Long-Term Business Opportunities Await in Morocco

Francisco A. Laguna & Wojciech Kornacki

Morocco’s business and foreign direct investment opportunities are red hot. The World Bank reports that in the last 5 years, Morocco has been undergoing sweeping economic reforms which are expected to generate high potential growth in the country. Most recently, Morocco was listed in the top 48 most innovative economies in the world. The UK Trade & Investment Ministry reports that Morocco has been identified as a member of a group of “fast-growing nations described as ‘African Lions’.”

About Morocco

Map of Morocco Photo Credit: US CIA WF via Wikimedia Commons

Map of Morocco
Photo Credit: US CIA WF via Wikimedia Commons

Morocco is located in Northeastern Africa, between Algeria and Western Sahara. It is separated from Europe by the Mediterranean Sea. Spain and Portugal are its Northern neighbors. Its economy has been growing at the rate of approximately 4.5% since 2001. Its population of slightly over 33 million offers a qualified and relatively inexpensive labor force. Morocco also offers political and economic stability to potential investors – two key advantages – which prove elusive for other Northeastern African countries.

Strengths and Weaknesses of the Moroccan Market:

Morocco offers following strengths: (1) Strategic location between Europe and North and West Africa; (2) improving communication and transportation networks; (3) competitive labor costs; and (4) tax incentives and ease of repatriation for profits. Potential weaknesses include: (1) growing competition from non-EU countries; (2) corruption and bureaucracy; (3) informal economy; and (4) delays in implementing reforms. Despite the weaknesses, most experts agree that Morocco offers attractive growth and investment opportunities.

Free Trade Agreement

Moroccan government has prioritized the development of its renewable energy industry. This creates countless opportunities in infrastructure projects, safety, financing, security and other related industries. This picture shows solar cell panels in Eastern Morocco.   Courtesy of http:// http://en.wikipedia.org

Moroccan government has prioritized the development of its renewable energy industry. This creates countless opportunities in infrastructure projects, safety, financing, security and other related industries. This picture shows solar cell panels in Eastern Morocco. Courtesy of http:// http://en.wikipedia.org

Morocco is a signatory of the U.S.-Morocco Free Trade Agreement and other free trade agreements giving potential investors access to over 1 billion consumers world-wide. For U.S. exporters, this also means that almost all goods exported to Morocco are tariff free. According to the Moroccan Investment Development Company, Morocco has lower business taxes than China and Spain and lower export costs than Turkey and Egypt. Thus, smart and well-timed investment in Morocco may be less expensive, and has the potential to offer greater return in the future.

Solar and Renewable Energy Investment Opportunities

Morocco has recently completed Stage I of one of the world’s largest solar thermal power plants located at the edge of Sahara desert, near the town of Ouarzazate. Once the project is completed, Morocco will become a major world solar power. The new design allows the plant to deliver the energy at night as well. Recently, even NASA commented on the project.

Morocco is also heavily investing in wind and water energy projects. Direct foreign investment opportunities in renewable energy in Morocco will continue to expand in the years to come as Morocco is aiming to become energy self-sufficient, and eventually sell its energy to Europe.

Infrastructure Development Project Opportunities

Infrastructure projects as another investment opportunity in Morocco. In the last several years, Morocco has been spending billions of dollars to improve its transportation infrastructure to become more attractive to international investors. This includes expanding the high speed rail system, road system and electric power grid. The Moroccan construction industry is expected to grow at the rate of over 6% per year until 2020. Its proximity to Europe and ready access to many emerging markets in Africa make the country a regional project and infrastructure powerhouse, and US investors are looking at Morocco when exploring to expand in the region. Earlier this year, Renault and its partners announced that they would invest $1 billion in Morocco. Shell Vivo Energy, GlaxoSmithKline, Unilever, and many other companies already operate in Morocco.

Investment Opportunities in other Moroccan Industries

Morocco offers pristine beaches, Mediterranean climate, countless historic sites, and well developed and growing hospitality industry. In addition, its open skies policy has allowed many airlines establish direct flights to Morocco.  Courtesy of http:// http://en.wikipedia.org

Morocco offers pristine beaches, Mediterranean climate, countless historic sites, and well developed and growing hospitality industry. In addition, its open skies policy has allowed many airlines establish direct flights to Morocco. Courtesy of http:// http://en.wikipedia.org

The stock exchange in Morocco is the second largest in Africa and has recently partnered with the London Stock Exchange. This creates tremendous opportunities for banking, insurance, capital markets and public private partnerships.

The national Investment Development Agency reports that other sectors of Moroccan economy are also growing.  Between 2005 and 2010, the number of tourists visiting Morocco has increased by 3 million.

The new infrastructure, renewable energy and tourism projects also offer opportunities in fire safety, border control, surveillance, cyber security and greater education and training.

If you would like more information about investment opportunities in Morocco, contract TransLegal.

