of exoneration from taxes). Following recommendations by major donors, Senegal established a Presidential Investors Council (PIC) designed to improve the business climate and reduce obstacles to domestic and foreign private investment. The PIC has had some success in lobbying for certain "pro-business" changes in Senegal's tax code, such as lowering the corporate tax rate from 33 to 25 percent, eliminating the equalization tax on the informal sector, and lowering the VAT on tourist industries from 18 percent to 10 percent.
Both foreign and domestic firms tend to cite the same problems in doing business in Senegal -- inefficient regulation and bureaucracy, ineffective commercial courts, high factor costs, labor laws that makes it difficult to fire for just cause (permanent employees), and occasional disputes over customs classification, valuation, and taxation. The country's private sector, as well as donors who are focusing on enhancing Senegal's potential for rapid economic growth, are specifically encouraging the complete revision of Senegal's Labor Code. The Labor Codes were completely revised in 1997 and many changes to the codes have been made since then.
CONVERSION AND TRANSFER POLICIES
Commercial transfers are normally carried out rapidly and in full by local banking institutions. Companies find that the import and export of funds can be accomplished in a manner similar to commercial bank transactions. Originally the franc of the French Colonies of Africa (CFA), now more commonly known as the franc of the African Financial Community is used by Senegal and 7 other countries in the West African Monetary Union, WAEMU (XOF) and 7 countries in the Central African Monetary Union, CEMAC (XAF). Each monetary union has its own central bank. The CFA is pegged to the Euro at 1 Euro = 655.957 CFA.
There are no restrictions on the transfer or repatriation of capital and income earned, or on investments financed, with convertible foreign currency. However, the Government does limit the amount of foreign exchange individuals may take outside Senegal on trips. Departing travelers may take a maximum of 6 million CFA in Euros or other foreign currency/travelers checks (approximately USD 13,000) upon presentation of a valid airline ticket. There is a small informal market for currency exchange in Senegal. Remittances to Senegal from its citizens living overseas are routine and provide a significant source of foreign currency for the country. In 2010, the estimated value of remittances, formal and informal, was estimated by Senegalese authorities at USD 1.2 billion or 8 percent of GDP.
DISPUTE SETTLEMENT
Senegal is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. However, dispute actions are more likely to be taken through the International Center for the Settlement of Investment Disputes (Washington Convention), of which Senegal is a member, or through the Dakar Arbitration Center, which is administered by the Dakar Chamber of Commerce.
On October 30, 2008, the Senegalese authorities revoked the GSM license held by global telecommunications provider Millicom International Cellular (MIC) whose local mobile unit Sental GSM operates in Senegal under the TIGO brand. The company, which continues to operate, denies the allegations and has instituted arbitration proceedings against the government of Senegal at the International Center for the Settlement of Investment Disputes. In response, the government has submitted a breach of contract case against Sentel in Senegalese courts.
Foreign creditors receive equal treatment under Senegalese bankruptcy law in making claims against liquidated assets. Monetary judgments are normally in local currency.
While Senegal has well-developed commercial and investment laws, and a legal framework for regulating business disputes, settlement of disputes within the existing framework is cumbersome and slow. Few judges or lawyers are conversant in commercial laws. Court cases are expensive and rarely resolved expeditiously. Decisions can be inconsistent, arbitrary, and non-transparent. Foreign investors have found it difficult to fire employees for just cause or malfeasance. Foreign firms are often sued in the Senegalese courts by terminated employees who are frequently awarded damages and placement in their former positions. Although these decisions are sometimes overturned on appeal, the appeals process is costly and time consuming. Foreign firms in Senegal often cite burdensome labor law and arbitrary rulings by courts on labor cases as their number one frustration in doing business in Senegal.
PERFORMANCE REQUIREMENTS AND INCENTIVES
Senegal's Investment 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 significant investment incentives, firms must invest above 100 million CFA (approximately USD 200,000) or in activities that lead to an increase of 25 percent or more in productive capacity.
Investors may also deduct up to 40 percent of retained investment over five years. However, for companies engaged strictly in "trading activities," defined as "activities of resale in their existing state products bought from outside the enterprises," investment incentives might not be available.
Eligible sectors for investment incentives include agriculture and agro-processing, fishing, animal-rearing and related industries, manufacturing, tourism, mineral exploration and mining, banking, and others. All qualifying investments benefit from the "Common Regime," which includes two years of 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. Most incentives are automatically granted to investment projects meeting the above criteria as well as to those with the "Enterprise Franche d'Exportation" (EFE) status, which is directed at export-oriented firms.
