India’s Latest Foreign Direct Investment Rules

Francisco A. Laguna

Last month, India further relaxed its laws governing foreign direct investment in various sectors.  This article summarizes the more significant amendments to the FDI Policy.

Broadcast Carriage Services & Cable Networks

Foreign investment in Broadcast Carriage Services and Cable Networks is now permitted up to 100% under the automatic route.  Previously, FDI above 49% required Government approval. However, change of control of the Indian company will require prior approval from the Government unless the same is subject to approval by the relevant sectoral regulator.

Civil Aviation

100% FDI is now permitted in existing airports and air transport services. Government approval is required for FDI above 74% in existing airports and 49% in air transport services. There is some debate as to whether airlines operated by Indian companies which are majority foreign owned will be permitted to fly international routes, but this should be resolved in a short while.

Defense

Until now, Foreign direct investment in the defense industry has be permitted up to 49% under the automatic route and above 49% with Government approval if such higher investment was likely to result in access to technology within India. The Press Note clarifies that defense products include small arms and ammunition and confers discretion on the Government to consider any other reasons deemed relevant for granting approval for FDI above 49%. All other conditions continue as before.

Hong Kong Kinder Joy - Made in India.  By Okstartnow (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

Hong Kong Kinder Joy – Made in India. By Okstartnow (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)%5D, via Wikimedia Commons

Foods “Made in India”

With government approval, 100% FDI is now permitted for companies selling food products wholly manufactured or produced in India, including sales through e-commerce.  This should allow for in-store cafés or shops in food courts and will add to the overall retail experience for Indian consumers.  Note, however, that the 100% FDI is only for foods manufactured or produced in India.  Foreign investors are hopeful that this liberalization will soon be applied to other food products.

Pharmaceuticals

While foreign investment in brownfield projects has been permitted up to 74% under the automatic route (it was earlier capped at 49% for the automatic route), the following new conditions are applicable to any investment in brownfield projects. These projects involve the purchase or lease by a company or government entity of existing production facilities to launch a new production activity.

  • Maintenance of production level of items falling within the National List of Essential Medicines for 5 years post investment at an absolute quantifiable level (bench marked to the highest production in the 3 financial years preceding the FDI);
  • Maintenance of R&D expenditure for 5 years post investment at an absolute quantifiable level (bench marked to the highest production in the 3 financial years preceding the FDI); and
  • Complete information on technology transfer, if any, must be provided to the relevant Ministry.

Private Security Agencies

The cap on FDI has been increased to 74%; FDI between 49% & 74% requires Government approval.

By Nazrila - Originally from en.wikipedia; description page is/was here, Public Domain, https://commons.wikimedia.org/w/index.php?curid=5843058

By Nazrila – Originally from en.wikipedia; description page is/was here, Public Domain, https://commons.wikimedia.org/w/index.php?curid=5843058

Technology Products

The new rules allow the Government discretion to relax sourcing norms for single-brand retailers that sell products using “state-of-art” or “cutting-edge” technology, in cases where local sourcing is not possible (Technology Products). The Department of Industrial Policy and Promotion (DIPP) issued Press Note 5 of 2016 Series on 24 June 2016 that states that sourcing norms will not apply for 3 years as of the commencement of business for such Technology Products. The Government’s approach of relaxing the norms, rather than providing a waiver, promotes its “Make in India” program.  It will be interesting to track whether FDI increases as a consequence of this provision, and, specifically, whether Apple and other tech companies will make FDIs in the country as a result.

All of the reforms discussed in this post are important and underline the incremental policy change which has long been hoped for. There is also a fair case to be made for the proposition that the FDI Policy is now fairly liberal and that the Government is open to considering proposals for FDI even more favorably where investment is coupled with capacity development and manufacturing.

TransLegal represents companies doing business in India in the biotechnology, foods and industrial sectors.  Call us with your questions related to doing business in India and how these new FDI rules may affect your business.

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.

