Eye on Africa

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Volume 1 | March 2010

Africa’s riskenvironment in2010: what wethink

Why invest inZimbabwe?

Beneficiation:Who should leadthe charge?

at a glanceOur African footprint 3

West Africa 13

East Africa 20

features2 Editor's note | The Africa Business Center

4 Africa’s risk environment in 2010

6 China investments into Africa

8 Investment opportunities in Zimbabwe

11 Beneficiation | Who should lead the charge?

14 Investing in Senegal

18 Unlocking Africa’s investment potential

22 Introduction of the East African Community Customs Common Market in July 2010 | Opportunities and challenges

2

The Africa Business CenterYou have come to the right place

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The Ernst & Young Africa Business Center is our wayto help companies navigate the challenges andopportunities of doing business across the Africancontinent. As the next economic growth frontier,Africa is an exciting place to do business; but alsoposes its unique challenges. Africa offers the mostsustainable real GDP growth prospects of allemerging markets, according to forecasts by theWorld Bank among others.

Recovery from the recession is a given from 2010.Although China will still register the highest growthrate, Sub-Sahara Africa promises a steady climbgoing into the future.

The Africa Business Center aims to assist our clientsfrom China, India, the UK, US and everywhere else inthe world as they expand their business into thecontinent. Using our African footprint and localexperience in more than 20 countries on thecontinent, investors and business leaders can be

assured of a one point of contact that can give themhelpful information about the continent as well aslinking them to one of our many audit, tax,transaction advisory and risk experts all over Africa.

We have relationships with a host of clients in manyAfrican countries going back up to 160 years. So,whether you want to be part of the emerging oilindustry in Ghana and Uganda, or you want to takeadvantage of the creation of a common East Africanmarket of over 120 million people; whether yourcompany is interested in expanding into Nigeria –Africa’s largest market – or be part of the fast-growing gold industry in Tanzania; be it you want toacquire assets in Kenya or list on the new stockexchange in Rwanda; for tax advice, audit, risk ortransaction advisory services, get in touch with theAfrica Business Center. It does not matter if youwant to take your business to Senegal, Mozambique,Zambia or Ethiopia; you have come to the right place– the Africa Business Center.

In this inaugural issue of our regular publication, EYeon Africa, we feature perspectives on the riskenvironment in Africa from our Advisoryprofessionals. We also highlight the role played bythe Investment Climate Facility – based in Dar esSalaam, Tanzania – courtesy of a write-up by theirCEO Omari Issa. Still in East Africa, our tax teamtalks about the implications of the promulgation ofthe East African Common Market; and check out ourcountry snapshot on Rwanda. A profile of Senegaland Ghana in the west, and Zimbabwe in the south,are part of this exciting expose on Africa – alongsidemany other informative inserts. Enjoy your readingand send us suggestions about what you would liketo see in the next issue of EYe on Africa. Karibu!

2007

2008

2008

-5.0 0 5.0 10.0

2010

2011

Sub Sahara Africa Developing countries Developed countries

For more information, please contact:

Victor Kgomoeswana

Associate Director, Africa Business Center Tel: +27 11 772 5249victor.kgomoeswana@za.ey.com

at a glance

Our

Afr

ican

foo

tpri

nt

AlgeriaLibya Egypt

MauritaniaMali

Cote-d'Ivoire

Gabon

Equatorial GuineaCongo

Central AfricaRepublicCameroon

Nigeria

NigerChad

Sudan

Eritrea

Ethiopia

Somalia

KenyaDemocratic

Republic of CongoRwanda

Burundi Tanzania

Seychelles

Comoros

MalawiZambiaMauritius

Mad

agas

car

Reunion

Zimbabwe

Angola

Namibia

Botswana

South AfricaLesotho

Swaziland

Guinea Conakry

Sao Tome

Djibouti

Moroc

co

Burkina Faso

Gha

na

Ernst & Young office

No Ernst & Young office,but support available

No offices, no support

Uganda

Togo Benin

Tunisia

Cape Verde

GambiaSenegal

Liberia

Western Sahara

Sierra Leone

Guinea Bissau

Mozambique

4

Africa’s risk environment in 2010What we think 1

Expectations that emerging markets will leadrecovery in 2010 have renewed interest in Africa.With a population of 922 million over 54 countries, a GDP of over $1.6 trillion, mineral resources anduntapped potential, Africa is the next majorinvestment frontier. African governments mustexpedite service delivery and create environmentsthat are conducive to business. Investors need tounderstand the key risks so as to manage themprofitably.

The risk environment for corporates in Africa isgenerally improving due to increasing maturity inrespect of corporate governance. For example,South Africa, Africa’s biggest economy and world’s25th largest by GDP, recently released the King IIICode of Governance principles which are widely seenas being ahead of international trends. They coverdiverse issues such as ethical leadership, integratedsustainability reporting and risk management. Theseenhancements, as in Egypt and Nigeria, reduceunmanaged risk and increase investor confidence.

Politics goes hand in hand with reputational risk andmany multi-national companies are more diligent inmanaging their reputations with anti-corruptionpolicies. The other major risks are infrastructurechallenges and shortage of talent at certain levels.These risks are not insurmountable and often thehigher returns in Africa prompt investors to focus onrisk management rather than risk avoidance.

Mandla Moyo

Director, Advisory ServicesErnst & Young South Africa

The impact of the financial crisis was indeed reducedin Francophone Sub-Saharan African countries(FSSA) as their financial system is both highlyregulated and not borrowing on the internationalmarkets; for most of these countries alreadyunderwent an economic crisis in the recent yearsand almost all of them are very much supported byInternational Donors.

The impact of the economic crisis significantlyreduced the flow of money from the Diaspora, i.e.remittances. This is true especially for the countrieswith no raw materials or oil to export. There are sofar no new initiatives taken by the governments andthe International Financial Institutions for whichcapacity-building for public administration and goodgovernance issues remain at the top of their agenda.What really matters in FSSA countries is howpolitical stability can be maintained to secure aneconomic environment where business can safely beboosted with Foreign Development Investments.