Exciting Business Opportunities in Jordan

Francisco A. Laguna & Wojciech Kornacki

Jordan has a stable government, strategic location, and one of the most open economies in the region.  Jordan is an active trading partner with the European Union and the United States, and it has a well-educated and skilled labor force.  In addition, English is widely spoken, and Jordan is safe and very popular with tourists and students.  These attributes make Jordan one of the best places for foreign direct investment in the Middle East.

Country Background

Jordan is located between Israel, Palestinian Authority, Saudi Arabia and Iraq.  Its population is 8,117,564.  Jordan’s economy is one of the smallest in the region, but it is also one of the fastest growing.  While other developing economies in the region are declining, Jordan’s economy is forecasted to grow.

Zahran district in the capital city of Amman.  Courtesy of http:// http://en.wikipedia.org

Zahran district in the capital city of Amman. Courtesy of http:// http://en.wikipedia.org

International Trade

Jordan is very pro international trade.  The largest exporters to Jordan include the EU, Saudi Arabia, China and the United States.  Since Jordan has signed a Free Trade Agreement with the United States, bilateral trade between both countries has surged ten-fold in the last 13 years.

Jordan’s Priority Sectors for Economic Development

Energy: 

Jordan spends approximately 15 % or US$  5.4 billion of its Gross Domestic Product on energy.  To increase its energy independence, Jordan is likely to invest in energy-efficient projects, renewable energy, rooftop solar panels and sun-powered water heaters.  The EU and Jordan are going to invest US$ 100 million in solar energy.  This sector of Jordan’s economy offers significant potential growth in the future.  The investment into the energy market is also likely to benefit many refugees which are currently living in Jordan.

Information and Communications Technology (ICT):

The information and communications technology sector is one of the best sectors to invest for US companies.  The number of mobile subscribers in Jordan is expected to grow.  It is estimated that on average, the mobile sector grows 10% annually.  While weak consumer purchasing power could be a concern, it has not stopped the market from growing.

A solar powered charging station in King Hussein Business Park allows a driver to recharge his / her car.

A solar powered charging station in King Hussein Business Park allows a driver to recharge his / her car.

Defense and Security:

Jordan is in the process of rearming its armed forces in order to better support its regional missions.  This means significant spending to obtain new military equipment and improve capacity.  Currently, Jordan possesses a highly trained but rather small military force.  To highlight its Western ties and military needs, Jordan is a host to the XI Special Operations Forces Exhibition and Conference which will be held in May 2016.

Other industry sectors that also receive significant attention are healthcare, education and business services.  If you are interested in learning more about future business opportunities in Iran and how to increase your chances of harnessing them, contact TransLegal or call 703-566-9427.

An End to Fossil Fuels?

Francisco A. Laguna & Richard Shu

The G7 recently agreed to completely eliminate fossil fuel use by the end of the century, citing fossil fuel scarcity and the looming dangers of climate change. This decision may come as a surprise to many in America, where drivers have enjoyed low gas prices and the crisis of fossil fuel scarcity has mostly been pushed out of the national consciousness. However, continued fossil fuel use remains a pressing issue: not only are carbon emissions contributing to rising temperatures and sea levels, but the methods of extraction themselves are proving increasingly dangerous to human health.  Whether the G7’s goals can be met in 85 years and what negative impacts may occur in the interim are the unknowns.

"Frac job in process" by Joshua Doubek - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons - https://commons.wikimedia.org/wiki/File:Frac_job_in_process.JPG#/media/File:Frac_job_in_process.JPG

“Frac job in process” by Joshua Doubek – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

A major source of controversy and contention among big oil, the environmentalists and public and private health officials is hydraulic fracturing.  Otherwise known as fracking, hydraulic fracturing is a method for extracting oil and natural gas from shale deposits. It involves cracking the earth with pressurized water in order to bring the fuel deposits up to the surface. Before fracking, the fuel found in shale deposits was considered inaccessible. Post-fracking, America has enjoyed a glut of natural gas — mostly butane — released from shale. By 2010, the number of natural gas wells in the US had reached 510,000, nearly double the 2000 figure of 276,000. Every year, 13,000 new operations are begun, mostly in the Great Plains, the Great Lakes and the Marcellus Shale deposit that runs along the Appalachian basin.

Compared to coal and oil, butane burns relatively cleanly. Short-term, however, the fallout from the fracking boom has been disastrous for public health. The fracking process releases toxic chemicals like methane and benzene into the local groundwater, rendering the water unfit for human consumption. Images of water flowing from faucets and catching fire have done little to ease the mind of the public.  Roughly 15.3 million Americans, more than the entire population of New York City, are affected by this pollution.  Unfortunately, big oil has lobbied successfully to avoid legislative requirements to reveal the exact chemicals and other ingredients used in drilling operations.  Competing factors such as inexpensive energy and fuel, job creation and the sometimes large pay-outs to landowners for mining rights have done little to encourage legislators to act proactively.

