Commercial Guide

VII - Investment Climate

Openness to Foreign Investment

The government is seeking direct foreign investment and private sector development. It is privatizing most of the former parastatal companies and receives proposals from various foreign and national buyers, which are examined without discrimination. The government does not have specific laws/rules (with the exception of the Investment Code and French business law principles applicable to Burkina) affecting foreign investment through acquisitions, mergers, takeovers, and greenfield investments. The government does not practice investment screening except for the fact that, in order to be eligible for code incentives, the investment must be linked to the national interest.

The Investment Code

The Investment Code guarantees equal treatment of both foreign and domestic investors seeking the investment privileges described below. The Ministry of Industry, Commerce, and Crafts approves all new investments, both foreign and domestic, based upon recommendations by the National Investment Commission.

The 1992 Investment Code was substantially revised in 1995 and 1997 to make it more attractive. It now establishes six incentive schedules:

Schedule A applies to investments of less than 20 million CFAF (roughly USD 34,000) made by companies producing, preserving, or processing goods that generate at least three permanent jobs. It exempts a company from customs fees (and from internal fiscal taxes if the equipment is locally made) that are normally due on the equipment and first set of spare parts that a company imports at the outset of the investment. During the production phase, it provides for a five-year total exemption from the commercial and industrial profits tax (IBIC) and the forfeit tax (IMFPIC). It also provides for a two-year total exemption from the licensing tax (Patente) and for a two-year 50% licensing tax exemption after the period of total exemption.

Schedule B applies to investments of at least 20 million CFAF made by companies that produce, preserve, or process goods that create at least seven permanent jobs. It provides the same incentives as listed above at the outset of the investment. During the production phase, it provides for a five-year exemption from commercial and industrial profits tax, licensing tax, stock and shares income tax, apprenticeship tax, transfer tax, forfeit tax, as well as for a three-year 50% reduction of the above taxes after the period of total exemption.

Schedule C applies to investments of at least 500 million CFAF (about 835,000 USD) that create at least 50 permanent jobs. It provides for the same incentives as in Schedule A and B at the outset of the investment. During the production phase, it provides for a six-year total exemption from the commercial and industrial profit tax, licensing tax, stock and shares income tax, apprenticeship tax, transfer tax, forfeit tax, as well as for a three-year 50% reduction of the above taxes after the period of total exemption. In addition, companies that obtain Schedule C benefit from a stabilized fiscal regime. This means that if tax modification occurs, it does not apply to these companies if it increases the rates during the concerned period.

Schedule D applies to companies that provide services requiring a minimum investment of 10 million CFAF (about USD 17,000) and that create at least seven permanent jobs. It provides the same incentive as Schedule A, B, and C at the outset of the investment. During the production phase, it provides for a five-year total exemption from the commercial and industrial profit tax, licensing tax, stock and shares income tax, apprenticeship tax, transfer tax, and forfeit tax.

Schedule E applies to companies providing services that require a minimum investment of 500 million CFAF (about USD 835,000) and that generate at least 30 permanent jobs. At the outset of the investment, it has the same incentives as the above schedules. During the production phase, it provides for a six-year total exemption from the commercial and industrial profit tax, licensing fax, stock and shares income tax, transfer tax, forfeit tax, and apprenticeship tax.

(N.B. Exemptions provided for in Schedules A, B, C, D, and E do not include taxes on services, office furniture, computer hardware, air-conditioning equipment, and gasoline.)

There is a special schedule for companies whose only activity is exporting, as described below:

When an exporting company is formed, the Code provides a 50% reduction in registration fees. At the outset of the investment, it provides for total exemption from customs taxes on imported construction materials, production equipment, and specific vehicles and materials related to the production process or those which have been recognized as such by the National Investment Commission.

During the production phase, it provides for:

-- a permanent total tax exemption on raw materials and supplies directly used in production or as non-recyclable packaging;

-- a total and permanent exemption from the licensing tax, stock and shares income tax, apprenticeship tax, transfer tax, and forfeit tax;

-- a 50% permanent reduction from the commercial and industrial profit tax. (This rate increases to 75% if at least 80% of the total raw materials used during processing consists of local raw materials.)

A communal investment code is envisioned as part of the regional integration program being undertaken by the UEMOA. However, a community investment code will not be established before the year 2000.

