DRC: 2009 INVESTMENT CLIMATE STATEMENT

UNCLAS KINSHASA 000045

SIPDIS

STATE FOR EB/IFD/OIA
STATE PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ECON ELAB KTDB PGOV OPIC USTR CG
SUBJECT: DRC: 2009 INVESTMENT CLIMATE STATEMENT

REF: STATE 123907


1. (U) Per reftel, following is the text of the Investment Climate
Statement for the DRC for 2009.

OPENNESS TO FOREIGN INVESTMENT
--------------


2. (U) The DRC's rich endowment of natural resources, large
population size (approximately 65 million) and generally open
trading system provide significant potential opportunities for U.S.
investors. At the same time, the DRC remains a highly challenging
environment in which to do business. For the past two years, the
World Bank's Doing Business report rated the DRC as the most
difficult country in the world in which to do business.
Underdeveloped infrastructure, inadequate contract enforcement,
limited access to credit, continued insecurity in the eastern part
of the DRC, lack of adequate property rights protection, and high
levels of both bureaucracy and corruption continue to constrain
private sector development.


3. (U) Since the democratic Presidential, Parliamentary and
provincial elections in 2006, the Democratic Republic of the Congo
(DRC) has continued to make progress, albeit slowly, in addressing
the country's significant political, economic, and social
challenges.
The DRC seeks to attract foreign investors in order to boost
production and increase economic growth. Congolese investment
regulations, codified in the Investment Code, do not discriminate
against foreign investors, except in some specific cases dealing
with labor and related taxes. To overcome previous hurdles and to
simplify and facilitate investment, the GDRC has created a one-stop
agency called the National Agency for Investment Promotion (ANAPI).
This agency is using provisions of the new Investment Code to work
to simplify new investments and to make the procedure more
transparent.


4. (U) Broadly, there are no formal limits or screening mechanisms
imposed upon foreign ownership of businesses in the DRC. Small
businesses, however, are still subject to the presidential decrees
number 79-021 of August 2, 1979 and number 90-046 of August 8, 1990,
which prohibit foreign investors from engaging in retail commerce.
The processes of granting permits and licenses in the mining and
telecommunication sectors often suffer from arbitrariness, lack of
transparency, and corruption.


5. (U) All investors in the DRC suffer from multiple audits by
various government enforcement agencies seeking evidence of
violations of tax laws or price controls. Foreigners and Congolese
alike suffer the consequences of nonfunctional judicial
institutions. The inadequate physical infrastructure - including
internal transportation, energy, and social infrastructure - is a
result of years of civil war and literally decades of mismanagement,
negligence, and a lack of clear public policies in the
infrastructure sector. International donors and a recently
concluded multi-billion dollar Sino-Congolese agreement will provide
critically needed resources for infrastructure development, but
constraints will exist in the short-term.


6. (U) Restructuring of approximately 60 Congolese parastatals,
including perennial money losers such as the national electricity
(SNEL),river transportation (ONATRA) and rail (SNCC) companies,
continues, though slowly. The GDRC acknowledges the need for reform
and the Portfolio Ministry continues to work to improve the
situation. The government and state-owned Societe Nationale
d'Electricite (SNEL) have begun to open the energy sector to private
investment.


7. (U) The DRC's economic environment changed dramatically during
the course of 2008 as a result of the impact of the global financial
crisis in the final quarter of the year. Earlier, double-digit GDP
growth projections for 2008, forecast as recently as October, have
been revised downward to 8 percent. GDP growth for 2009 is
projected at below 5 percent. The once robust mining sector
significantly contracted towards the end of the year due to falling
international commodities prices, a tightening of international
credit, and dampened investor confidence in the sector.

CONVERSION AND TRANSFER POLICIES
--------------


8. (U) The DRC adopted a freely floating exchange policy in 2001 as
part of the implementation of broader economic reforms. The DRC has
also lifted restrictions on business transactions nationwide.
International transfers of funds take place freely when transacted
through a local commercial bank. The bank declaration requirement
and payments for international transfers now take less than one week
to complete, on average.