"2011-2014 water use for fracking" by USGS. Licensed under Public Domain via Wikimedia Commons

“2011-2014 water use for fracking” by USGS. Licensed under Public Domain via Wikimedia Commons

The fallout from reckless fracking is immediate, much more so than the slow damage wrought by global warming. Groundwater contamination in Pennsylvania is unlikely to concern someone living in California, especially if Californians are enjoying inexpensive gas as a result. But, in due time, everyone will suffer the consequences of climate change. The only thing that the fracking boom has done is delay the inevitable, or at least put it out of everyone’s minds. In finding a nice-seeming short term solution in clean natural gas, we have forgotten just why fossil fuel dependency was so dangerous in the first place.  The new supply of oil from Iran soon to flood the market will further mask the problem and delay implementing new strategies for global fossil fuel independence.

The fracking case is interesting in that we see real time hazards being immediately challenged with legislative actions. As soon as methane was detected in the water, there were lawsuits and regulations aplenty, mostly at the local or state level. It serves as proof for our intuition: legislators and courts respond better to concrete, urgent threats than to long-term threats.  However, these responses are defensive, only reacting to an event that has already occurred, the total, possible negative impacts of which are often misunderstood.

"Barnett Shale Drilling-9323" by Loadmaster (David R. Tribble) - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons - https://commons.wikimedia.org/wiki/File:BarnettShaleDrilling-9323.jpg#/media/File:BarnettShaleDrilling-9323.jpg

“Barnett Shale Drilling-9323” by Loadmaster (David R. Tribble) – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

A larger problem is that every state approaches fracking differently.  In the same month that the Maryland General Assembly passed a moratorium on new drilling permits and tightened its scrutiny on existing fracking sites, an Ohio judge struck down a countywide fracking ban. These sorts of case-by-case legislative fixes and court decisions are nothing new for our legal system. However, they currently stand as one of the few places where the dominion of big oil is being challenged. If the United States is to begin a concerted movement away from big oil, it will need something more definite than a smattering of state-level decisions to do so. And until global warming is firmly established as a serious, urgent threat, we will make no progress.

TransLegal has worked in various countries, including Brazil and Colombia, on issues related to alternative to fossil fuels, including biofuels.  Call us with your questions.

Brazil: Fallen Market or Bright Future?

Francisco A. Laguna & Joshua Hassell

2014 was not the best year for Brazil.  Last year, Brazil, the world’s seventh largest economy, suffered a major economic downturn that threatened to become a full blown recession. There are some promising signs for Brazil’s future. The question is whether these signs are promising enough to make the country a good choice for foreign direct investment.

The International Monetary Fund projects a 0.1% growth in Q4 over Q4 for 2015 and a 2.2% growth in Q4 over Q4 in 2016. However, the majority of this projected growth can be attributed to factors outside the Brazilian economy and beyond the government’s control, such as falling oil prices and the general increase in the global economy.  The systematic opening of Iran will put further strain on oil prices, and all oil-producing nations will feel the effect.

National Congress, Brasilia Photo Credit: Eurico Zimbres via Wikimedia Commons

National Congress, Brasilia
Photo Credit: Eurico Zimbres via Wikimedia Commons

Additionally, most of Brazil’s projected numbers for economic growth are derived from the potential impact of harsh austerity measures. One such measure was a bill known as Provisional Measure 664, originally slated to tighten access to survivor pensions and worker compensation.  The measure was passed by the Brazilian Senate with a vote of 50 to 18.  However, it was extremely unpopular.  To garner public support, a series of riders that could result in an increase of public spending by up to 40 billion reais (~ US$ 12.4 billion) were attached to the draft measure allowing workers to qualify for full pensions at a younger age.  Brazilian President Dilma Rousseff is expected to veto these addenda.

President Dilma Rousseff Prime Minister of China, Li Keqiang By Marcelo Camargo/Agência Brasil (Agência Brasil) [CC BY 3.0 br (http://creativecommons.org/licenses/by/3.0/br/deed.en)], via Wikimedia Commons

President Dilma Rousseff Prime Minister of China, Li Keqiang
By Marcelo Camargo/Agência Brasil (Agência Brasil), via Wikimedia Commons

A second austerity measure, Provisional Measure 665, was passed in May 2015 and was originally supposed to save the Brazilian government 9 billion reais (~ US$ 2.4 billion) a year.  Again, however, riders attached to the bill effectively cut the government’s saving in half to 5 billion reais.  Currently, Brazil appears hesitant to pass the level of austerity measure required, and this could make it difficult for Brazil to achieve the results projected by the IMF.

Additionally the IMF’s recent consultation regarding Brazil illustrates that as of April 10, 2015 Brazil’s current account deficit had increased to 4.2% GDP a huge increase from the 2.4% GDP figure from 2012. Non-financial public debt also increased to 71% of GDP from almost half of that.

Furthermore, Brazil’s markets are highly noncompetitive due to a massive increase in interest rates to a six year high of 12.75 in order to combat rising inflation. Much of Brazil’s previous economic growth had been driven through consumption, and thus, the interest increases have a potentially huge impact on not only Brazilian corporations but the overall Brazilian economy. Many smaller businesses have reported significant losses from 2013 to 2015, which has resulted in a historically low consumer confidence rating.