Baïdy Dieng

Director, Advisory ServicesErnst & Young Senegal

For more information, please contact:

Trevor Rorbye

Advisory Leader, Ernst & Young Africa Sub-AreaTel: +27 11 772 3000trevor.rorbye@za.ey.com

5

The global economic crisis has accelerated the need forMauritius to review its code of corporate governance toalign it with the latest best practices which capturelessons learned from the crisis. It is with this in mindthat a national governance committee of private andpublic sector stakeholders is currently reviewing the(voluntary) code of governance in Mauritius.

Shailen Ramgoolam

Director, Advisory ServicesErnst & Young Mauritius

Initially Africa looked less affected by credit crunchbecause historically a small percentage of the markethad access to the credit. However, around 2008 easymoney coming from US donors dwindled and localcurrencies depreciated against the US dollar. Forinstance in Uganda, the exchange rate weakened from1,638 in September 2008 to 2,300 in May 2009.

As giants collapsed, panic forced most organisations tofocus on risks and manage them. Africa realised thatthe risk to business has never been higher. Besides thecredit crunch, risks continue to emerge in technology,entering new markets, changing consumer habits, newproducts and dealing with emerging economies.Corporate governance and risk management – thoughmost are still at their pre-implementation stage - haveresulted in strong governance structures, effective riskmanagement practices and strengthening the functionof Internal Audit.

Amos Bagumire

Executive Director, Advisory ServicesErnst & Young Uganda

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China investments into Africa 2

Africa has become extremely important to China, asit supplies much needed raw materials. China offersin return construction of infrastructure andinvestments.

Never before has anyother country takenAfrican investmentthis seriously.

The activity in Africa is bubbling, Nigeria, Ghana,Zimbabwe are a few of the countries that areexperiencing substantial investments.

Chinese aid and investment have flooded into Africain the form of interest-free loans, infrastructureprojects and lucrative mineral extraction contract. Areport published recently found that the number ofChinese companies operating in Africa has swelledfrom 800 in 2008 to more than 2,000 at thebeginning of 2010.

Most of the large construction projects are carriedout by the SOE’s (state-owned enterprises) whichoften utilize large numbers of Chinese workers.China has managed to secure the large constructionprojects due to their low cost margins. Average profit

margins for local and foreign companies are usuallyaround 15 - 25%, while Chinese companies operateat around 10% margin.

There are certainly some challenges that they face:

• Continual tension with labour unions due to lowerpay and lack of benefits on contracts;

• Unrest from locals as the state-owned enterprisessend Chinese labour across to complete theprojects;

• There is also tension between the local traders asthey compete for local business.

There is however a substantial reduction in povertyfor people living in the surrounding areas. Some ofthe large Chinese corporates that are leading theway into Africa are: Huawei and ZTE(telecommunications), Bank of China and ICBC(Banking), Evergreen (Shipping) and COSCO.

Investment into African countries varies, dependingon the opportunity for oil extraction, construction orretail. China mainly exports to South Africa, Egypt,Nigeria and Algeria, while the main imports comefrom South Africa, Angola, Congo and EquatorialGuinea. In the past 15 years, China’s investment inAfrica had risen to $850 million and has become oneof Africa’s top trading partners.

Africa used to be home to lions and elephants, it is now also home tothe dragons. China’s investment into Africa is huge. For those who arenot aware of the opportunities and challenges, it is important tounderstand where the core of the new economy will be. The largetelecom and infrastructure projects are well underway in areas suchas Nigeria, Ghana and Angola.

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120,000

100,000

80,000

60,000

40,000

20,000

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 1 - World Trade Atlas' Value of Trade

The EY China Africa In-bound Desk is set up to assist Chinesecorporations in navigating foreign markets and expanding beyondtheir borders. Our China Africa Desk works hand in hand with ourErnst & Young offices in China, and is linked to our 22 offices in Sub-Sahara Africa. We have multicultural professional team members,with skills to communicate in Chinese and other local Africanlanguages and assist with on the ground experience. We cover allcompliance-related work, international acquisitions, accounting andaudit, tax, advisory and other strategic services.

For more information, please contact:

Lauren Patlansky

Associate Director, China Business ServicesTel: +27 31 576 8029lauren.patlansky@za.ey.com

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Investment opportunities in Zimbabwe3

Like its Southern African neighbours, it is well-endowed with mineral,agricultural and other resources. Zimbabwe offers many developmentopportunities, but has to overcome its main challenge - securingfinance”, says Welton Makwarimba from Ernst & Young’sAccount & Business Development in Harare

Why Invest in Zimbabwe?

• Zimbabwe – with its abundant natural resources -largely missed the commodities boom of the lastdecade.

• Skilled, semi-skilled and unskilled labour – themajority being English-speaking with at least 4years of secondary education – is abundant.

• It is located in close proximity to South Africa andhas above-average infrastructure making it anideal candidate for growth and investment.

• The Government has introduced varied incentivesto spur investment, and offers access to regionaland world markets.

• Zimbabwe now operates on a free monetarysystem and subscribes to various internationalTreaties and Bilateral Investment ProtectionAgreements.

Tax Incentives for Investors

• 5-year tax holiday for industrial park developersand 10% thereafter.

• 5-year tax holiday for Build Operate Transfer(BOT) arrangements, 15% for the 2nd 5 years,20% for the 3rd 5 years and 30% thereafter.

• Duty-free on importation of information andcommunications technology (ICT) relatedequipment.

• Deregulated banking system for expedition ofpayment and loan approvals.

• Investment allowance of 15% on cost ofconstruction, addition or alteration on industrialor commercial buildings or staff houses can beclaimed.

• New manufacturing projects are taxed at 10% ingrowth point areas.

• 20% income tax for manufacturing companiesthat export 50% their output.

• 25% income tax for a holder of special Mininglease.

• Double deduction for non-capital expenditureincurred in seeking new opportunities/markets toexport of goods, in creating or increasing thedemand for cash goods.