9. (U) The Congolese franc had remained relatively stable for the
past several years because of the GDRC's tight monetary policy.
However, the Congolese franc has recently experienced increasing
volatility due to the impact of the global financial crisis on the
DRC's economy. In 2008, the Congolese franc depreciated by 27
percent on the official market. The largest banknote currently in
circulation is the 500 Congo franc note; larger denominations (1,000
Congo francs and 5,000 Congo francs) may be put into circulation in

2009. The only currency restriction imposed on travelers is a USD
10,000 limit on the amount an individual can carry when entering or
leaving the DRC. The DRC's economy remains highly dollarized.

EXPROPRIATION AND COMPENSATION
--------------


10. (U) There have been no expropriation actions against U.S.
citizens in the recent past. Post is aware of a number of existing
claims against the GDRC that date from 1991 to 2002, some of which
were taken to arbitration (see Dispute Settlement section below).
Arbitration judgments against the GDRC, however, have not been paid
in a timely manner, if at all. There are no laws forcing local
ownership, although parastatal companies involved in the petroleum
and mining sectors maintain minority shares of most foreign-owned
projects.


11. (U) A recently completed GDRC review of 61 mining contracts
between DRC public enterprises and private companies between
1997-2002 was plagued by numerous delays and a lack of transparency.
Many of the largest foreign investors did not reach agreement with
the GDRC during the review process and continue negotiations. A
recent review of concessions in the logging sector aimed at
cleaning-up corruption in the sector resulted in the cancellation of
approximately two-thirds of the over 150 timber logging contracts.


DISPUTE SETTLEMENT
--------------


12. (U) The U.S.-DRC Bilateral Investment Treaty (BIT) provides for
International Center for Settlement of Investment Disputes (ICSID)
reconciliation or binding arbitration in the case of investment
disputes. A number of U.S. firms pursued claims against the GDRC
for damages resulting from civil disturbance by military mutinies in
1991 and 1993. Two investors have won settlements from the ICSID.
In early 2004, a claimant under the BIT won a settlement from ICSID
but has not yet collected payment from the GDRC. The other
investor, who successfully collected the compensation awarded by
ICSID, received damages in 1999.


13. (U) On paper, the DRC's official policies are satisfactory and
even attractive to business, but in recent years they have often
been inoperative in practice due to problems with the judicial
system. Courts are marked by a high degree of corruption, public
administration is not reliable, and both expatriates and nationals
are subject to selective application of a complex legal code.
Official channels often do not provide direct and transparent
recourse in the event of property seizure, for which legal standing
can rarely be determined. Seizures have been made via the police
and/or military, often supported by questionable decisions from the
courts. Foreign enterprises may have slightly better security of
ownership due to the presence and intervention of their diplomatic
missions. Many Congolese business contracts provide for external
arbitration, but this is an expensive and time-consuming option with
little value for resolving routine, day-to-day business problems.


14. (U) In 2008, the DRC established commercial courts in Kinshasa
and Lubumbashi for the first time, with additional commercial courts
scheduled to be established shortly in the remaining DRC provinces.
These courts are slated to be led by professional judges with
expertise in commercial matters and may assist investors address
commercial claims within an otherwise inadequate judicial system.

PERFORMANCE REQUIREMENTS AND INCENTIVES
--------------


15. (U) The new DRC Investment Code is a simplified and improved
version of its predecessor. Although there are no specific
performance requirements for foreign investors, there are investment
conditions that must be agreed upon with the GDRC. These conditions
are discussed and agreed upon initially with the DRC investment
agency, ANAPI, which assures equitable treatment and procedures for
all qualified foreign investments. The DRC has shortened this
agreement procedure to approximately 30 days, and has created a
number of incentives to attract foreign investment to the country.
Pro-business incentives range from tax breaks to duty exemptions
granted for three to five years, and are dependent upon the location
and type of enterprise, the number of jobs created, the extent of
training and promotion of local staff, and the export-producing
potential of the operation. The Ministry of Labor controls
expatriate residence and work permits. For U.S. companies, the BIT
assures the right to hire staff of their choice to fill some
management positions, but the companies agree to pay a special tax
on expatriate salaries.