The Mining Code

The 1993 Mining Investment Code was replaced in October 1997 by a code with more incentives. The 1997 Code establishes two mining rights: the exploration license and the exploitation license. It provides special customs and fiscal privileges for each license as described below:

An exploration license grants an exclusive right to explore for specific mineral substances within an allocated area. However, the holder of an exploration license can request the right to apply it to other minerals. This license is valid for three years and is automatically renewable for two three-year periods. It covers a maximum area of 250 square kilometers, which is reduced by 25% at the second renewed three-year period. The remaining area is to be determined by the holder. A mining convention can be held in addition to the exploration license. In such a case, the mining convention cannot supersede the license rules. It has a validity of 20 years and is renewable by 10-year periods.

An exploration license grants the following fiscal and customs benefits to the holder:

-- Within the framework of its operations, exemption from the value-added tax (TVA), commercial and industrial profit tax (IBIC), licensing tax (Patente et licenses), forfeit tax (IMFPIC), apprenticeship tax (TPA), registration tax (Droit d’enregistrement et du timbre), and stock and shares income tax (IRVM). These exemptions do not exonerate the holder from declarative obligations stipulated in the Fiscal Code (Articles 16, 17, and 251).

-- Exemption from customs fees on professional equipment and raw materials imported to help in the exploration process and taxes on services received. This exemption covers spare parts whose value does not exceed 30% of the CIF value of imported machinery and equipment. It also covers gasoline and lubricants for production machinery as well as field vehicles, except for tourist vehicles. A list of equipment benefiting from the exemption is normally attached to the exploration license when it is issued. If the list does not cover all needed items, the Ministry of Mines and Ministry of Finance issues an additional list.

Geoservice companies, including drilling companies and laboratories that analyze mineral samples, benefit from the customs exemption if they operate as sub-contractors.

An exploitation license grants the holder the right to establish and exploit a mine according to rules of the Mining Code. An exploitation license is given for a period of 20 years and is renewable for five years until the deposit is exhausted. Granting an exploration license gives the government 10% of the shares of the mining company that will be formed.

An exploitation license grants fiscal and customs privileges as follows:

A seven-year exemption from the forfeit, licensing, apprenticeship, and transfer taxes; the staggering of the registration tax over a five-year period with a total exemption if the company increases its capital; and exemption on the value-added tax from exports. The holder will have to pay a 35% tax on commercial and industrial profits, and a 12.5% stock and shares income tax.

The holder of an exploitation license must pay a combined custom tax of 11% during the mining exploitation period on imports of raw materials, equipment, materials, gasoline, and lubricants to be used in the exploitation. Notwithstanding this special custom tariff, the holder of an exploitation license can ask for temporary admission benefits. Conditions for obtaining and executing the temporary admission are set by the rules in effect. The holder of an exploitation license is authorized to constitute what is called "provision for the deposit reconstitution." The commercial and industrial profit tax does not apply to this provision. The holder of an exploitation license can request and obtain a stabilized fiscal and custom tariff.

In case of litigation, depending on the nature of the problem, mining authorities and the holder may designate one or several experts to proceed to arbitration. They can also refer the case to Burkinabe courts or an international arbitration court if prescribed by a mining convention.

The overall investment in the mining sector in 1996 amounted to USD 38 billion, with about 140 companies maintaining exploration licenses and authorizations.

Conversion and Transfer Policies

Burkina Faso is a member of the West African Monetary and Economic Union (UEMOA) and uses the CFAF. The CFAF is freely convertible into French francs (FF) at a fixed rate of 100 CFAF to 1 FF. Investors should consider advantages offered by the UEMOA, which includes Senegal, Togo, Côte d’Ivoire, Benin, Niger, Mali, and Guinea-Bissau. The CFAF may be freely used between member countries.

In December 1998 and February 1999, the UEMOA issued regulations that define the financial relations of its member countries with foreigners. These regulations principally outline the conditions in which a UEMOA bank can easily access hard currency (couverture de change) directly from a partner/correspondent foreign bank without the intervention of the Central Bank.

Burkina Faso’s Investment Code guarantees foreign investors the right to transfer abroad any funds associated with an investment, including dividends, receipts from liquidation, assets, and salaries. Such transfers are authorized in the original currency of the investment.

Transfer is made directly by Burkinabe banks once the interested party presents all relevant documents to the bank. Transfers and repatriation of funds are not limited, and there is no waiting period. Wire transfers to an American correspondent bank take three days and up to a week to a non-correspondent bank.

Burkinabe policies facilitate the free flow of financial resources and support the flow of resources in the product and factor markets.