Furthermore, an existing firm requesting an extension of such incentives must be at least 20 percent self-financed. Large firms -- those with at least 200 million CFA (400,000 USD) in equity capital -- are required to create at least 50 full-time positions for Senegalese nationals, to contribute the hard currency equivalent of at least 100 million CFA (200,000 USD), and keep regular accounts that conform to Senegalese (European accounting system) standards. In addition, firms must provide APIX with details on company products, production, employment and consumption of raw materials.
The Government does not, by statute, impose specific conditions or performance requirements on investment activities. However, the Government does negotiate with potential investors on a case-by-case basis.
Acquiring work permits for expatriate staff is typically straightforward. Citizens from the (WAEMU member countries are permitted to work freely in Senegal. In May of 2004, the Economic Community of West African States (ECOWAS) and WAEMU signed an agreement that amongst other things allows employment mobility between member countries.
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
In addition to traditional guarantees offered to investors, e.g., free transfer of capital and income, and national treatment, private entities are permitted to establish and own businesses and to engage in most forms of remunerative activity. Foreign nationals are permitted to buy and hold land. Local majority ownership is not necessary. Land holdings for investors are frequently offered on the basis of long-term leases (i.e., 99 years). Several of the state-owned firms privatized in recent years were sold in part or in whole to foreign entities.
PROTECTION OF PROPERTY RIGHTS
The Senegalese Civil Code, based on French law, enforces private property rights. The code provides for equality of treatment and non-discrimination against foreign-owned businesses. Property title and a land registration system exist in Senegal, but application is uneven outside of Senegal's urban areas. The Government streamlined procedures for registering property and reduce the associated costs in 2008 so that property can be duly registered within 18 days. Confirming ownership rights on real estate can be difficult, but once established, ownership is protected by law. Investors have also expressed concerns about the lack of investment-ready, developed business sites. The Government generally pays compensation when it takes private property through eminent domain actions. Senegal's housing finance market is underdeveloped and few long-term mortgage financing vehicles exist. There is no secondary market for mortgages or other bundled revenue streams. The judiciary is inconsistent when adjudicating property disputes.
Senegal is a member of the African Organization of Intellectual Property (OAPI), a grouping of 15 francophone African countries, which established 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 (WIPO) since its inception. Local statutes recognize reciprocal protection for authors or artists who are nationals of countries adhering to the 1991 Paris Convention on Intellectual Property Rights. In particular:
I. Patents: Patents are protected for 20 years. An annual charge is levied during this period. Trade secrets and computer chip design are respected.
II. Trademarks: Registered trademarks are protected for a period of 20 years. Trademarks may be renewed indefinitely by subsequent registrations.
III. Copyrights: Senegal is a signatory to the Bern Copyright Convention. The Senegalese Copyright Office, part of the Ministry of Culture, attempts to enforce copyright obligations. The bootlegging of music cassettes and CDs is common and of concern to the local music industry. The Copyright Office undertook actions in 2001, 2002, 2003 and 2006 to combat media piracy, including seizure of counterfeit cassettes and CD/DVDs and in 2008 established a special police unit to better enforce the country's anti-piracy and counterfeit laws.
However, despite an adequate legal and regulatory framework, enforcement of intellectual property rights is weak. In general, the Government has not committed the resources to combat IPR violations or to seize counterfeit goods. Customs screening for counterfeit goods coming from China, Nigeria, Dubai and other centers of illegal production is weak and confiscated goods occasionally re-appear in the market. Nonetheless, there has been a recent effort by Customs to understand the impact of counterfeit products on the Senegalese marketplace, and officers have participated in trainings offered by manufacturers to identify counterfeit products.
TRANSPARENCY OF THE REGULATORY SYSTEM
There is no requirement for a public comment process for proposed laws and regulations; however, the Government frequently holds public hearings and workshops to discuss proposed initiatives and programs. The National Assembly, though currently dominated by the ruling party, does host open debates on substantive legislation.
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
In general, domestic investment is hampered by an under-developed financial sector. French, Nigerian and Moroccan-owned banks with conservative lending guidelines and high interest and collateral requirements dominate bank lending. Few firms are eligible for long-term loans, and small and medium sized enterprises have little access to credit. However, because the Senegalese banking sector is dominated by foreign banks, foreign investors can take advantage of French bank subsidiaries. Citibank (United States) operates in Senegal as an investment bank. U.S. firms also have access to the U.S. Overseas Private Investment Corporation (OPIC) and Export-Import Bank (EXIMBANK) facilities.
