Doing Business In: Senegal
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Senegal has one of the most promising economies in Africa. As an emerging market, Senegal abounds in business opportunities and benefits from several positive factors which makes the country one the most attractive of the region.
The 196,722 square kilometer territory of Senegal is rich in natural resources and strategically located geographically in West Africa. Being the westernmost point on the continent also makes Senegal the natural hub for European and American businesses expanding to Africa.
Bordered by Mauritania in the north, Mali in the east, Guinea in the southeast, and Guinea-Bissau in the southwest, Senegal surrounds Gambia and shares a maritime border with Cape Verde.
Senegal has a population of about 15 million people with a per capita income slightly above US $1,000. Nearly half of the population lives in cities. With such a growing and rather young population, Senegal is expected to be home to nearly 22 million people by 2030.
Senegal gained its independence in 1960. Since then, the country has remained one of the most stable in Africa and has considerably strengthened its democratic institutions. Thanks to this favorable political landscape, Senegalese governments have, in the long run, consistently developed a pro-business legal environment and actively run the country towards emergence.
Law plays a central role in a competitive economy as it determines the predictability and cost of any business translation by defining rights, responsibilities, and means to resolve disputes. West African countries have understood the impact of law on business and have created regional legal integrations such as OHADA (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) and ECOWAS (Economic Community of West African States) aimed at providing legal and judicial predictability to businesses
Senegal is also a member of WAEMU (West African Economic and Monetary Union). The WAEMU Treaty was signed in 1994 and today comprises of eight member-countries: Benin, Burkina-Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, and Togo. Throughout this customs and currency union, all member states use the CFA franc (XOF) pegged to the Euro (1 euro = 655.957 XOF). Based in the Senegalese capital of Dakar, BCEAO (Central Bank of West African States) is the central bank of this monetary union and defines and implements monetary policy within the WAEMU region.
After decades of a gloomy economy, regional legal integrations finally appear to be fruitful and West Africa is on the rise. For the first time, the International Monetary Fund (IMF) expects that Senegal’s economic growth will surpass 7% in 2018.
At the domestic level, the Senegalese authorities have launched a new development strategy: the PES (Plan for an Emerging Senegal). Its purpose is to significantly transform Senegal by increasing growth and reducing poverty by 2035. To achieve this, the PES promotes Foreign Direct Investments (FDIs) though fiscal consolidation and a general improvement of the business environment.
2. BUSINESS OPPORTUNITIES
With an estimated GDP of 17 billion USD for 2018, the Senegalese economy is still flourishing. Even though the primary sector accounts for only 16% of the GDP, the economy is still largely dependent on natural resource. For instance, agriculture accounts for 77 per cent of labor force participation with the main agricultural products being peanuts, millet, corn, sorghum, rice, cotton, livestock, and fish. Senegal attracts foreign investment in the agriculture sector thanks to a favorable climate which is suitable for the cultivation of off-season crops destined for the European market and its substantial water potential. In line with the National Economic and Social Development Strategy, Senegal is involved in a campaign to modernize its agricultural sector for development and increased productivity.
Agricultural products are among the country’s main exports along with mineral resources. Actually, the extractive sector is a growing one for the Senegalese economy. While it contributes only 1 per cent of national employment, this capital-intensive sector generates 20 per cent of exports and attracts an important part of FDIs. The main mineral products are gold, phosphate, heavy minerals, and materials used in construction and cement production. According to the Extractive Industry Transparency Initiative, oil and gas only accounts for 8% of Senegal’s extractive revenue. However, this is about to change with the recent discovery of world-class hydrocarbon offshore deposits. With initial production possibly starting in 2021 for gas and 2023 for oil, these discoveries could shift Senegal’s economy and transform the country into a major oil and gas producer by injecting massive funds into the national economy. Therefore, the oil and gas sector could benefit society as a whole and generate great new business opportunities.
In addition to the development of the primary sector, Senegal has put special emphasis on infrastructure. 2017 has been marked by the long-awaited opening of Blaise Diagne International Airport, which has the potential to become one of the 10 most frequented airports on the entire continent. A 55-kilometer high-speed regional express railway train is currently under construction and will connect Dakar to the new airport via 14 stations with a speed of 160km/h and a load capacity of 115,000 people per day.
Another substantial example that Senegal is on the path to economic development is the electrification of the country. Senegal detains among the best electrification rate within Africa, and the best within the OHADA Zone. However, that situation is unsatisfactory as with a capacity of more than 620MW of electricity production, about 40% of the Senegalese population still does not have access to electricity. But electrification remains a national priority, and considerable improvements are expected in that regard. As a matter of fact, thanks to its stable political and legal framework, Senegal is currently benefiting from the Scaling Solar Program launched by the World Bank Group to attract foreign investors and accelerate the construction of solar power plants.