16. (U) Performance requirements agreed upon initially with ANAPI
include a timeframe for the investment, the use of Congolese
accounting procedures and periodic authorized GDRC audits, the
protection of the environment, periodic progress reports to ANAPI,
and the maintenance of international and local norms for the
provision of goods and services. The investor must also agree that
all imported equipment and capital will remain in place for at least
five years. There is no discriminatory or excessively onerous visa,
residence or work permit requirement designed to prevent or
discourage foreigners from investing in the DRC.


17. (U) According to the terms of the Investment Code, the GDRC may
require compliance with an investment agreement within 30 days of
notification. Continued violations of an agreement may result in
sanctions, including repayment of benefits received (such as tax
exemptions) and eventual nullification of the agreement.


18. (U) In the case of a dispute between a U.S. investor and a GDRC
agency, the investor is subject to the Congolese civil code and
legal system. If the parties cannot reach agreement, under the
terms of the U.S.-DRC BIT the dispute is taken to the ICSID or to
the Paris-based International Chamber of Commerce (ICC).


19. (U) GDRC public administration reforms implemented since 2002
have allowed foreign investors to bid on government contracts just
as domestic investors, with no discriminatory terms. Foreign firms
may even be favored in the bidding process because they can more
easily access and present international insurance funding
guarantees. With the sponsorship and technical assistance of the
World Bank, a tender board now works under the supervision of the
Ministry of Budget. Normally, however, public companies and/or
parastatals do not participate in the bidding process, due to the
financing guarantees required beforehand. In addition, contracts
are often negotiated directly with the GDRC, not through an
international tender process, thus reducing transparency.

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------


20. (U) The recently approved DRC Constitution (chapter 2, articles
34-40) protects private ownership without discrimination between
foreign and domestic investors. It also protects investments
against takeover, unless the investment conflicts with some
overriding public interest. In this case, there are legal
provisions for equitable and appropriate compensation for the
parties involved.


21. (U) The GDRC has restricted one category of small businesses to
Congolese nationals. This covers artisanal production sector
activities, small public transport firms, small restaurants, and
hotels with fewer than ten beds. Despite GDRC restrictions, some
foreign-owned small retailers, particularly Chinese-owned stores,
have recently appeared on the market.

PROTECTION OF PROPERTY RIGHTS
--------------


22. (U) Despite the new DRC Constitution and attempts to enforce
existing legal provisions, protection of property rights remains
weak and dependent upon a currently dysfunctional public
administration and judicial system. Some senior-level officials are
making efforts to restore and improve the legal and administrative
frameworks, but the challenge remains to implement these changes at
a practical level.


23. (U) Ownership interest in movable properties (e.g. equipment,
vehicles, etc.) is secured and registered through the Ministry of
the Interior's Office of the Notary. Real estate property (e.g.
buildings and land) is secured and registered at the Ministry of
Land's Office of the Mortgage Registrar.


24. (U) In principle, intellectual property rights are legally
protected in the DRC. However, this protection does not always
exist in practice. The country is a signatory to a number of
international agreements with organizations such as the World
Intellectual Property Organization (WIPO),and the Paris Convention
for Protection of Intellectual Properties, which protects trademarks
and patents. The DRC is also a member of the Berne Convention that
protects copyright, artistic works, and literary rights. The
maximum protection that these conventions provide is 20 years for
patents and 20 years, renewable, for trademarks, beginning from the
date of registration. If it is not used within three years, a
trademark can be cancelled. The DRC has not yet signed the WIPO
Internet Treaties.