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Economic growth rates of key economic sectors

According to the Medium-Term Plan 2010 - 2015 (MTP), growth estimates for the key economic sectors ofZimbabwe are as follows:

2010 2011 2012 2013 2014 2015

GDP Growth % 12.5 13.3 15.7 15.3 14.7 15.4

Agriculture 33.5 20 8.9 13.3 9.4 9.8

Manufacturing 61 18.8 10.5 9.5 9.1 8.3

Mining 98 66 64 13.1 7 5

Source: MTP 2010-2015

Investor Protection

Zimbabwe is a signatory to the Multilateral Investment Guarantee Agency, Overseas Private InvestmentsCorporation, International Convention on Settlement of Disputes, the New York Convention on theEnforcement of Bilateral Awards, the UN Convention on International Trade Law; Bilateral InvestmentPromotion & Protection Agreements (BIPPAs) - with UK, China, Germany, Malaysia, France, Italy and SouthAfrica.

Sector investment opportunities

Sector and description Potential projects/opportunities

Mining Nickel, chrome, coal, gold, platinum (world’s 2ndlargest reserves), iron, diamonds, copper, significantgas reserves in the Zambezi Basin

Re-capitalisation of mines, prospecting, quarrying andexploration, mergers and acquisitions

Beneficiation, e.g. cutting and polishing of diamonds,

InfrastructureExisting infrastructure extensive, but needsrefurbishment and rebuilding.

Building, refurbishment and maintenance ofinfrastructure – airports, toll roads, dams, bridges,power generation and transmission facilities andtelecommunication systems.

Energy26 billion tons of coal reserves available for powergeneration – 8 000 years of use at currentconsumption (3 million tons/year)

Building new hydro-electric power stations, thermalpower stations and/or refurbishment of existingstructuresAlternative energy sources - wind and solar

HealthInfrastructure inadequate and equipment needsmodernisation

Building and refurbishing of hospitals, community healthcentres, and provision of equipmentAdvisory services - operational and financial/budgetarychanges

Continued on next page

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For more information, please contact:

Continued from previous page

Sector and description Potential projects/opportunities

ManufacturingIndustrial production down 59% between 2005 and2007

Refurbishment and capacity-building to bring capacity upfrom less than 10% in 2008 currently below 40% due toworking capital constraints

Government and public sectorGovernance of public expenditure will undergosignificant changes

Computerisation of operations and processesDevelopment of appropriate budgeting and financialreporting framework, upgrading of infrastructure, e.g.buildings

IT/MediaThere is 0% duty on all imported IT equipment

Capacity for new mobile and fixed network telephonicproviders

New entrants in the print, visual and sound media industry

AgricultureSector remains undercapitalised with insufficientinputs and infrastructure

Capitalisation of commercial farming enterprises –including meat processing, poultry and fish farming, juiceextraction, horticulture, floriculture and cotton-processing

Infrastructure development and refurbishment, as well asinvestment in value-adding processing of agriculturalequipment

Banking and financial sectorSector heavily undercapitalized

Recapitalisation of financial institutions, updating orenhancing platforms to support newer banking and financeproducts and computerisation of exchanges

TransportAirspace is being opened up to new entrants andcity transportation inadequately funded

Investment in new fleets and upgrading current fleets Enhancement of rail communication links and greaterusage of rail networks

TelecommunicationsMajor players: Econet Wireless (nearly 3 millionsubscribers), Telecel (1.2 million) andgovernment-owned NetOne (300,000) and fixedline operator, TelOne

Capacity for new mobile and fixed network telephonicproviders

Entrants of new players into the sector to service 60% ofthe country’s population of 12 million

Sources: Zimbabwe Investment Authority, Ministry of Power & Energy Development, Ministry of Finance - The MediumTerm Plan 2010-2015 Document, Banks & Banking Survey 2009 - Zimbabwe Independent Newspaper, CZI July 2008Manufacturing Sector Survey, Financial Gazette (7th January)

Welton Makwarimba

Assistant Director, Accounts & BusinessDevelopment, Ernst & Young Zimbabwe Tel: +263 4/75 0979/75welton.makwarimba@zw.ey.com

Joe Cosma

Regional Leader, Ernst & YoungCentral AfricaTel: +263 4/75 0979/75joe.cosma@zw.ey.com

11

Beneficiation Who should lead the charge? 4

The following paragraph from the Chamber of Minesis just part of the proof that mineral beneficiation isthe way to go. “Total primary mineral sales exportsincreased by 35.4% to a total of R219.6-billion in2008. This accounted for 31.1% of South Africa’stotal merchandise exports. If secondary beneficiatedminerals – such as PGM catalytic converters, ferro-alloys, steel and chemicals – are added to primaryexports, the South African minerals complexaccounted for just over R352-billion or about 50% ofSouth Africa’s total merchandise exports in 2008”.The additional R130 billion of foreign currencygenerated by secondary beneficiation would haveadvantaged the country in many ways, such asbalancing the country’s current account.

Another statistic, from the Draft BeneficiationStrategy Document, is further proof of the benefitsof beneficiation, the pun excused: “In 2007, grossrevenue from sales of all minerals in South Africaamounted to just below R225 billion. Similarly, justover R40 billion was generated from processing of

base metals as well as precious metals and minerals,which represented less than 10% of the total volumesof minerals produced”. This shows that beneficiationdoubles the value of minerals produced.

The debate around mineral beneficiation has movedbeyond a discussion of the merits, as there is enoughevidence in support, to how it should be done.

Without any natural resources, countries like Japan,India and Switzerland have built strong competenciesfor tertiary to final beneficiation of minerals byfocusing on the higher value,industrial/manufacturing and technological sectors.Africa, with its own natural resources, must and canindeed move up the value chain.

As correctly articulated by the Chamber of Mines inSouth Africa, it is important to understand thedifferent stages of beneficiation and then decidewhich “industry” is best suited to execute whichstage of beneficiation.

