Business Times will for the next few weeks publish a series on the new investment law launched by the government last year. The series by Dr. Elvis Mbembe, a law don at University of Rwanda’s School of Law and an advocate for economic and social rights, will examine the policy in view of helping Rwandans and investors understand it better to benefit from it, as well as present its shortcomings.

Last week, I introduced the new investment law that was published in the Official Gazette on May 27, 2015, making it effective henceforth as by law required. This law, number 06/2015 of 28/03/2015, repeals law No 26/2005 of 17/12/2005, and majorly aims at improving further the local investment climate. In this week’s segment, I will look at the areas of the economy a foreign investor can participate in.

The law defines an investor as a "natural or legal person that invests in an investment enterprise in Rwanda”.

This definition does not help us much in understanding what an investor really is. In simple terms, however, an investor is a natural or legal person that creates or acquires business assets for profit-making purposes, with the exception of all retail and wholesale trade. That person may be a Rwandan or a foreign. Although the new investment law applies equally to both Rwandan and foreign investors, the terminology used suggests that its provisions mainly focus on foreign investors.

This is reinforced by the fact that, whereas the law clearly defines what a foreign investor is, there is no such definition for a local investor contrarily to the old law that provided for a definition for both local and foreign investors. One of the few references to local investors is in Article 5, where the law says that foreign investors should be given equal treatment as Rwandan investors.

While defining who a foreign investor is, the new law introduced two changes. The first concerns the removal of the minimum capital required to qualify as foreign investor. In fact, under Article 2 (5o) of the old legal regime, it was a requirement for a foreign investor to have a minimum financial capital equivalent to $250,000 (Rwf200 million) in foreign capital before applying for an investment certificate.

The investor was expected source this from a country other than Rwanda. In removing the minimum capital requirement, the new investment law has followed in Uganda and Tanzania’s footsteps, which scrapped this requirement in 1991 and 1997, respectively.

In the old law, a business company or partnership incorporated in Rwanda, in any of East African Community (EAC) partner states, or in any member state of Common Market of Eastern and Southern Africa (COMESA) did not automatically give such a company a domestic status.

However, the new law takes into consideration Rwanda’s integration in EAC and in COMESA and, accordingly, a company incorporated under the law of any EAC or COMESA member states are considered as local investors subjected to same privileges and duties as Rwandan companies.

Though beyond the symbolic consideration of EAC and COMESA integration, it is important to note that in addition to the nationality of the country, where a company is incorporated, the nationality of individual shareholders also matters in deciding the investment company’s nationality. In fact, as soon as at least 51 per cent of the invested capital is held by foreigners, the concerned company or partnership remains foreign even when it has been incorporated in Rwanda or in any other EAC or COMESA member state.

Nevertheless, the new law opens all business sectors in Rwanda to investors regardless of their origin. Opening up the economy to investment is clearly provided as a guarantee to the investor, and it is highlighted in Article 4(1o) that provides for the investor’s right "to engage in economic activities of his/her choice”. This was not in the repealed law. The new law has the merit of clearly guaranteeing openness to investment in Article 3.

To help understand better this openness, one should be reminded that, in Uganda, for instance, foreign investors are not allowed to carry on business of crop production, animal production or acquire or be granted or lease land for the purpose of crop production or animal production.

Next week, I will look at requirements to be fulfilled before an investment can be registered under Rwandan law.