India Legislative Updates — Reorganization of the Judiciary

Francisco A. Laguna

Today, we continue our India Update, focusing on the recent reorganization of the judiciary.  The reforms included in The Commercial Courts Commercial Division & Commercial Appellate Division of High Courts Act, 2015 (Act) form part of India’s efforts to ease doing business in the country, build confidence and attract foreign direct investment.

Jurisdiction in Arbitration Proceedings

All matters currently pending under Part I of the Arbitration & Conciliation Act, 1996 (Arbitration Act) will be transferred to the Commercial Courts or Divisions.

Golden Temple, Amritsar, by Rakshakdua – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=21132680

International commercial arbitrations, defined as controversies involving at least one non-Indian party with proceedings in India, will be under the jurisdiction of the Commercial Divisions of the High Courts.  The one exception is applications for the designation of arbitrators, which are currently the responsibility of the Supreme Court.

This has created a conflict between the Act, which prescribes that arbitration proceedings would be heard by the Commercial Appellate Divisions, and the Arbitration Act, including the fact that the Commercial Divisions of the Mumbai High Court do not include arbitration proceedings within their jurisdiction.  This is expected to be modified in the near future.

Appellate Jurisdiction

Decisions issued by the Commercial Courts and Divisions are no longer subject to appellate review by the High Courts.  These appeals will be heard, exclusively, by the Commercial Appellate Division of the High Court that heard the case in first instance.  Appeals must be filed within 60 days of the date of the order, and more importantly from the foreign investor perspective, must be decided within a period of 6 months.  The time it takes for appeals to be heard and resolved has been a major criticism of foreign companies doing business in India.

Procedure & Timelines

To address concerns of the time required to litigate in the Indian courts, the Code of Civil Procedure has been revised to include the following provisions, some taken directly from procedures followed by US courts:

  • Parties may move for summary judgment solely on the written pleadings.
  • Every pleading must be attested by an affidavit; otherwise, it cannot be relied upon.

In addition, the following deadlines have been incorporated into the Code:

  • Written statements must be filed within 120 days of the date of service of process.
  • Document Inspection must be completed within 30 days of filing of the written statement.
  • Initial case management hearing will be within 4 weeks from admission or denial of documents by all parties.
  • Written arguments must be submitted within 4 weeks of commencement of oral arguments. The court has the discretion to permit revised written arguments to be filed within 1 week of oral arguments.
  • Oral arguments must be concluded within 6 months from the first case management hearing.
  • The Commercial Court or Division must issue its ruling within 90 days of the conclusion of oral arguments.

These deadlines, if indeed followed and enforced, will greatly streamline court proceedings.

Pending Disputes

The Act clearly stipulates that pending commercial disputes with the required Specified Value, including those pending under the Arbitration Act, will be transferred to the Commercial Courts or Divisions.  Not surprisingly, however, the Delhi High Court has adopted another position, ruling that the civil courts will continue to retain jurisdiction of cases where hearings have concluded and judgment is reserved.

From the practical perspective, Commercial Courts have yet to be established. Only the Delhi and Bombay High Courts have Commercial Divisions and Commercial Appellate Divisions. Moreover, the establishment of new divisions or courts does not resolve the fact that the judiciary is over-burdened.

Contact TransLegal with your questions concerning court and arbitration proceedings in India.

India Legislative Updates — Reorganization of the Judiciary

Francisco A. Laguna

 Today, we continue our India update, focusing on the recent reorganization of the judiciary.

On 31 December 2015, President Pranab Mukherjee approved The Commercial Courts Commercial Division & Commercial Appellate Division of High Courts Act, 2015 (Act), which is effective as of 23 October 2015.  The Act is yet another step in India’s efforts to ease doing business in the country, build confidence and attract foreign direct investment.  It will certainly impact both ongoing and future litigation.

Classes of Courts under the Act

The Act establishes three classes of courts.