“Beneficiation doubles the value of minerals produced. The debate hasmoved beyond a discussion of the merits, as there is enough evidencein support, to how it should be done”, argues Tshepisho Makofane,director of Tamela Holdings

The term mineral “beneficiation” entails the transformation of amineral (or a combination of minerals) to a higher value product,which can either be consumed locally or exported. The term“beneficiation” is used interchangeably with “value-addition” or“downstream beneficiation”. The beneficiation of mineralsincludes downstream and side-stream linkages (input sector,such as R&D for new product development).

Source: South Africa’s Draft Beneficiation Strategy

Tshepisho Makofane

Director, Tamela Holdings

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The four stage downstream beneficiation process

Stag

e Mineral beneficiationprocess

Process flow-chart

Labourintensity

Capitalintensity

Industrycluster

1.

The action of mining andproducing an ore ofconcentrate (primaryproduct)

High High Mining

2.

the action of converting aconcentrate into a bulktonnage intermediate product(such as a metal or an alloy)

Low High Mining

3.

The action of converting theintermediate goods into arefined product suitable forpurchase both by small andsophisticated industries(semis)

Low HighRefining/Manufacturing

4.The action of manufacturing afinal product for sale

Medium tohigh

Medium tohigh

Manufacturing

Source: Chamber of Mines, 2007

Ferro alloys/pure metals

Worked shapesand forms

Worked shapesand forms

Washed and sizedconcentrates

Run-of-mineores

Mattes/slags/bulk chemicals

Steel/alloys

Worked shapesand forms

The mining houses’ view is that, stages 3 and 4 aremore suited to manufacturers than mining houses.This is aptly captured in a quote from the Chamber’sChief Executive, Mr Zoli Diliza: “You can’t expect amining engineer to design a piece of jewellery”.

South Africa has made large strides at stage 2beneficiation, with products such as catalyticconvertors and ferro chrome being manufacturedlocally; but should move further to tertiary and finalbeneficiation. Furthermore, the country could lend a

hand to other countries on the continent to catch up.

African governments need to now put in placesystems and processes of attracting investment intothe tertiary sectors, for example:

• Investment incentives;

• Actively discouraging the exporting of raw ore,including via legislation or penalties;

• Investing in enabling infrastructure; and

• Skills development and training.

Country Population GNI p/capita in $ Main Exports Main Imports

Benin 8,900,000 690 Cotton, palm oil Food, petroleum products

Burkina Faso 15,800,000 480 Cotton, animal products, gold Capital goods, petroleum products, food

Cape Verde 506,000 3,130Shoes, clothes, fish, bananas, hides,pozzolana (volcanic rock, used tomake cement)

Consumer/intermediary/capital goods,petroleum

Cote d'Ivoire 21,100,000 980Cocoa, coffee, tropical woods,petroleum, cotton, bananas,pineapples, palm oil, fish

Foodstuffs, petroleum products, capitalequipment

Gambia 1,700,000 390Peanuts and peanut products, fish,cotton lint, palm kernels

Food, machinery & transportequipment, minerals, fuels,manufactured goods

Ghana 23,800,000 670Gold, cocoa, timber, tuna, bauxite,aluminium, manganese ore, diamonds

Oil

Guinea 10,000,000 400Bauxite, alumina, gold, diamonds,coffee, fish, agricultural products

Food products, petroleum, capital goods

Guinea-Bissau

1,600,000 250Cashew nuts, shrimp, peanuts, palmkernels, sawn timber

Food products, capital equipment

Liberia 3,900,000 170Diamonds, iron ore, rubber, timber,coffee, cocoa

Minerals, fuels, lubricants, food,animals, machinery, transportequipment, manufactured goods

Mali 13,000,000 580 Cotton, gold, livestock Capital goods, petroleum products, food

Mauritania 3,300,000 840 Fish and fish products, iron ore, goldOil exploration services, publicinvestment, aid

Niger 15,300,000 330 Uranium, livestock productsFood products, capital goods, petroleumproducts

Nigeria154,700,000

1,160Petroleum, petroleum products,cocoa, rubber

Machinery, transport equipment,chemicals, food, animals

Senegal 12,500,000 970Fish, peanuts, petroleum products,phosphates, cotton

Food, petroleum products

Sierra Leone 5,700,000 320 Diamonds, rutile, cocoa, coffee, fishFuel, lubricants, food, machinery,transport equipment

Togo 6,600,000 400 Cocoa, phosphates, coffee, cotton Capital goods, food, petroleum products

Sources: United Nations (UN) and the World Bank

at a glance

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In this issue of Eye on Africa, our West African focus is on doing business in Senegal.

See Investing in Senegal on page 14.

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Investing in Senegal5

Senegal is a multiparty democracy; a countryspanning an area of about 200,000 squarekilometres and a population of 12.17 million. Thenational capital of Dakar has a population ofapproximately 3 million. 85% of the population isMuslim, 5% is Catholic with the remainder followingtraditional beliefs. The official language of thecountry is French and a large number of Africanlanguages spoken in the country.

Investment environment

Fishing is a significant sector of the economy, butagriculture is Senegal’s principal resource accountingfor almost 50% of the country’s total exports.Peanuts are the main commodity produced in thecountry, but attempts have been made to diversifyinto others, particularly cotton, the second largestexport commodity, millet, sugar cane, fruit andvegetables. Phosphate is the most important mineralresource, although there are also significant iron oredeposits as well as oil.

Infrastructure

The system of roads in Senegal is relatively welldeveloped; there are 14,500 km of roads,responsible for 90% of the movement of people andgoods. The Senegal River is also used for thetransport of goods within Senegal and for transit toMauritania. Dakar port is the largest in West Africaand extends over 3,260,000 square metres. Therailway network stretches 1,057 km with a main axisfrom Dakar to Mali. Senegal has three internationalairports; the Dakar Airport being a major hub inEconomic Community of West African States(ECOWAS), with a flow of 1.2 million per year.

Currency and regional integration

The currency used in Senegal is the Franc of theFinancial Community of Africa (FCFA), which is thecommon currency of the 8 West African Economicand Monetary Union (WAEMU) countries. Theseinclude Senegal, Mali, Guinea Bissau, Burkina Faso,Ivory Cost, Niger, Benin and Togo. The Central Bankof West African States (BCEAO), located in Dakar, isin charge of the monetary policy in this zone.

