R 131100Z JAN 09
FM AMEMBASSY LIBREVILLE
TO SECSTATE WASHDC 0837
DEPT OF TREASURY WASHDC
USDOC WASHDC
CIMS NTDB WASHDC

UNCLAS LIBREVILLE 000015 
 
 
DEPT PASS USTR 
STATE FOR EB/IFD/OIA 
 
E.O. 12958: N/A 
TAGS: EINV OPIC USTR KTDB EFIN ETRD ELAB PGOV TP
SUBJECT: INVESTMENT CLIMATE STATEMENT 2009 - SAO TOME AND PRINCIPE 
 
REF: 08 STATE 123907 
 
¶1. Per reftel, following is the Investment Climate Statement for Sao 
Tome and Principe. 
 
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Openness to Foreign Investment 
------------------------------ 
 
¶2. While the Government of Sao Tome and Principe (GoSTP) has a 
positive attitude toward foreign investment, current business 
regulations present foreign investors with significant bureaucratic 
and procedural hurdles.  However, a new investment code promulgated 
in the second half of 2007 has made the business environment more 
attractive to foreign investors.  The consensus among government 
authorities and economic analysts is that considerable foreign 
investment is needed for the development of agriculture and 
fisheries, tourism, telecommunications, and financial services. 
 
¶3. The Investment Code of 2007 provides for both public and mixed 
capital investments, allowing foreign investment in every sector of 
economic activity except limited areas reserved to the State 
(activities related to the military and paramilitary sectors and the 
operations of the Central Bank).  Areas open to foreign investment 
include agriculture; fisheries; tourism; construction; port and 
airport infrastructures and services; transportation; 
telecommunications; financial services; electricity, water and 
sanitation services; production of basic consumer goods, and natural 
resources (oil and gas). 
 
¶4. The new investment code replaced the investment code of 1992 and 
its three-tiered incentive scheme.  The new investment code sets 
forth a new legal framework under which only investments above USD 
250,000 are eligible for benefits and guarantees.  Investments under 
USD 250,000 are no longer eligible for incentives and benefits, but 
would be protected against expropriation.  Qualifying investment 
projects will benefit from fiscal incentives.  Incentives also 
include the use of state-owned buildings and/or land for the 
duration of investment projects, as well as provision of 
administrative services to facilitate the process of obtaining 
access to state-owned buildings and land. 
 
¶5. Created in 1989, the national Chamber of Commerce serves to 
organize the private sector and encourage private sector 
participation in public works projects.  In addition, the Chamber of 
Commerce works with the National Statistics Institute (INE) to 
collect and distribute information aimed at facilitating business 
decision-making. 
 
-------------------------------- 
Conversion and Transfer Policies 
-------------------------------- 
 
¶6. The national financial system is supervised by the Central Bank 
of STP (BCSTP), which defines monetary and exchange rate policies in 
the country.  Among other responsibilities, the BCSTP sells hard 
currencies and establishes indicative interest rates. The dobra 
(denoted by the acronym "STD") is the country's national currency. 
One US dollar is equivalent to about 14,000 STD. 
 
¶7. The government has been working closely with the BCSTP to ensure 
that greater inflows of foreign exchange translate into an increase 
in access to raw materials for business.  The STD exchange rate is 
determined by the BCSTP based on a specially weighted basket of 
currencies from countries that enjoy influential trade and financial 
relations with STP.  This policy has been in effect since 1988 and 
continues to be effective in achieving relative stability of the 
exchange rate against major world currencies, especially the US 
dollar and the euro.  The composition of this basket of currencies 
is subject to periodical reassessment given local and international 
economic and monetary developments. 
 
¶8. Repatriation of capital is possible with prior authorization. 
Transfer of profits outside of STP is also allowed after the 
deductions for legal and statutory reserves and the payment of 
existing taxes. Reinvestments are encouraged by the State with 
associated reductions in income taxes. 
 