Topographic Map of Brazil by Captain Blood at en.wikipedia (Transferred from en.wikipedia) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], from Wikimedia Commons

Topographic Map of Brazil by Captain Blood at en.wikipedia (Transferred from en.wikipedia) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)%5D, from Wikimedia Commons

Despite all this, TransLegal clients continue to be drawn to the country because of its sheer size and potential.  This year, we have completed projects related to distribution agreements for animal feed, the registration of animal feed supplements, the sale of genetically modified products, the use of agricultural liming materials and a regulatory audit of a Brazilian company to be acquired by a foreign corporation to assure the company was in compliance with all regulations governing the manufacturing and sale of its products.

While Brazil may be doing better than in 2014, its short-term outlooks for 2015 and 2016 are not as bright as they might be.  Investors have to weigh for themselves whether the market is currently a viable candidate for FDI or, perhaps, whether they should use this period to establish their products in the market place and build brand recognition and in-country experience with conservative goals.

Call TransLegal with your questions concerning Brazil.  With offices in Brasilia and São Paulo, we are ready to assist you in Brazil.

Future Business Opportunities in Iran

Francisco A. Laguna & Wojciech Kornacki

Under normal conditions, a country with a well-educated population, a large middle-class, 9% of proven world oil reserves, 18% of proven global gas reserves and an abundance of strategic minerals would be an excellent place to invest.  Unless, the country is Iran, which is currently subject, rightly, to complex and multi-faceted international financial and other sanctions that have reduced its economy by about 15 to 20%.  This may change soon, however, as Iran attempts to end its economic isolation.

According to a 2007 Goldman Sachs report, Iran’s energy sector, technology, and human capital could make it particularly attractive for foreign direct investment.  Now that there is a possibility that sanctions may be lifted, many national and private investors want to position themselves to benefit from the new and very attractive market when (and if) it opens.  Countries such as China, Russia, Turkey and various European countries are already preparing for the sanctions to be lifted.

Currently, the United States and Iran are engaged in extensive negotiations over Iran’s nuclear program.  Depending on the outcome, certain sanctions could be lifted against Iran.  This would open its oil, gas, technology, human resources, natural resources, automotive, airline, hospitality and tourism, and many other industries to foreign direct investment, and it would create billions of dollars’ worth of business opportunities in Iran and the world.   Courtesy of http:// http://en.wikipedia.org

Currently, the United States and Iran are engaged in extensive negotiations over Iran’s nuclear program. Depending on the outcome, certain sanctions could be lifted against Iran. This would open its oil, gas, technology, human resources, natural resources, automotive, airline, hospitality and tourism, and many other industries to foreign direct investment, and it would create billions of dollars’ worth of business opportunities in Iran and the world. Courtesy of http:// http://en.wikipedia.org

The expectation is that once sanctions are removed, new opportunities will create billions of dollars’ worth of business for local and international companies.  Essentially, Iran could be the “next big thing” (once the sanctions are lifted) after the opening of the markets in Central and Eastern Europe.  Some of its regional trading partners expect that their economies will also grow once the sanctions are removed.

Investors are already holding discussing Iran’s oil industry and auto industry.  Indeed, many international energy companies are very interested in Iran, including Royal Dutch Shell Plc, British Petroleum and Total SA.

Not all sanctions will be lifted overnight, and some sanctions may continue for years to come.  In addition to keeping an eye on the international sanction regime, a prudent investor should also consider the following Iranian industries, once the sanctions are removed.

Banking: New businesses and residents will require both domestic and international banking services.  The international banking community has started looking at the country’s potential.  It will be interesting to see which banks move in first.  Will the Swiss join?

Iran’s domestically developed drone capable of traveling almost 2,500 miles.  Due to sanctions, Iran has been forced to develop its own technologies.  Collaboration between international and domestic businesses partners is estimated to create millions of dollars’ worth of business, once the sanctions are lifted.  Courtesy of http:// http://en.wikipedia.org

Iran’s domestically developed drone capable of traveling almost 2,500 miles. Due to sanctions, Iran has been forced to develop its own technologies. Collaboration between international and domestic businesses partners is estimated to create millions of dollars’ worth of business, once the sanctions are lifted. Courtesy of http:// http://en.wikipedia.org

Construction / Real Estate:  Many Middle Eastern businesses are interested in Iran’s real estate market.  The lifting of sanctions is likely to result in the return of some of the Iranian diaspora as well as representatives of multinationals and other companies that will invest in the country.  This will create the need for housing and, as the economy progresses, more luxury condominiums and residences with Western amenities.

Consulting Services: International businesses are likely to begin working to pre-position themselves in a post-sanctions Iran.  To be successful in the country, businesses will need reliable consultants to assist them navigate cultural nuances, language barriers and business practices, including the practice of gift-giving.

