Regulatory Environment - d. Interest payment as a ratio of export of goods and services (INT/XG

d. Interest payment as a ratio of export of goods and services (INT/XGS)

2.2 Regulatory Environment

2.2.1 Financial System

In 1995, a fully liberalized and market-determined exchange rate system was established and 20 foreign exchange bureaus were licensed. All lending and deposit

interest rates were liberalized and administrative controls abolished. Exporters ^are permitted to sell theirforeign export earnings freely on the domestic exchange market

or to retain them in accounts with the domestic banks. The Rwandan franc fluctuates

freely, and payments as well as transfers for current international transactions ^are easily made. Special provisions apply to receipts for the two major exports, tea and coffee: 90 percent of these export earnings have to be sold to commercial banks. The average market reference exchange rate, as reported by the National Bank of Rwanda (NBR), applies to these transactions. The withdrawal of foreign currency from local

bank _accounts _is regulated by the central (national) bank. Cash withdrawals of over

US$ _50,000 _{per year} must be supported by documentation proving the need for the

cash.

2.2.2 Trade Regime

The Rwanda's trade regime has been liberalized since 1998 with the elimination of

surrender requirements for coffee and tea export receipts and the reduction of the

maximum tariff rates from 100 percent to 40 percent. As a result, trade is relatively

open. The import licensing system is simple and fast, but customs clearance is still fraught with petty corruption and bureaucracy hurdles. However, improving the import

process is in progress, including requirement of import appraisal and establishment of

minimum standards of forclearing agents.

2.2.3 Labor Code

The existing labor code was revised in 2000 to eliminate gender discrimination,

restrictions on the mobility of labor, and wage controls. The law allows economic layoffs. The chamber of commerce was replaced by the federation of the private

sector professional associations. A private arbitration centerwas recently established

to settle commercial disputes. A new insurance law is being prepared.

2.3 Opportunities

2.3.1 Coffee

One of the best investment opportunities is in the coffee sector. That sector is fully

liberalized and the government of Rwanda is currently liquidating its share in Rwandex, the largest coffee exporter in Rwanda. Investment is needed for building washing stations, which would add considerable value to the high quality arabica coffee beans _grown in Rwanda. There is room for a high quality coffee roasting companyas well.

2.3.2 Tea

There is currently one privately controlled tea factory in Rwanda. An American company, tea importers, and the government of Rwanda hold 51 percent and 49

percent of the

respectively. The nine government owned

factories

were

all

be sold to private investors overthe year 2000. Rwanda's tea is one of the best in the

world and the current market would support the expansion of tea production, both at

the factoryand farm levels.

2.3.3 Energy and Water

The government of Rwanda is soliciting bids for the short-term management of Electrogaz, the government owned Electricity, Water and Gas Company. It expects to

sell the company some time in the future after improving its management and

infrastructure. There is potential for the exploitation of methane gas from Lake Kivu,

with initial investment ranging from $5 to $20 million depending ^on the size of the project. The government is willing to provide support and incentives to a private

company interested in exploiting this methane gas. Wood provides the main source of

rural energy in Rwanda. Investment opportunities exist in developing alternative

sources ofenergy such as peat, biogas and solarenergy.

2.3.4 Telecommunications and Internet

The State-owned telecommunication company, Rwandatel, currently controls most of

Rwanda's telecommunications and internet access. However, the government is in the

process of liberalizing the telecommunications sector. The Rwanda Information Technology Agency (RITA) has recently been established to coordinate and promote

the process of learning and application of information technology in the private and public sectors. Rwandatel is liquidating the shares it holds in Rwanda's only cellular telephone company, Rwandacell. The government has issued licenses to at least three internet service providers, but they are not established yet. Rwandatel should have been privatized by the end of 2001, and the government is actively soliciting American companies that would be interested in purchasing the company.

2.3.5 Tourism

Tourism in Rwanda centers on the mountain gorillas, with Rwanda being one

of the

few countries in which tourists can visit the gorillas. Rwanda's tourism sector is still

weak, but private sector is starting to play a more active role in reviving tourism in

Rwanda. The government is considering replacing the State-run tourist board with a private company. There is potential for investment in ^new hotel facilities and the

establishmentoforganized toursthroughout Rwanda.

2.3.6 Pyrethrum

The processing of pyrethrum, used for making pesticide, was renewed in 2000 and

has expanded rapidly. There is one plant in the northwest of Rwanda, and the owner isseeking investors to expand his processing capability.

2.3.7 OtherInvestment Opportunities

Investment opportunities exist in small industries such as processing of tomato concentrate, food processing, flower production, beer and soft drink industries,

commercial fishing, construction, and high quality agribusiness. Partnership opportunities are available in the banking sector. Minerals mined in Rwanda include cassiterite, woframite, colombo-tantarite and gold.

2.4 Incentives

The Law No. 14/98 of 18/12/1998 establishing the Rwanda Investment Promotion Agency has provided a number of incentives to private investors.

2.4.1 Exemption from Import Duties and Sales Taxes

An investor shall be exempted from sales taxes if he/she is intending to start up new business or rehabilitate, expand, renovate or restructure an existing enterprise.