25. (U) The GDRC continues to undertake efforts to improve
IPR-related legislation and build capacity to improve implementation
and enforcement. The Minister of Justice has presented a law to the
government that seeks to rectify the flaws of the existing 1986 IPR
law. The law is still pending Parliamentary approval.

TRANSPARENCY OF THE REGULATORY SYSTEM
--------------


26. (U) Implementing a transparent regulatory system is still a
challenge in the DRC. The GDRC is making some effort to improve the
situation, including through appropriate legislation enacted by the
parliament. Implementation and compliance, however, are still far
from securing a complete legal and regulatory framework for the
orderly conduct of business and the protection of investment. The
GDRC authority on business standards, the Congolese Office of
Control (OCC),oversees participation by foreign businesses.


27. (U) There are no formal or informal provisions by any private or
public structure, in any business-related environment, used to
impede foreign investment. Problems encountered within the GDRC
tend to be administrative and/or bureaucratic in nature since
reforms and improved laws and regulations are often poorly or
unevenly applied. Proposed laws and regulations are not published
in draft format for public discussion and comments. Normally the
only discussion occurs within the governmental or administrative
entity that drafts them and at the parliament prior to a vote. The
Congolese public, as well as foreign and domestic investors, do not
receive an adequate opportunity to discuss or comment on these
proposals.


28. (U) The IMF and the World Bank are working with the GDRC to
bring the country into compliance with international business norms
for accounting, legal, and regulatory systems. The World Bank's
International Finance Corporation (IFC) has also launched a program
to establish "Special Economic Zones" to help jumpstart investments.
The GDRC has made progress towards joining the Organization for the
Harmonization of Business Law in Africa (OHADA) to help the DRC to
modernize its legal standards.


29. (U) In 2008, the DRC became a candidate country for the
Extractive Industries Transparency Initiative (EITI),a
multi-stakeholder effort to increase transparency in transactions
between governments and companies in the extractive industries.
Though the GDRC has taken some positive steps under EITI, including
establishment of a National EITI Committee, implementation of
necessary steps toward validation has been slow to date.

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------


30. (U) Efforts are being made to reinvigorate financial market and
credit instruments. EconomicQrowth in the DRC since 2002 has
increased the flow of money in the finished goods and raw materials
market. Credit markets also are becoming more active, mainly in the
commercial project and medium-term project sectors. All economic
operators, foreign and domestic, have access to credit markets in
the DRC without discrimination, as long as they can provide credible
guarantees. Foreign investors, though, are more likely to benefit
from this type of credit, since they are able to provide guarantees
and collateral secured by foreign banks.


31. (U) The commercial banking system has undergone a full
reorganization, although there is still only one bank branch for
each 1.5 million Congolese. The BCC (Congolese Central Bank) and
the IMF are working togeQer on a program of banking reforms. Two
main objectives are to restore confidence in the commercial banks
and to promote the intermediary role of the banking system in the
DRC. There are currently 18 commercial banks, two specialized
financial institutions, one savings bank, eighty-two co-operative
banks, and fourteen micro-finance institutions, with a total of
200,000 accounts. The volume of savings increased from USD 97.2
million in 2001 to USD 934 million at the end of June 2008, a growth
of 861 percent. Credits grew from USD 48 million to USD 576 million
during the same period, an increase of over 1,000 percent.


32. (U) Business practices in the DRC are still at a fairly
rudimentary level. Cross-shareholding and stable shareholding
arrangements are not common in the DRC. There are occasional
complaints about unfair competition between investors in profitable
sectors such as mining and telecommunications.

POLITICAL VIOLENCE
--------------


33. (U) The DRC has suffered bouts of civil unrest and conflict for
many years. Large-scale military looting in 1991 and 1993, for
example, resulted in a significant loss of economic productive
capacity. In addition, widespreadlooting and destruction associated
with wars in he DRC from 1996-1997 and from 1998-2003 further
damaged Congolese economic activity.


