BENIN: 2007 INVESTMENT CLIMATE STATEMENT

UNCLAS SECTION 01 OF 04 COTONOU 000136

SIPDIS

SIPDIS

DEPT FOR AF/W (DBANKS) AND OCS (SEYE)
LONDON FOR HAHN

E.O. 12958: N/A
TAGS: EINV ECON ETRD EFIN ELAB KTDB OPIC USTR PGOV BN
SUBJECT: BENIN: 2007 INVESTMENT CLIMATE STATEMENT

REF: 06 STATE 178303

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1. Per reftel, below is the 2007 Investment Climate Statement for
Benin.


2. Investment Climate Statement

A.1. Openness to Foreign Investment

Beninese law guarantees the right to own and transfer private
property. The government of Benin officially favors and encourages
foreign investment. Historically, many opportunities for foreign
investment were linked to the privatization of former state-owned
enterprises, but now only a handful remain, including: SONAPRA
(cotton),SBEE (electricity),SONEB (water),Benin Telecoms, and
SOBEMAP (stevedoring services). The Port of Cotonou (Port Autonome
de Cotonou) and postal service (La Poste du Benin S.A.) are also
government-owned. In 2006, following privatization and subsequent
allegations of mismanagement, the Government appointed an
Administrator to run former parastatal SONACOP (distribution of
gasoline and petroleum products),and has effectively reassumed
control of that enterprise. Privatization of the remaining
state-owned entities is slow-moving. The government requires that
Beninese nationals partly own privatized companies. Privatization of
debt-ridden SONAPRA (begun in 2003) has stalled several times.
Despite the GOB's renewed commitments to privatization, the GOB's
plans for privatizing the cotton sector remain unclear. The World
Bank, the European Union, other international development banks, and
the Millennium Challenge Account fund many infrastructure renovation
contracts with grants or loans.

The current investment code establishes the conditions to obtain
benefits under different investment regimes and grants extensive
discretionary power to the Investment Control Commission at the
Ministry of Commerce and Industry. Tax reforms introduced in recent
years largely removed the need for special incentives to potential
investors. The 1990 investment code was promulgated in order to
establish a simplified system readily accessible to all investors.
The government has established a so-called "guichet unique" or
one-stop shop at the Trade Ministry to help dispense with
unnecessary and time-consuming formalities facing investors. Many
investors complain that the investment code remains difficult to
implement in practice, however, because of an inefficient and
corrupt bureaucracy.

The GOB established the Business Registration Center at the
Cotonou headquarters of the Benin Chamber of Commerce and Industry
(CCIB) to facilitate the registration of new businesses. Thanks to
this Center, it is possible to register a new company within 2 weeks
depending on the type of company. To ease the startup process,
investors are strongly encouraged to hire a local notary for the
required assistance. Any American firm establishing an office in
Benin should work with an established local partner of solid
reputation and retain a competent Beninese attorney. A list of
English-speaking lawyers and notaries public is available from the
Embassy's Commercial section.

A.2. Conversion and Transfer Policies

Benin is a member of the West African Economic and Monetary Union
(WAEMU). Its currency is the CFA franc, which is issued by the
Central Bank of West African States (BCEAO).
In order to stimulate economic recovery, an adjustment of the
exchange rate was implemented and the CFA franc was devalued by 50
percent on January 11, 1994. The CFA franc is fixed against the
euro, and one USD dollar presently equals about CFA 510 (December
2006). The conversion system does not set restrictions on
international transfers. However, in order to transfer a significant
amount of money internationally, the investor needs to obtain
authorization from the Ministry of Finance and Economy by completing
a form called the "Formulaire d'Autorisation de Change". Continued
political instability or armed conflict in Cote d'Ivoire may have an
impact on the stability of the CFA, but there are no plans to
devalue at present. As a member of WAEMU, any company established in
Benin can export goods to the other member states under the External
Common tariff (TEC or "Tariff Exterieur Commun") regime if the goods
are locally produced. TEC promotes sub-regional trade by eliminating
trade barriers and combating unnecessary competition between the
member states.

A.3. Expropriation and Compensation

The state guarantees under law that it will make no attempt to

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nationalize enterprises operating in Benin. The government at this
time is focused on continuing to privatize its state-owned
industries and has shown no indication of returning to the policy of
expropriation carried out prior to the establishment of democracy in

1990. The President of Benin has spoken publicly and often about the
importance of attracting foreign investment. Though there are no
laws that force local ownership of most businesses, the Government
of Benin requires that investors buying state companies being
privatized have some Beninese participation.