 

"High Court of Karnataka, Bangalore MMK" by Muhammad Mahdi Karim (www.micro2macro.net)Facebook Youtube/ Augustus Binu - Own work. Licensed under GFDL 1.2 via Wikimedia Commons

“High Court of Karnataka, Bangalore MMK” by Muhammad Mahdi Karim (www.micro2macro.net)Facebook Youtube/ Augustus Binu – Own work. Licensed under GFDL 1.2 via Wikimedia Commons

  • First, the existing High Courts of original jurisdiction (Mumbai, Kolkata, Chennai, Delhi and Karnataka) must set up a Commercial Division.
  • Second, every High Court will have to establish a Commercial Appellate Division.
  • Third, state governments in the remaining states must establish Commercial Courts at the district level.

Threshold Monetary Jurisdiction

The Commercial Courts and Divisions will have jurisdiction over all commercial disputes in excess of INR 1,00,00,000 (~ US$ 150,900) or such higher amount dictated by the Central Government (“Specified Value”).

Chennai:  Madras High Court Photo Credit: Milei.vencel via Wikimedia Commons

Chennai: Madras High Court
Photo Credit: Milei.vencel via Wikimedia Commons

Section 12 of the Act provides how to calculate the value of the claim.  Plaintiffs and counsel should pay careful attention to the valuation provisions in Section 12 to avoid possible allegations of lack of jurisdictions.

Subject Matter Jurisdiction

The Commercial Courts and Divisions will have subject matter jurisdiction over commercial disputes, defined as those arising out of, or related to:

  • ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents;
  • export or import of merchandise or services;
  • issues relating to admiralty and maritime law;
  • transactions relating to aircraft, aircraft engines, aircraft equipment and helicopters, including sales, leasing and financing thereof;
  • carriage of goods;
  • construction and infrastructure contracts, including tenders;
  • agreements relating to immovable property used exclusively in trade or commerce;
  • franchising agreements;
  • distribution and licensing agreements;
  • management and consultancy agreements;

 

"High Court - Oval Maidan" in Mumbai, by Anunandusg - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

“High Court – Oval Maidan” in Mumbai, by Anunandusg – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

  • joint venture agreements;
  • shareholders agreements;
  • subscription and investment agreements pertaining to the services industry including outsourcing services and financial services;
  • mercantile agency and mercantile usage;
  • partnership agreements;
  • technology development agreements;
  • intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits;
  • agreements for sale of goods or provision of services;
  • exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum;
  • insurance and re-insurance;
  • contracts of agency relating to any of the above; and
  • such other commercial disputes as may be notified by the Central Government. Further, a commercial dispute includes a counter-claim filed in a suit if it is a commercial dispute of Specified Value.

Clearly, many of topics now under the purview of the commercial courts are of specific interest to investors.

Next week, we will continue the discussion of jurisdiction over arbitration proceedings and other procedural matter.

TransLegal assists its clients understand and maneuver the often difficult rules and regulations that characterize the Indian legal and regulatory system.  Call us with any questions you may have about doing business in India.

 

India Legislative Updates: The Insurance Sector

Francisco A. Laguna

 This week, TransLegal continues its 2015 series on recent legislative changes in India.  In light of Prime Minister Narendra Modi’s recent visit to Pakistan on the occasion of PM Nawaz Sharif’s birthday, this series is even more appropriate.  Today, we focus on issues related to ownership and control of insurance companies.

"IRDAI" by Swapna J BcomD - Own work. Licensed under CC BY-SA 4.0 via Wikimedia Commons

“IRDAI” by Swapna J BcomD – Own work. Licensed under CC BY-SA 4.0 via Wikimedia Commons

In April 2015, TransLegal wrote about the reforms to India’s insurance sector, including the near doubling of permitted foreign direct investment (26% to 49%), provided the Indian insurance company continued to be Indian owned and controlled.  In October 2015, the Insurance Regulatory and Development Authority (IRDA) issued guidelines which explain the concept of “Indian owned and controlled” for insurance companies.

The Indian Insurance Companies (Foreign Investment) Rules, 2015 defined: (a) Indian Ownership of an Indian Insurance company as “…more than 50% of the equity capital in it beneficially owned by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens…” (b) Indian Control of an Indian Insurance Company as “…Control of such Indian Insurance Company by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens…”

Section 2(7A) of the Insurance Laws (Amendment) Act, 2015 clarifies that control included the right to appoint a majority of the directors or to control the management or policy decisions by virtue of shareholding, management rights, shareholders’ agreement or voting rights.

