Investment Climate in Sao Tome
The Republic of Sao Tome and Principe is a developing group of islands state with an economy that is highly vulnerable to exogenous shocks. The country is located in the Gulf of Guinea, 350 km off the west coast of Africa. São Tomé and Príncipe’s economic development is constrained by its fragility, limited resources, and low capacity as a small island state. Sao Tome and Principe is a small island economy with no single economic activity that serves as a driver of growth. Historically, agriculture has been a strongly performing sector, with exports of cocoa, coffee, and palm oil increasing in recent years. The young tourism industry is yet to be fully tapped. Prospects for commercial oil production dominated the government’s political and economic narrative until the end of 2013. However, Total Oil Company subsequently withdrew from exploration in the Joint Development Zone shared with Nigeria. GDP growth has averaged over 4 percent per year since 2012, inflation also fell sharply from 28%to about 4%, the lowest in the past two decades.
Why invest in Sao Tome and Principe?
- The nation has also been prospecting for offshore oil for a while, working with several super-majors in the global oil industry.
- Advantageous geographical location as an international trading post.
- It has access to over 300 million customers within two hours of travel from its shores.
- It has the potential for fisheries
- São Tomé has become one of Africa’s more stable democracies and is placed 13th out of 54 African countries on a respected index of good governance.
- Its unique heritage of biodiversity underpins centuries of knowledge of natural health practices
Sao Tome and Principe (STP) is a multiparty, semi-presidential, democratic system since its independence. STP is politically stable, and the government and business community appear focused on building consensus to develop the country economically and to improve basic social services for the country’s young and growing population. STP has had peaceful demonstrations with a recent history of smooth political transitions. Free and fair legislative and municipal elections held in October 2014 led to a peaceful transition of power to a new government led by the Independent Democratic Action party. The Independent Democratic Action Party (ADI) won an absolute parliamentary majority following the 2014 elections. This presents the first opportunity in over a decade for political stability in the country since the government can have a full four-year term in office. The ruling party currently occupies 148 out of 180 seats in the National Assembly. Presidential elections were held July 2016, with Evaristo do Espirito Santo Carvalho, a member of ADI, won 50.1% of the votes but fell slightly short of a majority. A run-off election was held, however, incumbent president Manuel Pinto da Costa withdrew. Carvalho took office September 2, 2016.
With an estimated population of 190,000, STP is the second-smallest African nation behind Seychelles and the smallest Portuguese-speaking country. The median age in Sao Tome and Principe is 18.6 years. Sao Tome and Principe is fairly densely populated with 187 people per square kilometer (485/sq mi), which ranks 69th in the world.
The capital, Sao Tome, is the only urban agglomeration. Its 131 000 people in 2015 represented 68% of the total population. 70.9 % of the population is urban (140,661 people in 2017) The city and its surrounding area is subject to increased urbanisation. The island of Principe (7 450 inhabitants in 2015) has no urban agglomeration. Although migration to the city seems to be slowing, the average annual urbanisation growth rate is estimated at 1.87% for 2013 to 2018.
Doing business in Sao Tome and Principe
The highlights of World Bank score of doing business in STP is summarised as follows;
|Topics||World Bank 2017 Rank||World Bank 2016 Rank||Change in Rank|
|Starting a Business||35||36||
|Dealing with Construction Permits||121||120||
|Protecting Minority Investors||183||185||
|Trading across Borders||122||119||
http://www.doingbusiness.org/data/exploreeconomies/s%C3%A3o-tom%C3%A9-and-principe. The country made some improvements in a number of areas.
STP is not rated for credit rating by Moody’s credit rating and Fitch’s credit rating
The Central Bank of STP (BCSTP) supervises the national financial system and defines monetary and exchange rate policies in the country. There is no difficulty in obtaining foreign exchange. The dobra (denoted by the acronym “STD”) is the country’s national currency.
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. The government encourages reinvestments with associated reductions in income taxes. STP is a member of the Inter-Governmental Action Group against Money Laundering in West Africa, an FATF-style regional body.
STP is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention) and the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Disputes are generally solved amicably without litigation, and there are few known instances of disagreements involving foreign investors reaching international courts. Overall, the legal system is perceived to act independently.