A.4. Dispute Settlement

The settlement of disputes pertaining to breach of contract,
contract enforcement, claims, land titles, and related issues must
be adjudicated in the civil courts. There is no separate commercial
court system. The backlog of civil cases often results in a wait of
two or more years before matters proceed to trial. In recent years,
judges have shown increasing independence in ruling against
government interests. Corruption, however, remains a serious
impediment to the administration of justice. Businesses and other
litigants routinely complain that corruption is particularly
widespread at the trial court level, as well as at administrative
hearings. Reforms to the court system are part of Benin's
Millennium Challenge Account (MCA) Compact, which entered into force
in October 2006.

A.5. Performance Requirements and Incentives

Benin's government maintains a welcoming posture to foreign
investors but Embassy Cotonou is unaware of performance incentives
specifically targeting foreign investors. Foreign investors and
workers are not subjected to onerous visa or residency permit
requirements. Foreign investors have generally not complained of
discriminatory or preferential export or import policies, although
foreign businesses complain that they are held to higher standards
than Beninese businesses. For example, foreign companies are
required to adhere to social security and labor regulations, which
are routinely ignored or minimally followed by Beninese companies.
One long established American company has complained, for example,
of discriminatory treatment in being refused permission to establish
a bonded warehouse for goods in transit.

A.6. Right to Private Ownership and Investment

The right to private ownership and investment exists in both theory
and practice. Beninese law guarantees freedom of trade; choice of
customers and suppliers; the right to move freely throughout the
country; the right of foreign employees and their family members to
leave the country; and freedom from government interference in the
management of private enterprises.

A.7. Protection of Property Rights

Secured interests in real and personal property are recognized and
enforced. Benin's legal system protects and facilitates acquisition
and disposition of all property rights, including land, buildings
and mortgages. In theory, the government respects intellectual
property rights. In practice, however, bootlegged musical cassettes
and CDs are widely available, despite government interdiction
efforts.
However, in the last quarter of 2005 thousands of counterfeit items
were seized and burnt by the officials of the Ministry of Culture
and Tourism. Land tenure remains a complicated question in many
areas and it is often difficult to transfer clear title to real
property. Land title reform is another important element of Benin's
Millennium Challenge Account (MCA) Compact.

A.8. Transparency of the Regulatory System

Although the government has adopted a transparent policy to foster
free enterprise, red tape is often a problem. Bureaucratic
procedures are insufficiently streamlined and are rarely transparent
in practice. However, the new business law called OHADA, signed by
the member states of the Organization for the Harmonization of
Business Law in
Africa, including Benin, has solved a number of difficulties an
international enterprise might encounter in trying to establish a
business in Benin. OHADA is a legal regime that covers trade and
business in the organization's member states including Benin,
Cameroon, Congo, Gabon, Bissau Guinea, Niger, Chad, Burkina-Faso,
the Central Africa Republic, Guinea, Mali, Senegal, and Togo. In the
early 1990's, the government enacted a series of reforms aimed at
modernizing trade regulations. Many labor laws, however, remain

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holdovers from the Marxist era and serve as impediments to private
enterprise, despite a revamping of the labor code in 1998.

A.9. Efficient Capital Markets and Portfolio Investment

Benin's government policy supports free financial markets in Benin,
subject to regulatory oversight by the Ministry of Development,
Economy, and Finance and the Benin country office of the Central
Bank of West African States (BCEAO). Credit is allocated on market
terms and foreign investors can get credit on the local market.
However, legal, regulatory and accounting practices are often
unwieldy. Some observers claim the banking industry is not subject
to effective mandatory regulation and some banks are not managed in
a transparent fashion. There are only about a dozen banks operating
in Benin.

A.10. Political Violence

Benin is a democracy that functions reasonably well, particularly in
comparison to other countries in Sub-Saharan Africa. Benin conducted
its fourth presidential election in March 2006 peacefully, and with
widespread voter participation. Political violence is rare. There
are no nascent insurrections or other politically motivated violent
activities. People in all regions of the country feel free to
express their political views without fear of reprisal from the
government.

Benin enjoys friendly relations with its neighbors. It has a
tradition of religious tolerance. Ordinary crime is moderate, even
in urban areas, although rising crime is a national concern. The
next legislative election will be held in March 2007 and the
"pre-campaign" has already begun. Election activity will probably
eclipse all other endeavors from now until the election. There are
some concerns about how efficiently the elections will be organized,
but expectations are that a newly-elected parliament should be in
place by April 2007, representing yet another step in consolidating
Benin's democratic tradition.

A.11. Corruption

Benin has laws, regulations and penalties aimed at combating
corruption, but the problem is endemic. Actual prosecution and
punishment for corruption is rare but, encouragingly, in 2006 the
GOB has charged several prominent businessmen and former politicians
with embezzlement in high profile cases. Efforts to battle
corruption by civil society have had some positive effects in
influencing public attitudes. The GOB set up an Anti-Corruption
Observatory in 2004 to combat all forms of corruption and bribery in
the private and public sectors and established a State Inspectorate
General to investigate corruption allegations. In April 2006, the
incoming President ordered audits of all government ministries and
state-owned enterprises. The results of these audits, while not
public, have led to some investigations, and demands for repayment
of many unjustified expenditures.