The key requirements for an insurance company to qualify as Indian owned and controlled are:

  • Parliament of India Photo Credit: Wikimedia Commons

    Parliament of India
    Photo Credit: Wikimedia Commons

    Constitution of the Board: A majority of the directors (excluding independent directors) of the Indian insurance company must be nominated by the Indian promoter(s) and / or the Indian investor(s). If the Chairman of the board has a casting vote, such chairman must be a appointed by either the Indian promoter(s) and / or investor(s).

  • Qualifying Quorum at Board Meetings:  Indian directors are required to establish a valid quorum to conduct business. A nominee director representing the foreign investor(s) may be required for a valid quorum at the initial meeting to protect minority shareholder rights. If there is no quorum, subsequent meetings may be conducted following the Companies Act, 2013, which suggests special quorum rights will not be applicable.
  • Appointment of Key Managerial Personnel (KMPs): KMPs, including the chief executive officer, must be appointed by the Indian Board or by the Indian promoter(s) and, or, investor(s). The foreign investor can nominate KMPs (other than the CEO) but their appointment must be approved by an Indian Board.
  • Significant Policies: Control over significant policies must be exercised by an Indian Board. No definition of significant policies has been provided and the affirmative voting rights available to foreign investor(s) will need to be carefully reviewed.

The Guidelines require insurance company compliance by 19 January 2016. An extension for a maximum period of another 3 months can be sought by filing an application with IRDA, which it may grant at its discretion. Further, compliance is to be ensured through self-certification, including filing with the IRDA an undertaking from the CEO, resolution of the Board confirming compliance, copies of the joint venture agreements and amendments thereto.

The Prime Minister, Shri Narendra Modi addressing the gathering at the Indian Community Reception Event, at Singapore Expo, Singapore on November 24, 2015.

The Prime Minister, Shri Narendra Modi addressing the gathering at the Indian Community Reception Event, at Singapore Expo, Singapore on November 24, 2015.

Application to Insurance Intermediaries

The IRDA Act, 1999 defines insurance intermediaries as insurance brokers, reinsurance brokers, insurance consultants, surveyors and loss assessors.  These intermediaries must comply with the Guidelines if more than 50% of their revenue is from insurance activities.

The Guidelines are one of the first issued by India specifically requiring Indian control. They do, however, leave the interpretation of the criteria to the IRDA’s Chairperson.  As such, it will be  interesting to see how compliance and enforcement are approached and determined.

Investing in Jamaica

Francisco A. Laguna & Rolanzo White

After rebounding form the financial crisis of 2008, Jamaica is now welcoming foreign investors. The government has turned its attention to bolstering the economy and continuing impressive performance in tourism, logistics, and manufacturing.

The Jamaican Government, led by the Jamaica Promotions Corporation (JAMPRO), is creating an environment conducive to foreign direct investment. JAMPRO is an Agency of the Ministry of Industry, Investment and Commerce that promotes business opportunities in export and investment to the local and international private sector. With the debt to GDP ratio declining as a result of debt restructuring and fiscal contraction (estimated 140% at the end of fiscal year 2014/15), Jamaica is ripe with opportunity.

"Karibik Jamaika Position" by Raymond de - Raimond Spekking - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

“Karibik Jamaika Position” by Raymond de – Raimond Spekking – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

The Jamaican economy is driven by foreign direct investment (FDI). Jamaica received an estimated US$ 551 million in FDI inflows for 2014. The country has a strong relationship with the United States and the United Kingdom, and the levels of FDI can be partly attributed to these relationships. The World Bank has also been extending credit and development assistance to Jamaica through several projects in various sectors.

In May 2013, the Jamaican Government implemented the Growth Agenda Reform Program, supported by a four-year loan arrangement under the International Monetary Fund’s Extended Fund Facility (EFF), which provided Jamaica with Special Drawing Rights (SDR) of US$ 932.3 million. The program’s goal is to improve the business environment and facilitate strategic investments.