In 2011, Senegal issued a 500 million USD bench mark bond in the foreign bond market. This has put Senegal in a higher league than it has typically played in and has therefore attracted greater scrutiny from international investors. In general, the infrastructure for expanding business lending, credit risk analysis, skilled commercial law specialists, and auditors, etc. does not exist. The West African Regional Stock Exchange (BRVM), headquartered in Abidjan, with local offices in each of the WAEMU member countries offers additional opportunities to attract increased foreign capital and to give private investors access to more diversified sources of financing. However, to date only one Senegalese company, Sonatel, is traded on the BRVM. There is no system to encourage and facilitate portfolio investment.
Legal, regulatory and accounting systems closely follow French models and WAEMU countries present their financial statements in accordance with the SYSCOA system, which is based on Generally Accepted Accounting Principles in France.
POLITICAL VIOLENCE
Senegal is a moderately decentralized republic dominated by President Abdoulaye Wade's Senegalese Democratic Party (PDS). President Wade’s party holds an overwhelming majority of seats in the National Assembly and Senate. In 2008, Human rights organizations underlined their concerns about the arbitrary arrest of opposition activists and journalists. There have been incidents of sporadic civil disturbances over the past three years, but they have generally taken place as unions, opposition parties, merchants or students demand better salaries, living or working conditions. The violence of the June 23, 2011 demonstrations over constitutional changes were a shock to the Senegalese people and did not last beyond a day. Sporadic incidences of violence as result of petty banditry continue in the Casamance region, which has suffered from a two-decade-old conflict ignited by a local rebel movement seeking independence for the region.
CORRUPTION
Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for foreign companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.
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. In-country opportunities for these workers are not numerous, and as a result, many look outside Senegal for employment.
Relations between employees and employers are governed by the labor code, industry wide 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), and the National Association of Senegalese Union Workers (UNSAS), a federation of independent labor unions. The Labor Code and labor issues are often high on the list of complaints by investors.
FOREIGN TRADE ZONES/FREE PORTS
Senegal's Free Trade Zone initiatives have largely been replaced with the Entreprise Franche d'Exportation (EFE), which reduces taxes and provides for duty-free imports. The Dakar Free Industrial Zone (ZFID) is largely inactive and stopped issuing new licenses in 1999. Firms already located there may continue receiving benefits until 2016. In 2007 the Government of Senegal signed an agreement with Jafza International of Dubai to establish a "special economic zone" outside of Dakar. The project remains in the development phase and the zone's incentives portfolio is not yet known.
MAJOR FOREIGN INVESTORS
Senegal today trades more with emerging markets than with developed ones; most of the foreign direct investment the country has received recently has come from emerging nations (China, Brazil, India and the Middle East). Foreign Direct Investment (FDI) increased to around an average of 186 million Euros between 2006 and 2010 (or 2.1% of GDP, up from 0.8% of GDP 2000-2005). Most new FDI is linked to the modernization of Senegal or recapitalization to improve the financial situation in key sectors. Europe remains the largest trading partner, but its share has declined to 38% of total trade from 48% in 2006. Asia represents 19% of total trade compared with 15% in 2006.
Approximately 235 subsidiaries of French groups are present in Senegal, accounting for 25 percent of all formal enterprises. French investors are present in the major multinational import-export firms, shipping companies, banking, food production, mechanical engineering, agribusiness, petroleum distribution, industrial equipment, vehicles, chemicals and pharmaceuticals, tourism and insurance industries. Privatizations in telecommunications and public utilities have increased the presence of French business in Senegal.
Investments by Senegalese citizens of Lebanese origin are significant in light import-substituting industries such as food products, textiles, chemicals, plastics and rubber. Swiss investment includes the multinational Nestle and a waste management company. Germany, Japan, and South Korea have moderate investments in Senegal. Taiwan was active in Senegal's fish and canning industry. Indian interests have historically been a major investor in Senegal's phosphates industry and purchase nearly all phosphate output. Moroccan investment has increased since ATTI purchased the majority of shares of Banque Senegalo-Tunisienne (BST), Credit du Senegal, and Compagnie Bancaire de l'Afrique de L'Ouest (CBAO) to become one of the largest commercial banks of Senegal. Sudan's telecommunications company Sudatel won an international tender for a new license to provide fixed and mobile telephone and internet services. Iran Khodro Auto Company opened an assembly plant for Samand sedans near Senegal's second largest city, Thies. In recent years, China has increased its commercial presence in Senegal and its ExIm Bank has invested in a number of new building projects.
Significant U.S. investors include General Electric, Fortesa International, Phillip-Morris, Pfizer, and Citibank. Delta Airlines flies twice a week to Dakar from New York’s JFK airport, United Airlines has a code share agreement with South African Airlines out of Dulles International Airport in Virginia to Dakar and then on to Johannesburg, South Africa. Recent new arrivals to Senegal include IBM, Cumins, Google, Hewlett Packard and APR Energy.
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