Credit, when available, is allocated on market terms. Legal, regulatory, and accounting systems are consistent with international norms. The government uses a French system of public accounting. Within the framework of the UEMOA, rules are taken to progressively harmonize the public accounting systems of members. Since January 1998, a common commercial accounting system (SYSCOA) instituted by the UEMOA is in effect in member countries. It conforms to world norms. Burkina Faso does not have a stock exchange, but it does have regulations that guarantee and facilitate portfolio investment. Also, as member of the UEMOA, Burkina participates in the regional stock exchange market headquartered in Abidjan (Bourse Régionale des Valeurs Mobilières -BRVM-) and with a local representation in Ouagadougou. Three to five Burkinabe companies are preparing to capitalize in the BRVM.

Expropriation and Compensation

The Burkinabe constitution guarantees basic property rights. Such rights cannot be infringed upon except in the case of public necessity, as defined by the government. Just compensation must be paid in cases where property is expropriated. Such compensation must be paid in advance of the expropriation, except in the event of emergency. Since 1960, three instances of expropriation have occurred. In 1968, the electric company (then called SAFELEC) was nationalized by the government in conformity with Burkinabe law. In 1970, Comacico-Benin and Secma, film-making and distribution companies, were nationalized. In 1980, a manufacturer of ammunition, Carvolt, was nationalized for reasons of national defense.

Dispute Settlement

If an amicable settlement of a dispute between the government and an investor proves impossible, the Investment Code requires that arbitration procedures be submitted to international arbitration under the rules outlined by the IBRD's March 1965 Convention. In cases where an enterprise owned by a national does not meet the nationality conditions stipulated by Article 25 of the convention, the Code specifies that the dispute be resolved in accordance with the dispositions of the supplementary mechanisms approved on September 27, 1978 by the International Court for Settlement of Investment Disputes.

Performance Requirements and Incentives

There are no specific performance incentives other than a general exhortation that companies foster recruitment of national employees. There are no requirements that investors purchase from local sources. Given the government’s stated desire to increase foreign investment, an increase in performance requirements is not anticipated.

Right to Private Ownership and Establishment

The rights of foreign and private domestic entities to establish and own businesses and engage in all forms of remunerative activity are guaranteed by the constitution and the Investment Code. Businesses can be freely established, subject to the screening process discussed above, and sold. Most public enterprises have enjoyed a monopoly in their markets. With implementation of the reforms most monopolies are being eliminated. Foreign investors are encouraged to participate in the privatization of state-run enterprises.

Protection of Property Rights

Burkina Faso has a legal system that protects and facilitates acquisition and disposition of all property rights, including intellectual property. Burkina is a member of the World Intellectual Property Organization (WIPE). The Investment Code guarantees foreign investors the same rights and protection as Burkinabe enterprises regarding trademarks, patent rights, labels, copyrights, and licenses. Divulging commercial secrets is a criminal offense in Burkina Faso.

For specific questions about intellectual property rights, contact:

Bureau de la Propriété Intellectuelle
Direction du Développement Industriel
Ministère du Commerce
01 B.P. 365 Ouagadougou, Burkina Faso
Tel: 226-50-30-73-42/47, Fax: 226-50-30-73-05

Regulatory System: Laws and Procedures pertaining to Investments

The government is in the process of adopting more refined and transparent laws to foster competition. For example, price controls have been lifted, and the Labor Code revised. Burkina Faso’s regulations governing the establishment of businesses include most forms of companies admissible under French business law. These include public corporations, limited liability companies, limited share partnerships, subsidiaries and affiliates of foreign enterprises, and sole proprietorships.

Burkina’s tax schedule has been revised. Depending on the nature of activity, legal form of the business, and turnover, three fiscal schedules are applied: the "Contribution du Secteur Informel (CSI)," the "Régime du Réel Simplifié (RRSI)," and the "Régime du Réel Normal (RRN)."

Individual enterprises and companies are subject to a complex set of taxes. These include an annual tax on commercial and industrial profits (IBIC), which has been lowered from 45% to 40%, and a forfeit tax (IMFPIC) paid in advance each year. There is also a 25% tax on debt income (the IRC) and a 12.5% tax on stock and shares income (IRVM). Businesses must also pay an apprenticeship tax (TPA) on the salaries of all national and foreign employees (4% and 6% respectively), and a licensing tax that has two components: a fixed amount based on gross revenues and an 8% tax based on the rental value of company buildings and the value of production equipment. Upon incorporation, companies must pay a registration tax equal to 3% of the company’s capital. Since 1996, businesses are required to apply a 18% value-added tax on the product.