Importing plant, machinery and equipment is free from import tax under Commodity

Code "Tarif de Douanes du Rwanda".

An investor who imports plant, machinery, equipment and raw materials for the operations of ^a registered business enterprise which are not zero import tax rated

under the Commodity Code, shall pay a single flat fee of 5% of the CIF value of the imported items, in lieu of all taxes, including import duties, sales tax and others that

would normally be imposed on such goods.

2.4.2 Common Incentives

A holder of a certificate of registration, in addition to benefits provided in Article 29 of

the Law, shall benefit from:

a. Fiscal incentives provided in Law no. 8/97 of 26th June 1997 on the Code of direct taxes on different profits and professional income

b. Investment allowances of30% of the value of invested capital during the first

year of operations;

c. Additional deduction from taxable income of 50% of training, research and product development costs;

d. The right to fully expend the cost of providing infrastructure to the site of the business operations;

e. Duty drawback for all duties and taxes paid on imported raw materials if he is

an exporterwho is operating outside free export economic zones. He shall then be facilitated by the ^agency to have access to foreign markets, training, promotion and trade exhibitions;

f. Tax-free exportoperations.

On the recommendation of the Board of the RIPA, the Cabinet _may accord additional incentives and facilities to projects which, because of their nature, national importance, location, or volume of capital investment, would not get meaningful benefits from the incentives and facilities provided underthis Law.

2.4.3 Work Permits and First Arrival Privileges

A registered business enterprise shall be entitled to recruit expatriate workers on the following conditions:

a. An industrial enterprise that makes capital investment of $100,000 and above

shall automatically be entitled to three workpermits;

b. Enterprises intending to provide professional services, such as accountants, architects, doctors, engineers and lawyers shall, on investment of $50,000 in capital assets or more, be entitled tothree work permits;

c. A business enterprise that needs to hire additional expatriate workers shall apply to the Agency, which in its sole discretion may grant the request on

specific terms and conditions.

The expatriate employee of a registered business enterprise shall _{be exempt}from the payment of import duty and sales tax payable on the following items imported within

aperiod of twelve months from the date of issuance of his ^or her work permit:

a. One car only for his orher personal ^use;

b. Personal and household effects in accordance with existing customs regulations.

At the end of his or her contract, the employee and his or her employer shall jointly

account for the goods, which were imported free of duty and sales tax. If any goods

were sold locally, the employee and his ^or her employer shall be liable for the taxes, calculated on the basis of the goods value at the time of sale. The employee shall be

entitled to repatriate those goods and vehicle free of all duties and taxes.

2.4.4 Additional Incentives forFree Export EconomicZones

In addition to the incentives set forth herein above, ^an investor operating in ^a free export economiczone shall be entitled to:

a. Pay a company income tax rate of 10% within a period of ten years from the

enforcement of this Law;

b. Importof plant, machinery, equipment, building materials and inputs free of duty

and salestaxes;

c. Be exempted from all other taxes normally levied ^{on a} business enterprise operating in the country;

d. Benefit from one-Stop Centre services by the Agency for facilitation at the beginning of the process and afterwards as long as he will be operating within

this regime;

e. Be granted taxfree externalization of funds;

f. Be allowed for flexible work permitsto hire quality expatriate staff;

g. Be exempted from withholding taxes and taxes on dividends;

h. Purchase locally produced goods and services free of duty and sales taxes as

inputs in its production process.

The Minister in charge of commerce and industry makes rules and regulations for the

establishment and operation of the free export economic zones, which ensures that they ^are managed in such a way as to guarantee speedy and efficient services to

investors operating therein. Free export economic zones may be developed and managed by private investors, working in collaboration with theAgency.

When processing an application for registration of a business enterprise that wishes to operate in a free export economic zone, RIPA carries out an appraisal of the capacity

of the business enterpriseto contribute to the following objectives:

a. Creation of high qualify jobs;

b. Attraction of modern technology and new investments;

c. Transferoftechnology and skills;

d. Diversification of the export sector;

e. Utilization of locally produced rawmaterials;

f. Creation of backward and forward linkages within the economy.

The following business enterprises shall qualify for registration to operate in the free export economiczones:

a. Enterprises that export at least 80% of theirproduction;

b. Enterprises manufacturing under bond that export 10% of their production;

c. Enterprises engaged in the export of services.

The application for registration of candidate in a free export economic zone provides

theAgency with a projectproposal giving information about:

a. The nature of the business activity, names and nationality of its owners, its products and volumes;

b. The target markets forthe products;

c. The number and categories of jobs to create forlocal and expatriate staff;

d. Prospects fortechnology transfer and training of local staff;

e. The desired location, and methods of treating and disposing of the waste

materials generated by theoperations;

f. The proposed level of capital investment and the timing for project implementation;

g. Planned utilization of locally made productsas inputs;

h. Facilities and supportthatthe project requires for successful operations.

On receipt of a complete application package, the Agency shall issue a certificate of registration to the investor within ten working days, authorizing the investor to establish and operate a business enterprise in thefree export economiczone.

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