The High Court of Justice prosecutes high-ranking GOB officials
involved in corruption or bribery. Foreign businessmen who want to
establish a business may encounter numerous attempts to solicit
bribes. Hiring a notary public who understands the country's
business laws is advisable. Examples of bribe solicitation include
civil servants at the state-owned telecommunications parastatal
(Benin Telecoms SA, formerly OPT),who demand a bribe before
granting a phone line. Labor ministry inspectors reportedly demand
bribes to monitor union elections. Bribery of foreign officials is
forbidden under the Foreign Corrupt Practices Act. An American
company recently paid the largest U.S. Securities and Exchange
Commission (SEC) fine in history under the FCPA for its activities
in Benin.


B. Bilateral Investment Agreements

Benin has a bilateral investment agreement with France but none with
the United States. With respect to investment protection, Benin has
concluded agreements with several European countries including:

- Germany: October 10, 1993 Agreement Pertaining to the Mutual
Encouragement and Protection of Investment Capital.

- Great Britain: November 27, 1987 Agreement for the Protection of
British Investments in Benin.

Benin is also a signatory to various multilateral agreements for
investment protection, including the Multilateral Security Agency

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Agreement and Convention for the International Settlement of
Investment Disputes.


C. OPIC and Other Investment Insurance Programs:

The Overseas Private Investment Corporation (OPIC) offers financing
programs to assist companies wishing to invest in developing
countries, including Benin. OPIC insurance may be available to
companies wishing to invest in Benin depending on the nature and
extent of the investment. Potential investors should contact OPIC
directly for further information at info@opic.gov.


D. Labor

The government adheres to international labor standards and fully
recognizes the right to form unions and engage in collective
bargaining. The government adopted a new labor code in 1998 aimed at
increasing flexibility in hiring decisions, eliminating the need for
prior authorization from the government's Labor Office for employee
dismissal, and consolidating labor regulations currently previously
scattered among various texts. As a practical matter, however,
Benin's labor practices contain many inefficient features
reminiscent of the Marxist era. Foreign companies who dismiss
employees for unsatisfactory performance are routinely sued. Child
labor is widespread and, although it is making efforts, the GOB
still needs to do more to suppress it. The Constitution provides
workers with the freedom to organize, join unions, meet, and strike,
and the Government usually respects these rights in practice. The
labor force of approximately 2 million is engaged primarily in
subsistence agriculture and other primary sector activities, with
less than two percent of the population engaged in the modern (wage)
sector. Although approximately 75 percent of the wage earners belong
to labor unions, a much smaller percentage of workers in the private
sector are union members. There are several union confederations,
and unions generally are independent of government and political
parties. Strikes are permitted; however, the authorities can declare
strikes illegal for stated causes (for example, threatening to
disrupt social peace and order),and can require strikers to
maintain minimum services.


E. Foreign Trade Zones/Free Ports

There is a free trade zone in the port of Cotonou for Benin's
landlocked neighbors (Burkina Faso and Niger).
Foreign importers have complained, however, that corruption at the
port makes it difficult to benefit from this entity. The GOB plans
to construct one industrial zone in each of Benin's 12 Departments
in order to attract investment, but only one has become operational.
Work has begun on zones in Bohicon and Ouidah. The GOB plans to
provide tax breaks for prospective investors as well as
infrastructure for water, electricity and telephone service. The
most promising zone, in Seme on the coast near the Nigerian border,
is also a free trade zone. The site is 200 hectares in size, and
there are plans to double it during its second phase.


F. Foreign Direct Investment Statistics

Much of the foreign investment that has entered Benin since
1990 has been through the acquisition of interests in privatized
companies. The principal foreign investors in Benin are from
Lebanon, India, Germany, France, China, and South Africa. The
following are examples of companies sold in part to foreign
investors, listed by name, activity, price and buyer:

- British/American Tobacco Company- approx. $2.6 million - by
Rothmans International;
- SIMBENIN (cement company) - approx. $8.4 million - by ScanCem
(Scandinavian group with minority investors; large share later
purchased by German company); and
- La Beninoise (brewery) approx. $15.6 million - by Castel-BGI
(French Group)
- Libercom (GSM provider) - approx. $60 million - by state-owned
Chinese telecommunications firm ZTE.

American firms Texaco/Chevron and Kerr-McGee have substantial
investments in Benin. Texaco/Chevron provides aviation fuel for the
International Airport in Cotonou, has completed its fifth service
station in Benin, and has plans to open more service stations
throughout the country. Houston-based oil independent Kerr-McGee has
acquired rights to a deep-water block off Benin's coast and drilled
two exploratory wells in March 2003.

BROWN