LEGAL BUSINESS FRAMEWORK
Senegal is a member of various regional organizations. Therefore, any regulation adopted by these organizations are directly applicable in Senegal and will prevail over the Senegalese laws in case of conflict. These regulations have a strong impact on business. Not only do they entail more legal and judicial predictability, but they also define the form of corporate entity and impose constraints in respect to insuring, monitoring, and protecting foreign investments.
3.1. EXCHANGE CONTROL
Foreign exchange controls related to foreign investments in Senegal are governed by WAEMU regulations. The main principle is an unrestricted freedom for all investments taking place within WAEMU and, more broadly speaking, of capital movements and loans among WAEMU member states.
However, although they aim to curtail sub regional banking risks, these regulations implement certain restraints on international loans and the holding to foreign bank accounts and national accounts with foreign currencies. Moreover, exchange operations, capital movements, and payments of any kind between a WAEMU member state and a foreign country or within WAEMU between a resident and a non-resident may only be performed by the Central Bank, postal administrations, or an approved bank intermediary.
3.2. THE OHADA BUSINESS LAW FRAMEWORK
Under the OHADA Treaty’s umbrella of supranational norms applicable in Senegal, ten uniform acts have been passed to date. These are as follows: the Uniform Act relating to General Commercial Law, the Uniform Act relating to Commercial Companies and Economic Interest Group Law (UACC), the Uniform Act relating to Simplified Recovery Procedures and Measures of Execution, the Uniform Act relating to Collective Proceedings for the Clearance of Debts, the Uniform Act relating to Arbitration, the Uniform Act relating to the Organization and Harmonization of the Accounting Systems of Enterprises, the Uniform Act relating to Contracts for the Transport of Goods by Road, the Uniform Act relating to Co-operative Companies, and the very new Uniform Act on Mediation introduced in late 2017.
Aimed to enhance business in West and Central Africa, OHADA provides a state-of-the-art civil company law to incorporate and govern companies thanks to the 2014 UACC. This uniform act introduced a great deal of flexibility through the Simplified Public Limited Company (Simplified Joint-Stock Company) and the possibility for companies to deliver preferred and free shares. It also allowed the issuance of hybrid securities. Indeed, a Public Limited Company or a Simplified Public Limited Company may now issue a variety of hybrid securities, such as bonds convertible into shares, bonds redeemable in shares, and bonds with share subscription warrants.
The introduction of these new legal vehicles for private equity will therefore facilitate the structuring of complex financial operations that comprise mezzanine and subordinated debt, as seen in more mature markets, and permit the establishment of modern legal montages.
3.3. START-UP PROCEDURE AND THE DAKAR INTEGRATED SPECIAL ECONOMIC ZONE
In parallel with uniform business laws, Senegal has implemented a business facilitation program to encourage entrepreneurship and stifle informal economy. The National Agency for the Promotion of Investments and Major Projects (APIX) has been created to that aim. Among other services, APIX operates an online start-up procedure allowing business registration in 24 hours. Thanks to APIX, a freshly created company may also receive advice from banks, notaries, consultancy firms, and specialized lawyers to clarify specific issues.
Furthermore, the business facilitation program resulted in the creation of offshore economic zone DISEZ (Dakar Integrated Special Economic Zone). Businesses setting up in DISEZ enjoy various tax incentives and infrastructural support such as registration, access to utilities accreditation for eligible activities, support in administrative and land-related formalities, exemption in customs duties on equipment and raw materials, income tax exemption, the right to hire staff of foreign and Senegalese nationality for foreign enterprises, the possibility of signing fixed-term contracts for 5 years, and unrestricted transactions in foreign currencies within DISEZ.
3.4. GOVERNMENT PROCUREMENT AND PUBLIC PRIVATE PARTNERSHIPS
Following international recommendations from the IMF and the World Bank, Senegal has gradually liberalized economic sectors which used to be run exclusively by state-owned companies. This liberalization has therefore introduced important investment opportunities in both the public and infrastructure sectors.
Domestic regulations in that domain are rather well drafted and confer modern instruments such as public service delegation contracts or partnership contracts to govern investor-state relationships. The legal framework is also sector-specific for key industries such as mining, oil and gas, electricity, and telecommunications.
For the common public sector, the Code of the Administration’s Obligations provides for equal treatment of tenders and transparency of procedures, the non-respect of which leading to the nullity of the procurement procedure upon request of any person interested.
The member states of the Franc zone signed a treaty in 1992 to establish the Inter-African Conference on Insurance Markets (CIMA). The insurance sector in Senegal is therefore governed by the CIMA Code, and CIMA has a general competence of supervision on that sector. In application of the CIMA Code, any insurance in Senegal must be delivered by an insurance company in conformity with CIMA, except in cases of a special derogation from the Minister of Economy and Finance.