Natural Resources and Minerals: After years of sanctions, Iran desperately needs billions of dollars to make its oil industry profitable again.  In 1974, Iran pumped 6 million barrels per day; today, it only pumps 2.8 million.

Cube of Zoroaster.  Iran’s rich culture spans over thousands of years.   This tower-like construction was in the 5th Century BC.  Iran’s tourism and industry are likely to grow fast once the sanctions are removed.  Courtesy of http:// http://en.wikipedia.org

: Cube of Zoroaster. Iran’s rich culture spans over thousands of years.
This tower-like construction was in the 5th Century BC. Iran’s tourism and industry are likely to grow fast once the sanctions are removed. Courtesy of http:// http://en.wikipedia.org

Tourism and Hospitality: Before the Iranian Revolution, Tehran was touted as one of the most cosmopolitan cities in the region.  Years of isolation and religious extremism have crippled Iran’s tourism and hospitality sectors.  As Iran seeks to re-open itself to the world, it will have to modernize these sectors, and FDI is the perfect means of accomplishing this goal.  There is much work to be done, however, for these sectors to be viable contributors to the Iranian economy.  Currently, tourism in Iran accounts only for 2% of the entire GDP; in most countries, it is typically around 5%.

It will be interesting to see how the government will approach FDI in strategic sectors such as banking, minerals, natural gas and oil, as well as non-strategic sectors.  How will it allow such investments to be structured?  What ownership percentage will be permitted?  What about repatriation of capital / profits or termination of investments?  How will corruption manifest itself? Equally important, how will it treat different religious views and cultural morés?

If sanctions are lifted, Iran will be an emerging economy.  It will not have the bargaining power of economies such as China that can exact concessions from investors.  The manner in which the government treats international investors will largely determine the success of a post-sanctions Iran.  Given the political and religious turmoil plaguing the larger region and the very real threat of terrorism, corporations will be cautious of investing financial and human resources for a deal that is overly burdensome with uncertain financial returns.

If you are interested in learning more about future business opportunities in Iran and how to increase your chances of harnessing them, contact TransLegal or call 703-566-9427.

India: Legislative Updates

Francisco A. Laguna

 This week, TransLegal begins a series on recent legislative changes in India. In the following posts, we will analyze some of the more significant ones for foreign investors.

 Capital Markets

 The Securities Exchange Board of India (“SEBI”) has revised insider trading regulations. The new rules, contained in the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, enter into force 16 May 2015. One major change introduced by the new rules is that people not in the brokerage sector cannot obtain from an insider, directly or indirectly, any unpublished, price-sensitive information related to a company listed, or proposed to be listed, on an exchange. Insiders are defined as people who have been associated for the prior 6 months with a company that is listed, or proposed to be listed, on an exchange, and who are is in possession of the company’s unpublished, price-sensitive information.

Citizenship Law

The Parliament issued the Citizenship (Amendment) Bill, 2015, which purports to grant the same rights and privileges to persons of Indian Origin as well as Indian citizens living abroad.

Coal Mines Bill

Parliament of India Photo credit: Wikimedia Commons

Parliament of India
Photo credit: Wikimedia Commons

The Lower House of Parliament, the Lok Sabha, approved the Coal Mines (Special Provisions) Bill, 2015. The law seeks to make the process of granting coal mine leases more transparent. The Upper House, the Rajya Sabha, has yet to pass the law. The leasing process has been criticized for lack of transparency and corruption.

Foreign Direct Investment – Generally

The Department of Industrial Policy and Promotion (“DIPP”) is proposing to raise the FDI threshold from 12,000 million rupees to 30,000 million rupees. The Government may increase the threshold at which Cabinet approval for foreign investments becomes necessary, making India a more attractive venue for FDI. The goal is to attract foreign investments, particularly in infrastructure and manufacturing sectors. Currently, investments exceeding the 12,000 million limit require the approval of the Cabinet Committee on Economic Affairs.

TransLegal has advised clients on foreign direct investment regulations in the food & beverage as well as the hospitality sectors.

Foreign Direct Investment – Housing Sector

The Government has relaxed the rules related to repatriating FDI in the housing sector. In December 2014, the Government implemented these new rules by decreasing the required built-up area and capital needs. In March 2015, the DIPP clarified that the existing three-year lock-in will no longer apply, and under normal circumstances, an investor can exit on an automatic basis upon completion of the project or after the construction of basic infrastructure, such as roads, water supply and drainage. The Foreign Investment Promotion Board (“FIPB”) can approve earlier exits on a case by case basis.

The minimum built-up area requirement for development projects has been reduced from 50,000 square meters to 20,000 square meters, and minimum capital investment by foreign companies has been decreased substantially from US$ 10 million to US$ 5 million. In addition, the government has introduced an exemption to the minimum floor area and the capital requirements when an investor / joint venture company commits at least 30 % of the total project cost to low-cost housing.