The Jamaican Government has made a point to create a legal atmosphere that supports private enterprise. Jamaica has an independent judicial system that is based in English Common Law which upholds the sanctity of contracts. Jamaica gives “National Treatment” to the profits foreign investors make on the island, and they do not put limits on the foreign control of companies nor do they restrict non-residents from buying real estate. Under the Omnibus Tax Incentive Framework, all investors benefit from a non-discriminatory and consistent tax incentive regime that seeks to catalyze foreign direct investment. As a result, Jamaica has jumped 27 places to achieve an overall ranking of 58 out of 189 economies, according to the 2015 Doing Business Report: the highest ranking in the Caribbean.

The most dynamic sectors in Jamaica have been tourism, logistics, and manufacturing.

TOURISM

"Doctors Cave Beach" Licensed under Public Domain via Commons

“Doctors Cave Beach” Licensed under Public Domain via Commons

Jamaica received just over 2.08 million stay-over tourist arrivals in 2014, according to newly-released data from the Ministry of Tourism. That represented a 3.6 % increase over 2013, when the country topped 2 million visitors for the first time and added US$ 2 billion to the local economy. Potential investors are invited to explore the opportunities that exist for the development of boutique, large scale and city hotels. The government is also working to complete Casino Gaming and Timeshare legislation, which will add new dimensions to Jamaica’s dynamic tourism industry.

LOGISTICS

"Kingston Harbour (cmakin) 2004-09-19" by Carey Akin (cmakin) from Manvel, Texas, USA Licensed under CC BY-SA 2.0 via Wikimedia Commons

“Kingston Harbour (cmakin) 2004-09-19” by Carey Akin (cmakin) from Manvel, Texas, USA Licensed under CC BY-SA 2.0 via Wikimedia Commons

Jamaica is home to the Kingston Harbor, the world’s seventh largest natural harbor. With the expansion of the Panama Canal, Jamaica is set to benefit from innovative and advanced commercial ventures in logistics. Jamaica will look to offer better logistic efficiencies to markets in the region by leveraging their existing infrastructure. The island enjoys a prime location in proximity to major East-West shipping lanes and direct connections to all regional ports, which has impressed other countries, including China. According to Prime Minister Portia Simpson Miller, China Harbor Engineering Company Limited and its parent company will invest between US$ 1.2 and 1.5 billion in the development of a transshipment port in Jamaica.

MANUFACTURING

Jamaica’s manufacturing sector is important to the national economy, accounting for 8.4 % of GDP and generating export earnings of US$ 772.5 million in 2013. The country boasts over 300 companies in the sector engaged in a varied range of manufacturing enterprise that include agro-processing, bedding, leather, stone and clay products.  Jamaica is also showing growth in mining, agriculture, and business process outsourcing (BPO).

Jamaica has shown resiliency and impressive growth to become an investor paradise. Investors may want to take a second look at the land of wood and water. They will be surprised by their economic growth.

With offices in Jamaica and throughout the Caribbean, contact TransLegal to learn more about FDI in Jamaica and the region.

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.

Business Opportunities in Iraqi Kurdistan

Francisco A. Laguna & Wojciech Kornacki

Iraqi Kurdistan offers the security and numerous investment opportunities that are currently hard to find in other parts of Iraq or Central Asia. Since the fall of Saddam Hussein in 2003, the region has experienced dramatic economic growth and political stability that continue today, despite the violence in other parts of Iraq. Iraqi Kurdistan has become a magnet for foreign investors and foreign direct investment.

Background on Iraqi Kurdistan

Currently, Iraq is a federated state, and Iraqi Kurdistan is one of the federally recognized regions of Iraq. Iraqi Kurdistan is located in a strategic location between Turkey, Iran and Syria. It has enjoyed local autonomy for the last 45 years. Since the fall of Saddam Hussein, it has had a democratically elected Parliament and vibrant government institutions which are openly pro-Western. The population of Iraqi Kurdistan exceeds 5.2 million and estimated GDP per capita was ~ US$ 4,500 as of 2011.

