INVESTMENT CODE FALLS AT FIRST HURDLE

 

 This newspaper has learnt that in a series of negotiations to secure a Bilateral Investment Protection Agreement (BIPPA) with the Gulf state of Bahrain, our government’s effort to promote the Seychelles Investment Code was reject by the Bahrainis. But that did not deter the senior government official running the recently established Seychelles Investment Bureau (SIB) to appear in a very pseudo party political broadcast on SBC TV on behalf of the SPPF presidential candidate to claim that the new Investment Code was a resounding success.

In the broadcast Mr. Joseph Nourrice claimed that over 300 investment projects were processed by SIB since the agency was established. Mr. Nourrice, however, did not let on that many of these “projects” had no choice but to go through SIB because of new rules arbitrarily adopted by the Licensing Authority (SLA) since the Investment Code came into force. Many people have reported that SLA now refuses to issue licenses unless the promoter had obtained endorsement from SIB first.

The Government of Seychelles held a series of negotiations recently with the Government of Bahrain in an effort to secure a credible Bilateral Investment Protection Agreement, commonly known as a BIPPA, between the two Governments. Discussions were apparently held in an effort to conclude the BIPPA quickly.  However, the Government of Seychelles, keen to promote its new Investment Code requested the Government of Bahrain to accept the Seychelles Investment Code in place of a BIPPA Agreement. The Government of Bahrain promptly declined on the grounds that the Investment Code did not meet the exacting standards required to satisfy Foreign Direct Investors.

The Middle East is generally considered to be a sure source of FDI because of their petrodollars.  In their bid to move away from oil as their only source of revenue Gulf States are diversifying into foreign markets, investing in hotels, transport, airports, and ports and shopping facilities. But these countries have also learnt that political risks are very much an important consideration when it comes to deciding where they will invest.  Seychelles needs to satisfy them about it if it is to attract FDI.

 The purpose of an Investment Code is to provide foreign investors with the confidence that their investment is safeguarded against political risks.  Investors require the confidence that their investments will not be nationalised or expropriated. Seychelles already has a bad reputation in that regard during the one party rule of SPPF when most of the foreign owned hotels were nationalised without any consideration of compensation to their owners.

A further requirement is that the Code helps to provide equal opportunity for all investors. Licenses should not be based on a case by case basis, but on known and accepted international principles which apply to all investments whether domestic or foreign. This is presently not the case under the Seychelles Investment Code.

Foreign investors require assurances that they can repatriate their earnings or their investment capital at any time.  The current foreign exchange crisis does not provide any assurance that, even though there are no legal impediments to repatriating funds abroad, today’s investors will be able to repatriate their funds tomorrow. Existing foreign investors such as Guinness, Cable & Wireless and Bharti Telecom are not good references for new investors. The Central Bank under Francis Chang Leng has no plans to restore the full convertibility of the currency, according to his most recent public statement.

 The Code provides that 'Foreign ...investors may own and hold Land for their Investment projects subject to the provisions of the Immovable property transfer restriction Act' which require Government sanction not subject to Appeal beyond the Minister. The current practice according to the latest public statements by the Minister of Land Use and Habitat suggests that most investment property is being 'leased' to foreign investors, albeit it on 99 year leases. This falls short of outright ownership which investors expect.

One very important but vital component of an Investment Code, is that it must contain adequate provisions for the Settlement of Disputes. This means that the Code must permit, in the event of a dispute between Government and the investor, the opportunity for the Investor to seek a remedy outside Seychelles. This is not adequately provided in the Code. The Code makes reference to resolution by Arbitration inside or outside Seychelles ...'which is based upon a previous agreement between the Parties'. This suggests that each Investor will need to negotiate his own arbitration process before making the investment, a discouragement for serious investors. Seychelles is a Member of the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID). The Investment Code does not make reference to the accepted international dispute settlement bodies as a matter of course.

 It remains to be seen as to whether the Government of Seychelles will be able to convince an already somewhat skeptical investment market that we are free of the past record of SPPF. But a change of government will, in one fell swoop, restore international investor confidence.