 Foreign Direct Investment – Insurance and Pension Sectors

 In March 2015, the Indian Parliament passed the Insurance Laws (Amendment) Bill, 2015. The bill raises the foreign direct investment (“FDI”) cap in insurance companies from 26% to 49%. This increased FDI cap directly increases the allowable FDI in the pension sector: the Pension Fund Regulatory and Development Authority Act ties FDI limits in the pension sector to those in the insurance sector. This increase presents important opportunities for foreign companies in both sectors.

National Stock Exchange of India Photo credit: Wikimedia Commons

National Stock Exchange of India
Photo credit: Wikimedia Commons

Import / Export Documentary Requirements 

In March 2015, the Directorate General of Foreign Trade (“DGFT”) issued a notification drastically reduced the mandatory documents required for importing and exporting goods to three (3) documents. For imports, the mandatory documents are: bill of lading / airway bill; commercial invoice / packing list; and bill of entry. For exports, the mandatory documents are: bill of lading / airway bill; commercial invoice / packing list; and shipping bill / bill of export.

Intellectual Property

India’s IP Office now allows electronic filing for new applications for design & geographical indications. Previously, e-filing was only available for trademarks and patent applications.

Labor Law

 The 2015 Union Budget proposes the following amendments to applicable labor laws. First, the government seeks to provide increased flexibility for employee contributions to the Employee Provident Fund (“EPF”). Employees would be allowed to choose to participate in the EPF or a New Pension Scheme (to be developed). The proposal also provides that employees with incomes below certain monthly thresholds would have the option not to contribute to the EPF, without affecting or reducing the employer’s mandated contribution. In addition, the amendments would allow employers to offer employees participation in the Employee State Insurance (“ESI”) or a different health insurance product duly approved by the Insurance Regulatory Development Authority (“IRDA”).

Money Laundering

Presidential Standard of India Photo credit: Wikimedia Commons

Presidential Standard of India
Photo credit: Wikimedia Commons

Amendments to existing laws have been proposed to prevent money laundering. Two independent laws have been submitted to address unaccounted-for monies held offshore and dubious domestic transactions. Persons found to violate the law will be subject to prosecution and steep penalties. To implement these measures, amendments have been proposed to the Prevention of Money Laundering Act (“PMLA”), 2002 and the Foreign Exchange Management Act (“FEMA”). Under the proposed amendments, concealment of income and assets and evasion of tax related to foreign assets will be subject to prison sentences of up to 10 years. Each transaction in violation of the law will be treated separately, and offenders will not be allowed to reach an out-of-court resolution through the Settlement Commission. Those found guilty of tax evasion will be subject to penalties of 300% the tax that would have been paid on the concealed income and assets.

Call TransLegal with your questions concerning Indian laws and regulations and how they may impact your proposed FDI projects.

The Impact the Grand Interoceanic Canal Could Have on Your Wallet

Francisco A. Laguna & Wojciech Kornacki

This third and final article of our series on the Grand Interoceanic Canal examines the financial impact on the canal may have on consumers.

Many experts predict that the new interoceanic canal will significantly reduce the time and costs of shipping goods between Asia and Europe, Asia and the U.S. East coast, and Asia and Brazil, all of which should result in lower prices to consumers. However, lower prices come with numerous environmental and construction challenges which may be difficult to overcome.

The Benefits:

Maersk triple E class ships are the largest ships ever built by cargo volume. This class of ships is longer than the maximum length of the American aircraft carrier Enterprise and not every sea port is equipped to handle them.  They are designed to carry 2,500 containers.  These ships are too big for the Panama Canal, but once completed, the Interoceanic Canal in Nicaragua should be able to handle them.  Courtesy of http:// http://en.wikipedia.org

Maersk triple E class ships are the largest ships ever built by cargo volume. This class of ships is longer than the maximum length of the American aircraft carrier Enterprise and not every sea port is equipped to handle them. They are designed to carry 2,500 containers. These ships are too big for the Panama Canal, but once completed, the Interoceanic Canal in Nicaragua should be able to handle them. Courtesy of http:// http://en.wikipedia.org

Lower Prices: Prices for some products may drop once the interoceanic canal is operational in Nicaragua. Recall that the Panama Canal cannot accommodate many of today’s super transport ships. Thus, with specific regard to the United States, currently, many goods coming from Asia are shipped to the West Coast of the US, and then have to be transported by train or truck to eastern locations, all of which creates additional expenses. The Interoceanic Canal will accommodate super tankers, allowing for the direct shipment of goods and commodities without the need for the middleman on the West Coast of the US.

More Choices: Shippers are also stating that another benefit of the Interoceanic Canal is that it will create choices for international shipping companies. Currently, the only two choices are either the Suez Canal or the Panama Canal. However, the Panama Canal cannot handle the largest triple E cargo ships, even after $5 Billion in improvements. In addition, shipments through the Panama Canal are sometimes delayed by 20 to 30 hours, simply due to volume. Currently ships from Asia using the Panama Canal arrive in New York within 26 days, which is 2 days quicker than through Suez Canal. Once the Interoceanic Canal in Nicaragua is operational, the shipping companies will have another option for shipping goods.