Key development challenges
- Weak domestic economy
- Limited human capital
- Scarce tradable resources
- Inadequate infrastructure
- Small market size and
- Physical isolation
- Vulnerability to natural shocks
- Climate change
Sao Tome and Principe ranked number 62 with a score of 46 points out of 100 on the 2016 Corruption Perceptions Index reported by Transparency International.
STP is a relatively peaceful democracy. STP was a colony under Portugal and had a peaceful transition to independence. In recent years, there was a coup attempt that resulted in a special military unit disbanding. In 2012, a parliamentary shake-up led to confusion as to whom legitimately holds power, but there was no violence. STP has a good tradition of peaceful transition of power. There have been isolated incidents of civil unrest in the city of São Tomé.
Unemployment and skilled labour
A significant portion of STP’s workforce is young, relatively well–educated and multilingual (Portuguese and French). Labor laws, including occupational health and safety standards, are poorly enforced due to a lack of resources. Over fifteen percent of children in Sao Tome and Principe are engaged in child labor, primarily in domestic service and street work. According to 2015 INE data, poverty incidence is estimated at 66.2% of the population and the unemployment rate at 13.6%. However, the unemployment rate is higher among people under 24 (32.7%) and 60% of the unemployed are under 34. Unemployment is maintained by the structure and dynamics of the population, the inefficient education system and vocational training, the weakness of the national economy and the poor government support for the issue of employment. There is also a lack of opportunities in a national economy under-funded and dominated by the informal sector and an absence of a dynamic approach to employment based on a genuine public-private partnership.
Attitude to Foreign Direct Investment
STP’s economic prospects depend on the government’s ability to attract international investment. The government is anxious to improve the investment climate in STP to make it a more attractive destination for foreign direct investment. There are no laws discriminating against foreign investors. 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). There are no recent reports of government interference in the court system that could affect foreign investors.
The government of São Tomé and Príncipe (“STP”) recently adopted two regulations that are intended to improve the conditions for investment in STP. These are:
- Decree-law No 19/2016, including the investment code for private investment (the “Investment Code”); and
- Decree-law No 15/2016, including the tax benefits code (the “Tax Benefits Code”).
The new rules intend to make STP more attractive to foreign investors and create a regime that takes account of the needs of STP as well as an investor that wishes to invest in STP. The Tax Benefits Code for example promotes private investment in public infrastructure through tax reductions. Equally, investments in key sectors for the economy of STP (such as agriculture, tourism and international commerce) as well as investments in lesser developed parts of the country are incentivized. The new rules are already in force
Restrictions on Foreign investment
There are no limits on foreign ownership or control except for activities customarily reserved for the state (military and paramilitary activities and the operation of the Central Bank).
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.
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. The government has eliminated former public monopolies in farming, banking, insurance, airline services, telecommunications, and trade (export and import).
Screening of FDI
Although the appropriate ministry reviews foreign direct investment, there is no concern that such screening mechanisms constitute a barrier to investment. STP is very eager to attract foreign direct investment.
Intellectual Property (IP) Rights
São Tomé e Principe has national law in relation to Intellectual Property Rights which includes Decree Law 23/2016 of 9 February 2017 (Industrial Property Code) and Decree Law 46980 of April 27, 1966, published on 23 February 1972 (old Portuguese Author’s Rights and Related Rights Law). The Department of Commerce in the Ministry of Commerce, Industry and Tourism handles patents and copyrights.
There is one national park called Obo national park
São Tomé e Principe is a country rich in mainly fish with over 230 species and bird species the country has 19 endemic bird species, owls, parrots, flamingos, guinea fowl, ibis, megabat and kingfisher.
Investment Climate in Sao Tome has been summarized to include the following;
Development partners of Sao Tome Principe
Exports of Sao Tome and Principe
International Trade Agreements with Sao Tome
Investment authority of Sao Tome and Principe
Investment guarantees in Sao Tome Principe
Investment incentives in Sao Tome Principe
Investment opportunities in Sao Tome and Príncipe
Population and Health of Sao Tome and Principe
Natural resources of São Tomé e Principe
Trading partners of Sao Tome Principe
Sao Tome’s Shipping Status