Openness to Foreign Investment
The Government of Sao Tome and Principe (GoSTP) has a positive attitude toward foreign investment, but current business regulations present foreign investors with significant bureaucratic and procedural hurdles. However, there is an effort underway to revise the investment code, making it more attractive to foreign investors. The consensus among government authorities and economic analysts is that considerable foreign investment is needed for the development of agriculture, fisheries, tourism, telecommunications, and financial services.
The Investment Code of 1992 provides for both public and mixed capital investments, allowing foreign investment in every sector except the extractive industries, notably petroleum exploration and production. Areas open to foreign investment include agriculture; fisheries; production of basic consumer goods; construction; telecommunications; financial services; electricity, water, and sanitation services; tourism; and transportation.
The law provides three investment incentive regimes, which are defined by the level of investment (less than USD $100,000; between USD $100,000 and USD $1 million; and over USD $1 million) and provide for such incentives as reduced real estate transfer tax, reduced income tax, exemption from customs duties for imported equipment, access to special credit lines, and usage of public buildings. For foreign investment in particular, there is a tax exemption for profits that are kept in the company as reserves and for bank operations related to capital inflow. The state also guaranties capital repatriation given the fulfillment of all legal obligations and proper authorization.
Created in 1989, the national Chamber of Commerce (CoC) serves to organize the private sector and encourage private sector participation in public works projects. In addition, the CoC works with the National Statistics Institute (INE) to collect and distribute information aimed at facilitating business decision-making.
Conversion and Transfer Policies
The national financial system is supervised by the Central Bank of Sao Tome and Principe (BCSTP), which defines monetary and exchange rate policies in the country. Among other responsibilities, the BCSTP sells hard currencies and establishes indicative interest rates. The STP dobra (STD) is the country’s national currency. One US dollar equals about 15,000 STD.
The government has been working closely with the BCSTP to ensure that greater inflows of foreign exchange translate into an increase in access to raw materials for business. The STD exchange rate is determined by the BCSTP based on a specially weighted basket of currencies from countries that enjoy influential trade and financial relations with STP. This policy has been in effect since 1988 and continues to be effective in achieving the stability of the exchange rate against major world currencies, especially the US dollar and the Euro. The composition of this basket of currencies is subject to periodical reassessment given local and international economic and monetary developments.
Repatriation of capital is possible with prior authorization. Profit transfers outside STP are limited to 15% of the capital invested. Reinvestments are encouraged by the GoSTP with associated reductions in income taxes.
Expropriation and Compensation
GoSTP policy maintains strong protection of all types of property, including private property, and the right of citizens to own and use property. Expropriation is allowed in the public interest, but only with adequate compensation. There is no evidence to suggest that repatriation would be undertaken in a discriminatory manner or in violation of established principles of international law.
Aside from a massive land expropriation from colonial farmers on September 30, 1976 - later recognized as detrimental to the economy of STP – there have not been any documented cases of expropriation of foreign-owned properties.
Dispute Settlement
Disputes are generally solved amicably without litigation, and there is no record of disagreements involving foreign investors reaching international courts.
Performance Requirements and Incentives
There are no specific performance requirements imposed as a condition for establishing, maintaining, or expanding investment. There are no requirements for investors to buy local products, to export a certain percentage of output, or to invest in a specific geographical area. There is no blanket requirement that nationals own shares in foreign investments in STP.
Right to Private Ownership and Establishment
Foreigners are free to establish and own business enterprises and engage in all forms of business activity in STP with the exception of the military sector. Prohibitions exist on the ownership of certain types of guns. In addition, the form of public participation (percentage of government ownership in joint ventures) varies with each agreement.
The GoSTP is gradually moving towards open competition in all sectors of the economy, and competitive equality is the official standard applied to private enterprises in competition with public enterprises with respect to access to markets, credit, and other business operations. Former public monopolies in farming, banking, insurance, airline services, telecommunications, and trade (export and import) have been eliminated.
Protection of Property Rights
The GoSTP guarantees private property rights, and expropriation for public use must be accompanied by a fair, adequate, and effective payment in advance.
Transparency of Regulatory System
The laws and regulations that affect direct investment, such as environmental rules, health and safety regulations, etc., are non-discriminatory and apply equally to foreign and domestic firms. STP tax laws reward citizens living abroad who return to their home country with certain tax exemptions, while also attracting non-nationals to live and work in STP.
Labor, health, and safety laws exist but are not properly enforced. There are some reports that the process of terminating unsatisfactory employees is cumbersome, and that protective labor laws make it very difficult to bring skilled foreign specialists (such as pilots, engineers, or architects) into STP.