"Autonomous Region Kurdistan en" by Maximilian Dörrbecker (Chumwa),derviative work by ilyacadiz - Autonome Region Kurdistan (Karte).png. Licensed under CC BY-SA 3.0 via Wikimedia Commons

“Autonomous Region Kurdistan en” by Maximilian Dörrbecker (Chumwa),derviative work by ilyacadiz – Autonome Region Kurdistan (Karte).png. Licensed under CC BY-SA 3.0 via Wikimedia Commons

In the last several years, Iraqi Kurdistan has been undergoing rapid development. The region has experienced an estimated 12 percent growth, one of the highest in the world.  Major trade partners for Iraqi Kurdistan are Turkey, the United Arab Emirates, the United States, and the European Union.

The capital of the Kurdistan Regional Government is Erbil – perhaps one of the oldest cities in the world.  According to the Kurdistan Regional Government’s official website, the Kurdistan Parliament has passed progressive investment and oil and gas laws which have contributed to economic growth and stability. The region has 2 international airports and approximately 12 major international airlines offer direct flights there.

Investment Opportunities

Iraqi Kurdistan appears to be one of the best places to invest in the region because of its current need for foreign direct investment, security and flexible and transparent investment laws. The Kurdish Regional Government allows for full repatriation of profits, investment with or without local partners, a 10-year exemption from corporate taxes, and a 5-year exemption from customs duties. Needless to say, this makes Iraqi Kurdistan much more investment-friendly than the rest of Iraq or the region.

Canyon in Rawanduz in northern Iraqi Kurdistan, offers some of the most beautiful scenery in Asia.  While exports of natural resources are highly profitable for the Kurdish Regional Government, the tourism industry accounts for almost 20% of the region’s GDP.   It is likely that this industry will also experience substantial growth as the interest in Iraqi Kurdistan continues to accelerate, and 2 international airports with multiple international airlines offer easy access the region.  Courtesy of http:// http://en.wikipedia.org.

Canyon in Rawanduz in northern Iraqi Kurdistan, offers some of the most beautiful scenery in Asia. While exports of natural resources are highly profitable for the Kurdish Regional Government, the tourism industry accounts for almost 20% of the region’s GDP. It is likely that this industry will also experience substantial growth as the interest in Iraqi Kurdistan continues to accelerate, and 2 international airports with multiple international airlines offer easy access the region. Courtesy of http:// http://en.wikipedia.org.

The Kurdistan Board of Investment makes it easy to identify foreign direct investment opportunities in the Kurdistan region. It lists numerous business opportunities in the areas of real estate, communication, transport, agriculture, education, banking and many others.

Current investment priorities are agriculture, tourism, and various industries that have been largely underdeveloped over the last several decades. In addition, with oil reserves estimated at 45 billion barrels, many international companies have been already heavily investing in the oil and gas industry.

The turning point for Iraqi Kurdistan came when Exxon became interested in its natural resources.  Several years ago, Exxon, the largest international oil company, signed major exploration contracts with the Kurdish Regional Government, and many other international companies followed in recent years, including Total, Gazprom and Chevron.

Sofi Mall, Erbil, Kurdistan.  With its rapidly growing economy and international investment, Erbil and the rest of Iraqi Kurdistan are undergoing massive economic development.  In fact, currently, Iraqi Kurdistan needs approximately $32 billion in investments.  Courtesy of http:// http://en.wikipedia.org.

Sofi Mall, Erbil, Kurdistan. With its rapidly growing economy and international investment, Erbil and the rest of Iraqi Kurdistan are undergoing massive economic development. In fact, currently, Iraqi Kurdistan needs approximately $32 billion in investments. Courtesy of http:// http://en.wikipedia.org.

Currently, the Kurdish Regional Government continues to export oil to markets around the world, including the United States. Despite igniting a legal battle with the Iraqi Government, the highly profitable exports have not stopped.

If you would like to take the first step and learn about investment opportunities in Iraqi Kurdistan, contract TransLegal – your one source for comprehensive international commercial consulting services.