Less Time: The Interoceanic Canal is expected to eliminate approximately 500 miles of travel to get through the Panama Canal. Since shipping is a very competitive industry, shipping companies constantly look for ways of improving their profitability, and the shortened distance should improve the shippers’ bottom line.

The Risks:

 

The Interoceanic Canal is expected to increase the trade between Asia and the U.S. East Coast, Europe and Brazil.  Currently many goods from China are transported through the United States or Canada.  By having an interoceanic canal capable of handling the biggest cargo ships in the world, this may no longer be necessary.  Courtesy of http:// http://en.wikipedia.org

The Interoceanic Canal is expected to increase the trade between Asia and the U.S. East Coast, Europe and Brazil. Currently many goods from China are transported through the United States or Canada. By having an interoceanic canal capable of handling the biggest cargo ships in the world, this may no longer be necessary. Courtesy of http:// http://en.wikipedia.org

Actual Costs: While consumer prices for some goods may experience a decline, it is important to keep in mind that the parties financing the project are expecting to make a profit. The project is estimated to cost over $45 Billion, and that Hong Kong-based developer, HKND Group, will have a 50-year lease. While prices may drop, shipping goods and commodities through Nicaragua will not be free. The President of Nicaragua, Daniel Ortega, hopes that this project will make his country rich or at least end extreme poverty.

Environmental Costs: The environmental impact could result in significant financial hardships for Nicaragua and the region. Critics argue that the Interoceanic Canal and all the mega triple E cargo ships traveling through Nicaragua, and through Lake Nicaragua (Lake Cocibolca), the largest fresh water reserve in Central America, could have very serious environmental consequences. In addition, the project will also cut through 4 nature reserves. According to Nicaraguan officials, the project also involves building seaports, free trade zones, bridges and an airport, among others – all resulting in additional environmental issues. Some proponents point out that some of the proceeds from the canal could be used to protect the Nicaraguan environment, but no definitive approach has been adopted.

International Issues: Nicaragua’s neighbor, Costa Rica, has expressed concern over The Interoceanic Canal. Costa Rican officials are concerned with how little information about the actual project has been made public, and with the fact that there has been no environmental assessment.

Major environmental, financing and construction challenges have to be resolved before the interoceanic canal is declared a success. Once built, it is likely to have positive economic impacts around the world, and it will result in greater flow of commerce from Asia to the East Coast of the United States, Brazil and Europe. The success of this project will not only be measured by the flow of commerce, but it will also depend in part on how it deals with its challenges. TransLegal will continue to monitor as the project progresses.

Fracking Fights Loom Large in Mexico – Part IV

This week, we conclude our four-part guest series on hydraulic fracturing in Mexico written by Frontera NorteSur, Center for Latin American and Border Studies, New Mexico State University, Las Cruces, New Mexico.  We thank the Center for permission to publish their work.

TransLegal works extensively with companies doing business in Mexico in sectors that include issues such as biodiversity, biotechnology, cosmetics, energy, foods and pharmaceuticals.  Call us with your questions concerning Mexico.

Frontera NorteSur Continue reading

Fracking Fights Loom Large in Mexico – Part III

This week, we continue with the third part of our guest series on hydraulic fracturing in Mexico written by Frontera NorteSur, Center for Latin American and Border Studies, New Mexico State University, Las Cruces, New Mexico.  We thank the Center for permission to publish their work.

TransLegal works extensively with companies doing business in Mexico in sectors that include issues such as biodiversity, biotechnology, cosmetics, energy, foods and pharmaceuticals.  Call us with your questions concerning Mexico.

Frontera NorteSur

As we discussed last week, fracking opponents argue that fracturing results in earthquakes.  After geologists detected a probable relationship between earthquakes and fracking in Ohio, the state government recently moved to require seismic monitoring for new gas drilling permits.

Mexican Alliance Against Fracking (Credit: Bitacoracultural)

Mexican Alliance Against Fracking (Credit: Bitacoracultural)

Similarly, another study published this month in the journal Science reported on the probable links between fracking and earth movements in Oklahoma, where the number of earthquakes registered on the Richter Scale of 3.0 or greater soared from an average of one annual event during 1976 to 2007 to 44 per year from 2008 to 2013; so far this year, 233 such earthquakes have occurred in Oklahoma, according to the report.

An unusual ripple of earthquakes in neighboring Texas and Kansas preceded a Oklahoma meeting earlier this year where government regulators from the three states discussed fracking standards.

Critics, however, assert fracking cannot be done in an environmentally-friendly manner. “Making fracking safe is simply not possible, not with the current technology, or with the inadequate regulations being proposed,” Louis Allstadt, former executive vice president of Mobil Oil, was quoted earlier this year.