------------------------------ 
Expropriation and Compensation 
------------------------------ 
 
¶9. STP government policy maintains strong protection of all types of 
property, including private property, and the right of citizens to 
own and use property. Expropriation is allowed in the public 
interest but only with adequate compensation.  There is no evidence 
to suggest that repatriation would be undertaken in a discriminatory 
manner or in violation of established principles of international 
law. 
 
¶10. Aside from a massive land expropriation from colonial farmers on 
September 30, 1976 -- later recognized as detrimental to the economy 
of STP -- there have not been any documented cases of expropriation 
of foreign-owned properties. 
 
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Dispute Settlement 
------------------ 
 
¶11. Disputes are generally solved amicably without litigation, and 
there are few known instances of disagreements involving foreign 
investors reaching international courts. 
 
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Performance Requirements and Incentives 
--------------------------------------- 
 
¶12. There are no specific performance requirements imposed as a 
condition for establishing, maintaining or expanding investment. 
There are no requirements for investors to buy local products, to 
export a certain percentage of output or to invest in a specific 
geographical area.  There is no blanket requirement that nationals 
own shares in foreign investments in STP. 
 
-------------------------------------------- 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
¶13. Foreigners are free to establish and own business enterprises 
and engage in all forms of business activity in STP with the 
exception of the military sector. Prohibitions exist in the 
ownership of certain types of guns.  In addition, the form of public 
participation (percentage of government ownership in joint ventures) 
varies with each agreement. 
 
¶14. The government of STP is gradually moving towards open 
competition in all sectors of the economy, and competitive equality 
is the official standard applied to private enterprises in 
competition with public enterprises with respect to access to 
markets, credit, and other business operations.  Former public 
monopolies in farming, banking, insurance, airline services, 
telecommunications, and trade (export and import) have already been 
eliminated. 
 
----------------------------- 
Protection of Property Rights 
----------------------------- 
 
¶15. The GoSTP guarantees private property rights, and expropriation 
for public use must be accompanied by a fair, adequate and effective 
payment in advance. 
 
--------------------------------- 
Transparency of Regulatory System 
--------------------------------- 
 
¶16. The laws and regulations that affect direct investment, such as 
environmental rules, health and safety regulations, etc., are 
non-discriminatory and apply equally to foreign and domestic firms. 
STP tax laws reward Santomeans who return to their home country, 
while also containing provisions for attracting non-Santomean 
personnel to live and work in STP. 
 
¶17. Labor, health, and safety laws exist but are not properly 
enforced.  There are some reports that the process of terminating 
unsatisfactory employees is cumbersome and that protective labor 
laws make it very difficult to bring skilled foreign-national 
specialists such as pilots, engineers, or architects into STP. 
 
--------------------------------------------- ----- 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
¶18. The banking system in STP has seen significant development in 
recent years.  Until recently, STP had only one commercial bank. 
Currently, there are seven private commercial banks, six of which 
were opened in last three years.  Portuguese, Angolan, Nigerian, 
Cameroonian, and Togolese interests (as well as those of Sao Tome & 
Principe) are represented in the ownership and management of the 
commercial banks. 
 
¶19. Commercial banks offer most corporate banking services, or can 
procure them from overseas.  Local credit to the private sector is 
limited and expensive, but available to both foreign and local 
investors on equal terms.  The country's main economic actors 
finance themselves outside STP.  Commercial banks have transferred 
excess liquidity to correspondent banks outside the region. 
 
------------------ 
Political Violence 
 
------------------ 
 
¶20. Considered a low threat country, STP is characterized by its 
stability, untroubled ethnic interaction, and a laid-back lifestyle 
which locals refer to in Portuguese as leve-leve (take it easy).  In 
a highly consensus-oriented society, political violence is rare. 
There were several coup attempts before 2003, but with very low 
levels of associated violence, and no casualties.  Three elections 
in 2006 (legislative in March, presidential in July, and local in 
August) were all judged free and fair by international observers. 
However, STP's reputation as a vibrant democracy has suffered due to 
recent political instability that has seen several changes in 
government.  Strikes are not the primary means to settle labor 
disputes and labor strikes have been rare in recent times. 
 