As a member of WAEMU, Senegal offers theopportunity to access to a:

• market of 200 million consumers, based on thefree movement of people and goods;

• market relying on a common commercial andcostumer policy;

• regional financial market with a stock exchange.

Senegal is also a member of ECOWAS with 15member states. It is signatory of the EuropeanUnion/Africa Caribbean Pacific (ACP), AfricanGrowth and Opportunity Act (AGOA), the CanadianInitiative Act which offer the opportunity to accessrespectively to European Union, American andCanadian markets.

Business organisations

Senegal has 11 Chambers of Commerce. The DakarChamber of Commerce & Industry is one of the mostimportant business support services in Senegal. TheChamber is an independent organization serving andpromoting the commercial and industrial interest ofsmall and large companies in the country.

“Private rights are guaranteed by the Constitution, which providesthat expropriation is prohibited unless for reasons of public interestand further provide that adequate compensation be fixed prior toexpropriation; and there are no local ownership requirements”, writesRaky Gueye, Ernst & Young’s Senior Manager, Tax & Legal.

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Investment Promotion Agency (APIX)

The official agency in charge of the promotion ofinvestment in Senegal is APIX. The main targets of theAPIX are the following:

• Welcome and support investors all throughout theinvestment chain.

• Support investors for the formalities of registrationand for obtaining the various administrativeauthorizations.

• Direct towards financing structures.

• Provide assistance in the search for partnership.

• Solve administrative problems.

Besides, APIX fulfils all the functions of a one-stopoffice by:

• Issuing in 10 days the certification to theInvestment Code and providing the exemptioncertificate for the customs formalities.

• Issuing in 21 days the certificate to the status of anoff-shore export company.

• Carrying out within 48 hours formalities foradministrative registration and retirement andsocial security fund registration.

• Ensuring a follow-up of the approved investmentprojects

Business ownership in Senegal

Business in Senegal may be conducted in the form ofunincorporated businesses, partnerships orcompanies. Foreign companies are free to establishbranches in Senegal.

When the branch is owned by a foreigner, it shall beattached to a company in existence or to be createdgoverned by the law of Senegal not later than 2 yearsafter the branch is set up except with an exemption ofthe Minister in charge of commerce. A foreigncompany is allowed to carry on business in Senegalthrough a subsidiary; a company being considered aparent company of another when it holds more than50% of its capital. There are no local participationrequirements.

In order to promote public/private partnership andwith the view of continually improving the businessenvironment, Senegal adopted the Built Operate andTransfer (BOT) law in 2004. In accordance with thislaw, local authorities or public institutions/enterprisesentrust a third party to run a public interestinfrastructure (from conception, financing andoperation). In return the private operator remuneratesitself mainly from the fees paid by the users.

Main taxes applicable in Senegal

Corporate Income Tax Rate 25%

Capital Gains Tax Rate 25%

Branch Tax Rate 25%

Withholding Tax:

Dividends 10%

Directors’ Fees and Non-Deductible

Expenses 16%

Interest:

interest on long-term 6%

bank interest 8%

other interest 16%

Royalties from Patents, Know-how 20%

Payments to Non-residents for Certain Services and Activities 20%

Branch Remittance Tax 10%

Incentives for investors

Investment Law

Eligibility to the regime of the Code of Investmentgrants following advantages:

• Exemption of customs duties and suspension ofVAT during the investment stage.

• Exemption from tax on salaries during five years.

• Benefit of a tax credit which amounts to 40% of thefixed assets investments.

• Derogations from the labour law.

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The special regime of Free Export Companies(FEC)

The main advantages granted by this regime are thefollowing:

• Profits subject to a 15% company tax rate(instead of the standard 25%).

• Exemption from the tax on movable capital ondistributed dividends, the payroll tax, the businesslicense duty, the property tax on developed land,the property tax on undeveloped land andregistration fees.

• Exemption from VAT on local purchases made byFEC.

The main advantages granted these two specialregimes can also be conferred in terms of the DakarTechnopole.

The special regime of the Senegal Free Zone

For those enterprises located in the Zone, thefollowing incentives apply:

• Exemption from all taxes and duties foracquisition of goods, equipments, raw materials.

• A reduced system tax concerning the CorporateIncome Tax; only a lump sum tax equal to 2% ofthe turnover is applicable.

• Exemption from the specific tax on salaries,capital gains taxes, business license tax, landtaxes, registration fees.

• Exemption from payment of withholding taxesfrom dividends arising out of free zoneinvestments.

Besides the provisions applicable to miningcompanies, there are other investment incentives,such as:

• Capital gains reinvested under certain conditionswill not be subject to tax.

• Individuals and companies who invest in the fieldof solar or wind energy can benefit from areduction in company tax or individual income tax.

NOTE: Eligibility to the above investment incentivesgenerally guarantees:

• The free transfer of all sums required to make theinvestment.

• Free transfer of the dividends to foreignshareholders.

• The arbitration of the International Centre for thesettlement of disputes relating to investment.

Furthermore, private rights are guaranteed by theConstitution, which provides that expropriation isprohibited unless for reasons of public interest andfurther provide that adequate compensation be fixedprior to expropriation.

Investor protection and internationalagreements

Senegal has signed a multilateral tax treaty with thetwelve other member states of the WAEMU states.

Bilateral tax treaties with Belgium, Canada, France,Italy, Norway, Tunisia, Morocco, Mauritania andQatar are in place.

Although these have yet to be ratified, Senegal hassigned treaties with China, Lebanon, Saudi Arabia,Egypt, Spain, Guinea, India, Kuwait, Mauritius andIndonesia.

ECOWAS

As a member of ECOWAS Senegal is signatory to atreaty that establishes free movement of persons inthe 16 Western African states, namely, Benin,Burkina, Cape Verde, Gambia, Ghana, Guinea,Guinea Bissau, Ivory Coast, Liberia, Mali, Mauritania,Niger, Nigeria, Sierra Leone and Togo.

