SENEGAL Investment Guide

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.

Currency 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.

Performance Requirements and 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.

Private Ownership Rights

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.

Transparency of Regulatory System

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.

Political Violence

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.

Corruption and Crime

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 a bribe 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.

International Investment Agreements

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.

Foreign Trade Zones

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

Foreign Investment Statistics

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.

Taxation

The corporate income tax in Senegal is levied at 35 percent of net taxable income. Capital gains are taxed at the full corporate rate, but payment can be deferred if the gains are re-invested within a period of three years. The withholding tax, assessed at a rate of 16 percent, is deductible from corporate tax.

The value added tax (TVA) is a non-cumulative tax which is levied on sales of goods and services at progressive rates ranging from 10 to 34 percent. The business franchise tax is applied to a composite base, at a maximum rate of 5 percent of the fixed tax of up to CFA 150,000, with modifications depending upon the nature and location of the business. A real estate tax of 15 percent of taxable income is also levied against properties subject to corporate tax. A payroll tax, ranging from three to six percent, is levied against the sum of both local and expatriate salaries.

Foreign corporations in Senegal are taxed only on Senegal-source income. Businesses that are centered externally and are without permanent establishment in Senegal are subject to a tax at a rate of 35 percent of net revenues. Foreign companies with branches in Senegal are subject to a 10 percent withholding tax on profits that have not been reinvested in Senegal. Senegal also has a minimum tax of CFA 500,000 for all companies, resident and non-resident.

Tax incentives are automatically granted to investment projects meeting the following criteria: Investors who use local resources for at least 65 percent of their inputs within a fiscal year are afforded exoneration from minimum personal income tax and business license tax; Enterprises that locate in less industrialized regions of Senegal benefit from exoneration of the lump sum payroll tax of 3 percent; Priority status companies are given exemptions from various taxes, including exemptions from import taxes and duties for up to 3 years, exemption from franchise tax for up to 5 years, exemption from minimum profits tax on income, and exemptions from tax on employee salaries.

The investment code also provides exemptions from income tax, other taxes, and duties, which are to be phased out progressively over the next few years. Other tax incentives include the right to remit income and capital, and the opportunity to participate in Government contracts.

Stock Market

The Bourse Regionale des Valeurs Mobilieres (BRVM) was opened in September 1998 to serve as a regional financial market for the member-states of the West African Economic and Monetary Union (UMOEA), which includes Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. By the end of the 1990's, the BRVM had 35 listed companies.

Listing requirements include: a share capital of CFA 200-500 million; 15-20 percent public ownership; five annual reports; balance sheet.

The BRVM has computerized trading with satellite links. Trading occurs on Mondays, Wednesdays, and Fridays. Trading is decentralized so that member-countries can trade simultaneously from their national bourse via satellite links.

For more information on the Bourse Regionale des Valeurs Mobilieres, see URL: http://www.brvm.org

For further information on investing in Senegal, please visit: http://www.gouv.sn

Sources: International Monetary Fund (Country Watch): http://www.imf.org