34. (U) Natonal and provincial governments were elected at th end
of 2006 in the country's first democratic ntional elections in more
than 40 years. Despitetechnical and logistical difficulties,
coupled with isolated incidents of violence and intimidation,the
elections were held in a largely calm and orerly fashion. The
November 2007 Nairobi Commuique and the subsequent January 2008
conference n peace and security in Goma provide the foundation for
improved security in eastern DRC, though theful implementation of
the agreements remains frgile. Recently, hostilities between the
rebel CDP group and government forces have resumed. In adition to
continuing instability in the eastern DC, strikes by civil servants
and teachers over slary and benefit issues have occurred and
contine to pose a potential source of social upheaval. ilitary
and police personnel remain poorly paid and trained.

CORRUPTION
--------------


35. (U) U.S. businesses often comlain about corruption in the DRC,
citing it as aprincipal constraint to doing business in the
country. The Mobutu regime created a culture of corrution in the

DRC during more than 30 years of rul. This ingrained culture
permeated the private,public, administrative, and business
environment and has been difficult to root out. The DRC was rted
as the tenth most corrupt country out of 180nations on Transparency
International's 2008 Coruption Perception Index.


36. (U) In principle, here are legal provisions to fight and
sanction orruption. The DRC is a member of the UN Anti-Corrption
Convention and passed its own anti-corrupton law in 2004.
Additional legislation includes he 2004 Money Laundering Act, under
which the DR cooperates with African and European crime-fightig
organizations. Despite these reform efforts, hwever, bribery is
still routine in public and private business transactions,
especially in the areas of government procurement, dispute
settlement, and taxation.


37. (U) Bribery is illegal in the DRC and in principle it is
investigated and prosecuted. The law calls for imprisonment and
fines for both parties to the bribery no matter the circumstances.
However, law enforcement remains a challenge in this area.

BILATERAL INVESTMENT TREATIES
--------------


38. (U) The United States and the DRC (then-Zaire) signed a
Bilateral Investment Treaty (BIT) in 1984 that entered into force in

1989. This treaty guarantees reciprocal rights and privileges to
each country's investors. The BIT provides for binding third-party
arbitration in the event of an investment expropriation dispute.


39. (U) Germany, France, Belgium, Italy, South Korea, South Africa,
and China (PRC) have signed bilateral investment agreements with the
DRC. Lebanon, Ivory Cost, and Burkina Faso have negotiated, but not
yet signed, bilateral investment treaties with the DRC.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
--------------


40. (U) The U.S. Overseas Private Investment Corporation (OPIC),
which provides political risk insurance and project financing to
U.S. investors and non-governmental organizations, ceased operations
in the DRC for a time following the events of 1991. Since the
establishment of the transitional government in June 2003, OPIC has
granted three political risk insurance contracts in 2004, another in
2005, and is currently reviewing additional applications by
American-owned companies. In March 2006, the DRC signed an accord
with OPIC that will expedite the process of obtaining political risk
insurance and financing.


41. (U) The DRC is a member of the World Bank's Multilateral
Investment Guarantee Agency (MIGA),which offers insurance on new
foreign investments to protect against foreign exchange losses,
expropriation, and civil unrest. Recently, MIGA agreed to provide
insurance to a mining concern in Katanga province. The GDRC is
negotiating now for complete resumption of the MIGA program, which
would allow for investment insurance in other sectors of the
economy. The DRC is also a member of the African Trade Insurance
Agency, which also provides political risk insurance.

42. (U) The projected annual exchange rate for the purpose of the
2009 DRC national budget is 580 CF/USD. The average annual rate for
2007 was 500 CF/USD. The exchange rate was (estimate) 600 CF/USD at
the end of December 2008. The U.S. Embassy purchases local
Congolese currency at the official rate for payroll and
administrative needs. The exchange rate had been stable (FC
560/USD) over the first half of 2008, but began to depreciate
rapidly as a result of fiscal pressures from the continuing conflict
in eastern DRC and a drop in revenues from lower international
commodities prices due to the global financial crisis.