Security is another thorny issue hanging over a Mexican fracking boom. It just so happens that the geography of Mexico’s shale gas reserves is populated by organized crime groups, particularly the Zetas, which have long mastered the theft and distribution of gasoline and diesel as a profitable endeavor.

Greg Berger’s Mockumentary Warns Mexicans About the Dangers of Fracking Photo Credit: Latino Weekly Review

Greg Berger’s Mockumentary Warns Mexicans About the Dangers of Fracking
Photo Credit: Latino Weekly Review

“Organized crime, which is going to watch the (energy) businesses, is an operative cost of security,” said Alejandro Islas, head of the Mexico City-based Risk Evaluation consulting business.

The relatively short life of shale gas wells, which Mexican geologist Dr. Luca Ferrari Pedraglio pegs at two years, almost lends itself to irregular business practices in a political system where functionaries frequently change faces and regulatory capacities are limited.

Will fracking present lucrative opportunities for extortion fees, kidnappings, product heists, or outright ownership of production facilities?  Taken together, the potential profits to organized crime from fracking could easily dwarf the revenue stream from illegal drugs.

Given the enormous amount of capital and profits at stake, some Mexican analysts like John Saxe-Fernandez and Victor Quintana foresee a redoubled militarization in fracking land, implemented by the Mexican army, private security firms in the mold of the old Blackwater firm and foreign mercenaries with experience in Iraq and Afghanistan.

In a recent article, Quintana compared Mexico with Ukraine in terms of the political power and energy industry dynamics at play.

Enrique Peña Nieto, President of Mexico Photo Credit: Aristóteles Sandoval via wikimedia commons

Enrique Peña Nieto, President of Mexico
Photo Credit: Aristóteles Sandoval via wikimedia commons

Wrote Quintana: “The interests of the transnational oil companies, the U.S. government, (President) Pena Nieto, the PRI and the majority of the PAN require the imposition of gas shale exploitation on the northern border of our country, with all the force of legal, paralegal and even illegal institutions at a given moment. This is the size of the enemy that confronts the people of Mexico.”

For now, the future of fracking rests with the Mexican Congress, whose members will take up the issue in the days ahead.

If the voting follows the pattern that’s prevailed on major economic reforms since the beginning of the Pena Nieto presidency in December 2012, in which the president’s PRI party has teamed up with members of other political parties to pass contentious labor, education, taxation, energy and telecommunications reforms,  an absolute ban or moratorium on fracking seems unlikely.

Mexico’s Secretariat of the Environment and Natural Resources is expected to review draft regulations for the drilling of shale gas and the disposal of toxic waste later this fall. The proposed rules will touch on water consumption and pollution, chemicals, earth tremors and worker safety.

Sources:

Inter-Press Service, June 28, 2014. Article by Emilio Godoy. Oilprice.com, June 20, 2014. Article by James Burgess. Norte, April 11, 2014; May 1 and 2, 2014. Articles by Felix Gonzalez and Claudia Sanchez. Lapolaka.com, April 13, 2014; May 19, 2014;  June 12 and 17, 2014;  July 1, 2014.  Semanario, April 1, 2014. Article by Emilio Godoy/IPS. La Jornada,  March 15 and 23, 2014; May 15, 2015. June 7, 14, 17, 25, 30, 2014; July 3 and 4, 2014. Articles by San Juana Martinez, John Saxe-Fernandez, Andrea Becerril. Erick Muniz, Arturo Sanchez Jimenez, Miroslava Breach, Victor Quintana, Reuters, Associated Press. El Diario de Juarez, March 15 and April 4, 2014. Articles by Patricia Mayorga Ordonez and editorial staff. Commondreams.org, December 17, 2013. Sarah Lazare. April 11, 15 and 23, 2014; June 6, 2014. Articles by Jacob Chamberlain, Lauren McCauley and Jon Queally. Arrobajaurez.com, March 16, 2014. El Heraldo de Chihuahua, March 16, 2014.

Fracking Fights Loom Large in Mexico – Part II

This week, we continue our four-part guest series on hydraulic fracturing in Mexico written by Frontera NorteSur, Center for Latin American and Border Studies, New Mexico State University, Las Cruces, New Mexico. We thank the Center for permission to publish their work.

TransLegal works extensively with companies doing business in Mexico in sectors that include issues such as biodiversity, biotechnology, cosmetics, energy, foods and pharmaceuticals. Call us with your questions concerning Mexico.

 Frontera NorteSur

 Likely springing from deep foreign pockets, overall investments between $100-250 billion are projected as necessary to develop the Mexican national shale gas industry during the next decade.

For Federico Alanis, owner of a small aluminum business in the border city of Reyosa, Tamaulipas, fracking is the future. “We have to renovate or die,” Alanis said. Shale dollars, Alanis added, represent a “blessing from God.”

But others in northern Mexico do not see a divine hand in fracking. Residents of Nuevo Leon and at least one academic study point the finger at fracking, (already underway on a large scale in neighboring Texas) for an increase in earthquakes during the last two years. Continue reading