For more information, please contact:

Raky Gueye

Senior Manager, Tax & Legal,Ernst & Young SenegalTel: +221 33 849 22 22raky.gueye@sn.ey.com or

17

Lome convention

Senegal is a member of the Lome Conventionbetween the European Community and more than60 ACP countries. Under the trade chapter of theConvention, industrial exports from ACP countriescan enter the European Union duty-free. Apreferential import regime is applied to mostagricultural exports.

Business law harmonisation and intellectualproperty protection

Laws pertaining to business and the settling ofcontractual disputes in Senegal are harmonised withthose of the West and Central African states that aremembers of the Organization for the Harmonizationof Business Law in Africa (OHADA). 8 Uniform Actswere adopted within the framework of OHADA. Theyconcern arbitration law, accounting law, regulationsrelating to contracts for the carriage of goods,general commercial law, securities law, debt recoveryand enforcement law, corporate business law andbankruptcy and insolvency law.

Similarly, intellectual property is protected under theuniform regional property protection of the memberstates belonging to the African Intellectual PropertyOrganisation (OAPI).

Foreign exchange control

Exchange control is administered by the Ministry ofFinance in concert with the BCEAO, accordingregulations adopted by other WAEMU states.Exchange control does not apply to members of theFranc Zone or to the Comores and the Congo exceptfor transactions in gold and the compulsory

repatriation of export proceeds. Other importantfeatures of exchange controls include:

• Import licenses authorize importers to obtain therequired foreign exchange. Export proceeds mustbe received within 120 days of arrival of theproducts at their destination. They must berepatriated to Senegal within 1 month fromexpiration of the 120 days.

• Capital necessary for direct or portfolioinvestments in Member countries of the FrancZone as well as the Comores and Congo can befreely transferred provided the necessary priorauthorization for the acquisition of securities isgranted.

• Transfer of capital to residents of other countriesis subject to prior authorization for the acquisitionof securities is granted.

• Transfer of capital to residents of other countriesis subject to prior authorization from the FinanceMinistry, but can normally be effected withoutdelay. No prior authorization is required forGovernment guaranteed loans and for securities,the issuance of which is authorized in Senegal.

• The transfer of profits, dividends, interest,royalties, salaries or FECs to residents of FrancZone countries as well as Congo and theComores, can be freely affected.

• Transfers of such income to residents of othercountries require prior approval of the FinanceMinistry but normally can be realized withoutdelay.

Makha Sy

Managing Partner, Ernst & YoungSenegalTel: +221 33 849 22 22makha.sy@sn.ey.com

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Unlocking Africa’s investment potential6

ICF is currently supporting 32 projects in 12 Africancountries. We focus on priority areas that shape ahealthy investment climate – for example, thestreamlining of business registration, increasingefficiency in taxation and customs, securing propertyrights and strengthening judicial systems, as well asremoving critical infrastructure challenges in thepower and financial sectors.

An example of ICF’s practical success can be seen inRwanda where, two years into a three yearpartnership project with the Government, adedicated commercial court system has beenestablished. Four new commercial courts are fullyoperational, a pre-existing backlog of 3,000 pendingcases has been cleared, and 1,000 additional caseshave been addressed. A new legal library, with 800reference books, has also opened to support legalteams when preparing for cases. The link betweenstrong judicial systems and a healthy investmentclimate is intrinsic. When disputes spill into thecommercial world, investors need the assurance theywill be resolved quickly, efficiently. Otherwise theywill take their business and money elsewhere.

A separate project in Lesotho is delivering particularbenefits for smaller businesses. For businesses inmore remote areas of Lesotho’s mountainouscountryside, the burden of visiting the country’ssingle VAT return processing centre was costly intime as well as money. Faced with long and difficult

journeys, as well as multiple and complex manualprocedures, tax was neither being paid orreimbursed and cash flow problems were causingmany small businesses to default on payments. Thesolution was for the Government of Lesotho’sRevenue Authority to approach ICF and requestsupport in establishing two regional VAT offices, andrationalising the assessment and administration ofVAT in Lesotho. Businesses can now file VAT returnsin regional branches of three banks and the amountof VAT collected between 2007 and 2008 showed a32% improvement. The VAT payment and lodgementprocess also takes no longer than 20 minutes. Thistype of project is particularly important to theAfrica’s SMEs where they account for just 10% ofGDP, rather than 50% of gross GDP in developedcountries where they are the backbone ofeconomies.

The speed and scale of ICF’s achievements havebeen possible because of the willingness andcommitment by the respective African governmentsto improve the business environment. We areworking collaboratively not only with thesegovernments but also with the private sector. ICFhopes that 2010 will be shaped by even greaterinvolvement from domestic and international privatesector organisations interested in working with ICF tohelp change Africa’s economic destiny - we welcomeinterest from all organisations interested in joiningthis exciting journey.

Several Africa governments are taking significant measures toimprove their investment climates. The goodwill of these governmentsis being translated into tangible and very positive action and the timeis ripe for the private sector to respond.

Omari Issa

CEO, Investment Climate Facility for Africa

www.icfafrica.org

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Omari Issa is Chief Executive Officer of theInvestment Climate Facility for Africa (ICF).ICF works to remove the barriers that exist todoing business in Africa, recognising that ahealthy investment climate is vital for thecontinent’s economic growth. It is a unique andunprecedented partnership between privatecompanies, development partners andgovernments, founded on the principle that allparties need to work together to enable thecontinent to finally realise its very realinvestment potential. It is the only pan-Africanbody, based in Africa, explicitly and exclusivelyfocused on improving the continent’sinvestment climate.

www.icfafrica.org

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CountryPopulation

millionNominal GDP

$bnReal GDPGrowth %

Main Exports Main Imports

Burundi

7.9 (2005) 1.0 (2006) 4.5 (2008)

Coffee, tea, manufacturesCapital goods, food, intermediategoods, consumption goods

9.5 (2009) 1.3 (2009) 3.5 (2009)