¶21. With almost 34 years of independent rule, there has been 
virtually no incident of politically motivated attacks on projects 
or installations.  Anti-American sentiment is very limited and civil 
disorder is rare.  Although there is a maritime piracy and terrorism 
threat in the Gulf of Guinea, there have been no incidents involving 
STP. 
 
 
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Corruption 
---------- 
 
¶22. Corruption has increased during the past decade in step with 
greater economic development, and mainly consists of bribery, 
embezzlement, and mismanagement of public funds. 
 
¶23. Analysts attribute the recent rise in corruption to escalating 
poverty, the absence of regulations, low wages for government 
workers and officials, and lack of strong leadership.  Signs of 
corruption are particularly obvious during election campaigns, when 
voters receive money to favor certain candidates or political 
parties.  By and large, since democratization was introduced in 
1990, various forms of infighting, high levels of corruption, and 
administrative mismanagement have characterized political life in 
STP. 
 
¶24. The STP government has denounced corruption and pledged to take 
steps to prevent and combat it, and corruption is widely perceived 
as immoral.  An anti-corruption law has been approved and 
promulgated but not yet publicized.  In support of the government's 
anti-corruption agenda, the National Assembly approved an oil 
revenue management law, and the GoSTP started reviewing and updating 
existing contracts with some foreign companies to favor 
liberalization and free market competition.  For instance, the 
National Assembly ordered an investigation on the JDZ second round 
bid for the oil blocks of December 2004, which had been the focus of 
public criticism for corruption.  The Attorney General undertook an 
investigation and concluded that the procedures used to award the 
licenses were seriously flawed and failed to meet minimum acceptable 
standards.  To date, however, no consequences have resulted from the 
investigation.  More recently, several high ranking government 
officials, including two former Prime Ministers, have been accused 
of corruption and mismanagement.  An investigation is underway, but 
its outcome is uncertain. 
 
------------------------------- 
Bilateral Investment Agreements 
------------------------------- 
 
¶25. As of January 2009, the US has no bilateral investment or 
taxation treaty with STP.  STP has signed bilateral investment 
agreements with Portugal, Angola and Gabon but is party to no 
bilateral taxation treaties. 
 
-------------------------------------------- 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
 
¶26. There is currently no OPIC or other investment insurance program 
in STP. 
 
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Labor 
----- 
 
¶27. A significant portion of the STP workforce is well educated, 
although not at the university level.  The workforce is 
multi-lingual (Portuguese and French) and young.  Further training 
is needed as the economy continues to develop.  The cost for basic 
unskilled labor is about USD 35-50 per month, and it is increasing 
over time.  Minimum wage, workday, overtime, paid annual vacations 
and holidays are established by STP labor laws.  Women are entitled 
to state-funded maternity leave for a period of 30 days before and 
30 days after childbirth. 
 
-------------------------------- 
Foreign Trade Zones / Free Ports 
-------------------------------- 
 
¶28. STP currently has no free trade zones or free ports.  However, 
the Free Zone Authority (AZF) was recently established to create a 
free trade zone in STP.  The AZF is working with private 
institutions and companies to acquire funds for the implementation 
of the free trade zone.  According to the GoSTP, there are many 
foreign companies interested in the development of a STP Free Zone, 
motivated by the recent oil discoveries both in the Joint 
Development Zone (JDZ) shared with Nigeria and in STP's Exclusive 
Economic Zone (EEZ). 
 
------------------------------------ 
Foreign Direct Investment Statistics 
------------------------------------ 
 
¶29. Detailed statistics are unavailable, but Foreign Direct 
Investment (FDI) appears to be increasing due to structural 
macroeconomic reforms that have increased investor confidence, as 
well as recent developments in the petroleum and tourism sectors and 
the process of privatization being undertaken in STP.  The share of 
FDI in the country's gross fixed capital increased to 45.7% in 2003 
after having been stable at 14-18% for several years.  In 2006, FDI 
reached USD $16 million. 
 
REDDICK