Non-IBIC profits are taxed between 5% and 35%. Private sector employees and civil servants pay a tax (IUTS) on salaries and tips, usually by payroll deduction.

Corruption

Burkina Faso does not experience systematic or "institutional" corruption. However, corruption exists and has been increasing over the past several years.

Burkina Faso has laws and penalties to combat corruption. Articles 156 through 159 of the Penal Code deal with corruption and influence trafficking practiced in the public sector. The penalties are one to five years imprisonment plus fines, and in some cases the removal of civic rights.

Burkina Faso has recently agreed to permit Ren-Lac, an anti-corruption NGO to open an office in Ouagadougou. Ren-Lac is working to sensitize public opinion about corruption. In the future, it may investigate and denounce corruption cases.

Bilateral Investment Agreements

Burkina signed a cooperation treaty with France on April 24, 1961 that allows funds to be transferred freely between the two countries.

A trade, investment protection, and technical cooperation agreement was signed between Burkina and Switzerland on May 6, 1969. This agreement provides for free transfer of corporate earnings, interests, dividends, etc., between the two countries.

Various multilateral investment agreements have been signed by Burkina within the framework of international or regional organizations, including the Lome Convention, the West African Economic and Monetary Union (UEMOA), and the Council of the Entente (Fegece Convention). These treaties guarantee the free movement of investment capital among member states.

OPIC and Other Investment Insurance Programs

Burkina is eligible for Overseas Private Investment Corporation (OPIC) programs, but there has not yet been OPIC involvement in an investment project in Burkina Faso. However, OPIC through the Modern Africa Growth Investment Corporation (MAGIC) is in the process of granting USD five million to the Poura gold mine. Considerable potential exists for direct loans and loan guarantees for developing agricultural production, small industry, purchase of capital equipment, and infrastructures. Burkina is also eligible for Trade Development Agency programs. Burkina is a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

Burkina has a revised labor code that guarantees many rights to workers and is effectively enforced by a labor court. Unions are well organized and defend employee interests in industrial disputes. Workers know their rights and do not hesitate to seek redress of grievances.

The modern sector represents approximately 10% of the work force, with nearly 40,000 civil servants. Labor unions claim the allegiance of 60% of government workers and 50% of the private sector employees in urban areas. Trade unions are legal in Burkina Faso.

The Collective Agreement for the Commercial Sectors of February 1, 1982 divides employees (laborers, craftsmen, senior staff) into eight categories. The minimum basic pay rate (SMIG) is set at 25,000 CFAF (about USD 50) per month. Conditions for the employment of workers by enterprises are provided in Decree No. 98 of February 15, 1967. An employer should ask job applicants for their job-seeker registration card issued by the Office of Employment and Promotion, which is part of the Ministry of Employment, Work, and Social Security.

It is Burkinabe policy to increase employment opportunities for national workers. Therefore, no job-seeker card will be issued to non-nationals in those professions having a large number of registered unemployed Burkinabe. When non-nationals are hired, their employment contract will be authorized by the Director of Labor. A statement must be made to the Regional Inspector of Work and Social Rules before start-up of any new enterprise, according to a decree of February 15, 1967.

In the event of a reduction in personnel, the Labor Code requires that the employer first dismiss employees with the least training and seniority. The employer must advise employees of termination at least 30 days in advance. Workers terminated in a general reduction have reemployment priority over other applicants during a two-year period. Employees terminated for reasons other than theft or flagrant neglect of duty have the right to termination benefits.

Though there is a scarcity of skilled workers, mainly in management, engineering, and electrical trades, Burkinabe workers have a reputation as hardworking and dedicated employees.

Foreign Trade Zones and Free Ports

There are no foreign trade zones or free ports in Burkina. Foreign-owned firms in Burkina have the same investment opportunities as host country entities under the provisions of the new Investment Code, which prohibits discrimination between foreigners and nationals. American firms not registered in Burkina can compete for contracts on projects financed by international sources such as the World Bank, UN organizations, or the African Development Bank.

Major Foreign Investors

The French represent the largest share of Burkina’s foreign investors. Five U.S. firms operate in Burkina, representing an investment of about USD 10 million capital. Lebanese investors also occupy a prominent role.