LABOR
--------------

43. (U) The DRC's large urban population provides a ready pool of
available labor, including a significant number of high school and
university graduates, a few of whom have studied at American
universities. Employers cannot, however, take diplomas at face
value. Skilled industrial labor is in short supply and must often
be trained by individual companies.

44. (U) The GDRC sets regional minimum wages for all workers in
private enterprise, with the highest pay scales applied in the
cities of Kinshasa and Lubumbashi. Wages have not kept pace with
the DRC's rate of inflation. While most foreign employers pay
higher wages than the official minimum wage, the average Congolese
worker has had to cope with falling real wages for over a decade.

45. (U) The country's labor legislation was modified by the October
2002 Labor Code, which is in compliance with the conventions and
recommendations of the International Labor Organization. The code
provides for tight control of labor practices and regulates
recruitment, contracts, the employment of women and children, and
general working conditions. Strict labor laws can make termination
of employees difficult. The code also provides for equal pay for
equal work without regard to origin, sex, or age. The new code
formally permits a woman to gain employment outside of her home
without her husband's permission.

46. (U) Employers must cover medical and accident expenses. Larger
firms are required to have medical staff and facilities on site,
with the obligations increasing with the number of employees.
Mandated medical benefits are a major cost for most firms.
Employers must provide family allowances based on the number of
children, and paid holidays and annual vacations, based on the years
of service. Employers must also provide daily transportation for
their workers or pay an allowance in areas served by public
transportation. Outside the major cities, large companies often
assist by providing infrastructure, such as roads, schools and
hospitals. Many labor regulations have been only sporadically
enforced in recent years. The Ministry of Labor must grant
permission for staff reductions. Generous pension and severance
packages are required by the labor code.

FOREIGN TRADE ZONES / FREE PORTS
--------------


47. (U) The DRC does not have any areas designated as free trade
zones or have any free ports. The DRC is a member of the Southern
African Development Community (SADC) and the Common Market of
Eastern and Southern Africa (COMESA),but has not yet joined either
the COMESA or SADC free trade areas (FTAs).

FOREIGN DIRECT INVESTMENTS STATISTICS
--------------


48. (U) Obtaining reliable statistical data on foreign direct
investment (FDI) in the DRC remains a challenge. There are two
sources: the Central Bank (BCC) and the National Agency for
Investment Promotion (ANAPI). At the time of writing this report,
the 2008 figures were not yet available.


49. (U) BCC statistics are based on funds reported to the bank from
actual investment projects underway, and are more accurate than
those of ANAPI. These figures, however, may not capture all FDI
flowing in the DRC; therefore, the quality of the BCC data is
undetermined. Actual FDI amounts are probably higher than the BCC
figures shown here. For the last three years, BCC has published the
following totals:


FDI (in USD million)

2006 2007 2008

Total 304 720 256 (estimates at the end of November 2008)

ANAPI registers data are obtained from proposals by potential
foreign investors. Figures related to 2008 are related to the 11
months of the fiscal year 2008. They summarize approved projects in
services, manufacturing sector, the food sector, pharmaceuticals,
forestry and agriculture, and infrastructure. The bulk of
investments are oriented towards services (telecommunications,
health, and housing),representing almost 60 percent of investments
reported by ANAPI.

FDI (in USD million)

2006 2007 2008

Services 1,246 812,460 750.66
Infrastructure 35 70.45
Food 10 66.66
Pharmaceuticals 4 0.00
Beverages/Brewery 0 0.00
Agriculture/Forestry 29 231.25
Manufacturing 131 54,738 152.72
-------------- -------------- --------------
Total 171,455 867,198 1,271.76


GARVELINK