Even though ECOWAS Law has included prohibitions on anticompetitive mergers since 2008, anticompetitive practices (cartels and abuse of dominant positions and state aid) are mainly regulated by WAEMU, as the WAEMU Commission is granted with a general jurisdiction for the implementation of Community Law.
This law aims to protect the consumer, promote economic efficiency, and facilitate integration in regional and globalized economies. In the context of building a common market in particular, it seeks to improve the free movement of goods by means of a customs union and to support sectoral policies. In addition, the WAEMU Treaty provides for the development of sectoral policies, including policies on transport, telecommunications, the environment, agriculture, energy, industry, and mining.
Senegal has one of the best systems of higher education in West Africa and produces a substantial pool of educated workers. Relations between employees and employers are mainly regulated by the Labor and Social Security Code, the National Inter-Professional Collective Convention, and the collective conventions specific to each area of activity.
The hiring of Senegalese employees is, in theory, free but is also subjected to the authorization of the Labor Inspectorate and the Labor Department. Labor law provides for two types of employment contracts: Fixed-Term Contracts (CDD) and Indefinite-Term Contracts (CDI). Fixed term contracts can only be renewed once and may not exceed a total of two years. If its duration exceeds three months, the contract will have to be laid down before the Labor Department before it comes into effect. Senegal also recognizes apprenticeship contracts, which is an employment contract whereby an employer agrees to provide an allowance or earning wage to a young person, student, or recent graduate.
Labor law sets the working week at a 40-hour maximum. Additionally, female employees have the right to 14 weeks of maternity leave (which can start before or after childbirth). The minimum wage for non-agricultural employees is 209.10 XOF. For employees in the agricultural field, the minimum wage is 182,95 XOF. Finally, a Senegalese employee has a right to 24 days of paid leave per year.
Businesses may, however, be impacted by the complexity of labor issues, the inflexibility of the labor code, and arbitrary court rulings as firms are often sued in the Senegalese courts by terminated employees seeking to recover damages and return to their former positions.
The Senegalese tax system is employed as a tool to enhance FDIs and economic development. The 2013 tax code reform has simplified tax declaration and payment by favoring online proceedings. In a pro-business perspective, taxes have been significantly reduced. Indeed, since 2005, the total tax rate decreased about 5%, stabilizing around 45%, and branches and companies are liable for corporate income tax (CIT) at the rate of 30%. A minimum CIT is due, in case of lack of profits, at the rate of 0.5% applied on the annual turnover. This minimum amount cannot be less than 500,000 XOF, and the maximum amount cannot be more than 5 million XOF.
3.9. INVESTMENT PROTECTION AND DISPUTE RESOLUTION
To attract FDIs and remain competitive, not only Senegal has implemented an Investment Charter but has also signed and ratified a strong network of investment-related instruments. The Investment Charter provides guarantees for equal treatment of foreign investors and repatriation of profit and capital and specifies tax and customs exemptions according to the investment volume, company size, and location. This charter may be considered as minimum national treatment guaranteed by the state whereas any applicable investment treaties would be more specific.
Senegal is bound by 29 multilateral or plurilateral investment-related instruments and by several Double Tax Treaties (DTT). The main benefit of these DTTs is to avoid double taxation for individuals or companies with respect to certain income (real estate income, dividends, capital gain, etc.) generated in the host/home country member of the treaty and to provide for mutual assistance rules in relation to various existing taxation (i.e. income tax, inheritance, registration taxes, stamp duties, etc.).
Senegal has also signed Bilateral Investment Treaties (BITs) for the promotion and protection of investment with 27 countries. These BITs usually favor non-discrimination through national treatment and most favored nation treatment, guarantee repatriation and transfer, and provide protection against expropriation or unfair treatment through an option of unilateral arbitration to the covered investors.
Senegal has signed and ratified the ICSID (International Centre for Settlement of Investment Disputes) convention and complied with the four public awards rendered against the State. As Senegal is also a signatory state of the 1958 New York Convention, most commercial arbitration awards are recognized throughout Senegalese legal order.
And last but not least, the OHADA zone designed a unique business dispute resolution system through the Common Court of Justice and Arbitration (CCJA). Indeed, the CCJA provides investors with an attractive one-stop shop business dispute mechanism, from the institution of proceedings to the exequatur of the award. In light of the 2017 adoption of the Revised Rules of Arbitration, the CCJA may serve as a platform to encourage an integrated and efficient approach on business dispute resolutions. At each stage under the Revised Rules, great powers have been conferred to the arbitral tribunal to more easily deal with procedural issues and keep up with the arbitration proceedings. Therefore, unless the parties agree otherwise, when they engage in an arbitration under the CCJA Revised Rules, they now step in fast-track and demanding arbitration whereby arbitrators benefit great powers to run the proceeding and address the dispute by producing an award within the best terms. There is no doubt that the Revised Rules provide tremendous progress to a CCJA arbitration system which, until recently, was largely disregarded.