Kenya

35.1 (2005) 22.5 (2006) 1.7 (2008)Horticultural products, tea, coffee,fish products

Industrial supplies, machinery &other capital equipment,consumer goods, food &beverages39.6 (2009) 35.9 (2009) 2.5 (2009)

Rwanda

9.2 (2005) 2.9 (2006) 11.2 (2008) Coffee, tea, cassiterite (source oftin) & tin, coltan (metallic ore fromwhich nobium and tantalum – used incellphones and computer chips)

Energy, capital goods

10 (2009) 4.9 (2009) 6.0 (2009)

Tanzania

38.5 (2005) 14.4 (2006) 7.4 (2008)Gold, cotton, cashew nuts, coffee,tea

Machinery, oil & other fuels, food& foodstuffs, industrial rawmaterials42.6 (2009) 22.6 (2009) 4.9 (2009)

Uganda

28.9 (2005) 10.0 (2006) 9.0 (2008)

Coffee, fish, cotton, tea

Machinery equipment, vehicles &accessories, vegetable products,animal fats & oils, chemicals,petroleum33.3 (2009) 15.8 (2009) 7.0 (2009)

Source: BMI Country Reports

Rwanda, compared to other EAC countries

Rwanda - major trade partners Exports in US$m

Exports Imports

China Kenya

Germany Uganda

United States Germany

Hong Kong Belgium

Pakistan China

Pakistan

38.311%

China

150.745%

Germany

52.716%

USA

47.414%

Hong Kong

45.314%

at a glance

21

Eas

t A

fric

a

Registering business/property/construction permits

The 2010 World Bank’s “Doing Business in…” identified Rwanda as the topreformer in the world. On its website, it said:

“For the first time since Doing Business started tracking reforms, a Sub-SaharanAfrican economy, Rwanda, led the world in reforms. Rwanda has steadilyreformed its commercial laws and institutions since 2001. In the past year itintroduced a new company law that simplified business start-up andstrengthened minority shareholder protections.

Entrepreneurs can now start a business in two procedures and three days.Rwanda has also enacted new laws in order to improve regulations to easeaccess to credit. Other reforms removed bottlenecks at the property registryand the revenue authority, reducing the time required to register property by255 days. Overall, Rwanda introduced reforms in 7 out of the 10 categories,rising from 143rd to 67th place on the ease of doing business rankings”.

Dealing with Construction Permits Burundi Kenya Rwanda Tanzania Uganda

Procedures - Total Number 22 11 14 22 16

Time in Days 212 120 210 328 143

Cost as % of Income per Capita 7968.2 161.7 456.1 3281.3 584

Registering Property Burundi Kenya Rwanda Tanzania Uganda

Procedures - Total Number) 5 8 4 9 13

Time in Days 94 64 60 73 77

Cost as % of Property Value 6.3 4.2 0.5 4.4 3.5

Starting a Business Burundi Kenya Rwanda Tanzania Uganda

Procedures - Total Number 11 12 2 12 18

Time in Number of Days 32 34 3 29 25

Cost as % of Income per Capita 151.6 36.5 10.1 36.8 84.4

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Introduction of the East African CommunityCustoms Common Market in July 2010

Opportunities and Challenges7

The East African Customs Community (EAC) wasformed in 2005. It is currently made up of fivenations namely Uganda, Kenya, Tanzania, Rwandaand Burundi. The legal framework for Customsadministration in the EAC region is the East AfricaCommunity Customs Management Act.

The partner states agreed to have four stages for theEAC Regional Cooperation and Integrationincluding:-

• A Customs Union in 2005 to be fully realised inJanuary 2010

• Common Market to be in place by 2010

• Monetary Union to be in place by 2012

• A political Federation with no definite date ofimplementation

The Customs Union in 2005 saw the reduction ofimport duty on goods from within the partner statesfrom 25% to 0% for some goods and to10% forothers. It was agreed that the 10% rate will reduce by2% each year until it is reaches 0%. Effective January2010 the rate for ALL imports originating fromwithin the partner states reached the rate of 0%.

In November 2009, the member states signed theprotocol for the establishment and implementationof a Customs Common Market effective 1 July 2010.When the common market is implemented taxpayerswithin the member states will be allowed freemovement of goods produced within the memberstates, free movement of labour as well freemovement of capital and services. This will implythat in addition to goods produced within the regionpaying 0% import duty, they will not pay any otherduties payable at importation such as Value AddedTax, Excise Duty, etc. It also implies that one will nolonger need a work permit to work in any of the

member states as long as they are citizens of themember states.

Important to note is that even if the goods will beimported free of any duty, customs procedures willstill have to be followed. For instance, customsdocumentation will have to be prepared and clearingagents will have to be employed. This will enable theAuthority to still perform its duty of providing tradestatistics and also ensuring that the goods importedshould actually be imported free of duty.

With the formation of the Customs Common Market,rules of origin criteria will be the determining factorfor importation of goods free of duty. The EACcriteria, for example, prescribe that “goods shall beaccepted as originating in a Partner State wherethey are consigned directly from a Partner State to aconsignee in another Partner State and where:

• they have been “wholly” produced ; or

• they have been produced in a Partner Statewholly or partially from materials imported fromoutside the Partner State or of undeterminedorigin by a process of production which effects asubstantial transformation of those materialssuch that:

- The cost plus insurance plus freight value ofthose materials does not exceed sixty percentum of the total cost of the materials used inthe production of the goods;

- The value added resulting from the process ofproduction accounts for at least thirty five percentum of the ex-factory cost of the goods.

- The goods are classified or become classifiableunder a tariff heading other than the tariffheading under which they were imported.

“Important to note is that even if the goods will be imported free ofany duty, customs procedures will still have to be followed. Forinstance, customs documentation will have to be prepared andclearing agents will have to be employed”, says Hadijah Nannyomo ofErnst & Young’s Tax Services in Uganda

23

Part of the documentation that will be required bythe Customs Authorities to confirm origin will be acertificate of origin issued by the relevant regulatoryauthority in the member state, e.g. the Ministry ofTrade or Ministry of Finance.