Efficient Capital Markets and Portfolio Investment
The banking system in STP has seen significant development in recent years. Until recently, STP could count only one commercial bank, while there are currently six private commercial banks, five of which were opened in last three years. Ownership and management of the commercial banks are local as well as Cameroonian, Angolan, Portuguese, and Nigerian.
Commercial banks offer most corporate banking services, or can procure them from overseas. Local credit to the private sector is limited and expensive, but available to both foreign and local investors on equal terms. The country's main economic actors finance themselves outside STP. Commercial banks have transferred excess liquidity to correspondent banks outside the region.
Political Violence
Considered a low threat country, STP has been traditionally characterized by its stability, untroubled ethnic interaction, and a laid-back lifestyle which locals refer to in Portuguese as leve–leve (take it easy). In a highly consensus-oriented society, political violence is rare. However, there was one major coup attempt in 2003, and during 2007, there were several low-level revolts involving specially trained defense units. While these were originally framed as being related to compensation issues, it has been suggested that they may have been politically motivated. Though the incidents were associated with low levels of violence and few casualties, they do represent a disturbing trend in a country whose democratic process is still fragile. Strikes are not the primary means to settle labor disputes and labor strikes have been very rare in recent decades.
With almost 30 years of independent rule, there has been virtually no incident of politically motivated attacks on projects or installations. Anti-American sentiment, civil disorder, and terrorism are unheard of in STP, with no instances involving international terrorist groups. However, lax border security and few international controls mean that the island could become a target for criminals, particularly those involved in drug trafficking or money laundering.
Corruption
Corruption has increased during the past decade in step with greater economic development, and mainly consists of bribery, embezzlement, and mismanagement of public funds. The GoSTP has denounced corruption and pledged to take steps to prevent and combat it, but there is currently no anti-corruption law in place. Corruption is widely perceived as immoral.
Analysts attribute the recent rise in corruption on escalating poverty, absence of regulations, low wages for government workers and officials, and lack of strong leadership. Signs of corruption are particularly obvious during election campaigns, when voters receive money to favor certain candidates or political parties. Since democratization was introduced in 1990, various forms of infighting, high levels of corruption, and administrative mismanagement have characterized political life in STP.
In support of the government’s anti-corruption agenda, the National Assembly has approved an oil revenue distribution law, and the GoSTP started reviewing and updating existing contracts with some foreign companies to favor liberalization and free market competition. For instance, the National Assembly ordered an investigation on the Joint Development Zone (an oil exploration zone shared by STP and Nigeria) second round bid for oil blocks of December 2004, which had been the focus of public criticism. The Attorney General undertook an investigation, and concluded that procedures used to award the licenses were seriously flawed and failed to meet minimum acceptable standards. However, it is unclear what consequences, if any, will result from the investigation.
Bilateral Investment Agreements
As of January 2008, the US has no bilateral investment or taxation treaty with STP. Sao Tome & Principe is, however, eligible to benefit from the African Growth and Opportunity Act (AGOA), a framework for US trade, investment, and development policy for sub-Saharan Africa. STP has signed bilateral investment agreements with Portugal, Angola, and Gabon, but is party to no bilateral taxation treaties.
OPIC and Other Investment Insurance Programs
There is currently no OPIC or other investment insurance program in STP.
Labor
A significant portion of the STP workforce is well educated, although not to the university level. The workforce is multi-lingual (Portuguese and French) and young. Further training will be needed as the economy continues to develop. Minimum wage, workday, overtime, paid annual vacations, and holidays are established by STP labor law. Women are entitled to state-funded maternity leave for a period of 30 days before and 30 days after childbirth.
Foreign Trade Zones / Free Ports
STP currently has no free trade zones or free ports. However, the Free Zone Authority (AZF) was recently established to create a free trade zone in STP. The AZF is working with private institutions and companies to acquire funds for the implementation of the free trade zone. According to the GoSTP, there are many foreign companies interested in the development of a STP Free Zone, motivated by the recent oil discoveries in the Joint Development Zone (shared with Nigeria) and in STP’s Exclusive Economic Zone.
Foreign Direct Investment Statistics
Detailed statistics are unavailable, but Foreign Direct Investment (FDI) appears to be increasing due to structural macroeconomic reforms that have increased investor confidence, as well as recent developments in the petroleum sector and the process of privatization being undertaken in STP. The share of FDI in the country’s gross fixed capital has increased recently after having been stable at 14-18% for several years. This mainly reflects investment in the petroleum sector.
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