The Common Market will have several opportunitiesand/or advantages for taxpayers in the memberstates including:

• Reduced cost of doing business; with no importduties, the cost of doing business will decrease forimporters. This will increase profits and boosttrade. Prices of goods may be reduced in thelonger term for final consumers.

• Increased market size, which will lead to increasedsales for exporters within the region. Because thegoods being exported will be free of import dutyin the member countries where they are destined,more will be ordered.

• Efficient use of resources as there will be ease ofmovement of labour, services and capital (i.e.plant and machinery) within the region.

• Increased networking amongst taxpayers withinthe region.

There will also be some challenges expected with theformation of the Customs Common Market:

• Taxpayers in the different member states will notequally benefit owing to the fact that differentmember states are not at the same level ofdevelopment.

• All the member states are currently still membersof other regional groupings like COMESA andSADC. This will imply that taxpayers importingfrom COMESA and SADC regions will be moredisadvantaged since the duty rates for those tworegions will remain higher than those within theEAC.

• Currently most of the traders/importers dobusiness with, and import from, the Far East andAsian countries, so they will still have to pay taxesat importation and compete with those whopurchase from within the region. This category ofimporters will not fully benefit from the CustomsCommon Market.

To fully benefit from the upcoming CustomsCommon Market importers should consider thefollowing planning ideas:

• Tax Efficient Supply Chain Management, for thosewho have been importing from outside the EACregion, to restructure their supply chains and lookfor producers of similar items within the region.

• Those manufacturers outside the member states,but with a presence in different member stateswhere they have been exporting products, shouldconsider opening up manufacturing plants withinthe region. Caution should be taken to ensurerules of origin are satisfied.

• All importers should ensure that a certificate oforigin is obtained on importation of goodsproduced from within the region.

During the current economic downturn and in theearly stages of recovery, Customs Authorities aredoing everything possible to collect and hit their setrevenue targets. The formation of the CustomsCommon Market may further reduce theircollections. They are therefore expected to be moreefficient and increase their scrutiny of Customsdocumentation through audits. Taxpayers shouldconsider improving their awareness of Customsoperations, planning and management to avoidunnecessary audits and penalties.

For more information, please contact:

Hadijah Nannyomo

Manager, Tax,Ernst & Young UgandaTel: +256 414 343520hadijah.nannyomo@ug.ey.com

Gitahi Gichahi

Regional Leader,Ernst & Young East AfricaTel: +254 202 715300gitahi.gachahi@ke.ey.com

24

Our contacts in AfricaYou have come to the right place8

Country Name Email

Angola Jackie Tong jackie.tong@za.ey.com

Botswana Bakani Ndwapi bakani.ndwapi@za.ey.com

Congo and DRC Ludovic Ngatse ludovic.ngatse@cg.ey.com

Cote d’Ivoire Jean-François Albrecht jean-francois.albrecht@ci.ey.com

Gabon and Equatorial Guinea Erik Watremez erik.watremez@ga.ey.com

Ethiopia Zemedeneh Negatu zemedeneh.negatu@et.ey.com

Ghana Ferdinand Gunn ferdinand.gunn@gh.ey.com

Guinea René-Marie Kadouno rene-marie.kadouno@gn.ey.com

Kenya Gitahi Gachahi gitahi.gachahi@ke.ey.com

Malawi Shiraz Yusuf shiraz.yusuf@mw.ey.com

Madagascar, Mauritius and Seychelles Gerald Lincoln gerald.lincoln@mu.ey.com

Mozambique Justino Chone justino.chone@mz.ey.com

Namibia Gerhard Fourie gerhard.fourie@za.ey.com

Nigeria Henry Egbiki henry.egbiki@ng.ey.com

Rwanda Gurmit Santokh gurmit.santokh@rw.ey.com

Senegal Makha Sy makha.sy@sn.ey.com

Tanzania Ernest Massawe ernest.massawe@tz.ey.com

Uganda John Muhaise-Bikalemesa john.muhaise-bikalemesa@ug.ey.com

Zambia Henry C Nondo henry.c.nondo@zm.ey.com

Zimbabwe Joe Cosma joe.cosma@zw.ey.com

South Africa Philip Hourquebie, CEO Africa philip.hourquebie@za.ey.com

Accounts & Business Rich Shapiro rich.shapiro@za.ey.comDevelopment

Assurance Ajen Sita ajen.sita@za.ey.com

Advisory Trevor Rorbye trevor.rorbye@za.ey.com

Tax Martin Walbeck martin.walbeck@za.ey.com

Transaction Advisory Services Adrian Macartney adrian.macartney@za.ey.com

25

Victor KgomoeswanaAfrica Business CenterTel: +27 11 772 5249Mobile: + 27 83 603 4731 email: victor.kgomoeswana@za.ey.com

Louw RoetsSouthern AfricaTel: +27 11 502 0125Mobile: + 27 82 611 7777email: louw.roets@za.ey.com

Eme Agha West AfricaTel: + 234 1 4630 479-80 Ext: 110Mobile: +234 808 880 8087email: eme.agha@ng.ey.com

Makha SyFSSATel: +221 338 49 22 02Mobile: +221 77 638 34 41email: makha.sy@sn.ey.com

Robson MugombaAfrica Business Center: UKTel: +44 (0)20 7951 2355mobile: +44 (0)77 7185 8102email: rmugomba@uk.ey.com

Lauren PatlanskyChina BusinessTel: +27 31 576 8029 mobile: +27 83 301 4597email: lauren.patlansky@za.ey.com

Mitch KhalpeyIndia BusinessTel: +263 4 750979mobile: 912417591email: Mitch.Khalpey@zw.ey.com

Welton MakwarimbaCentral AfricaTel: +263 4 750979/83 |Office: +263 4 750905/14email: welton.makwarimba@zw.ey.com

Jennifer Kinyoe East AfricaTel: +254 20 2715300Mobile: +254 711 591446 email: jennifer.kinyoe@ke.ey.com

Africa Business CenterContacts 9

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