Investment regulation in Ethiopia is subjected to several laws that are mainly enacted to facilitate, promote and enhance foreign direct investment (FDI) in Ethiopia. This article contains a brief description of the existing laws pertaining to investment.

1. The Investment Proclamation and Regulation

The investment proclamation no. 1180/2020 and investment regulation no. 474/2020 (as amended) are the primary laws that dictate the general outline of investment in Ethiopia. They prescribe the requirements to be a qualified investor and to establish tenable investment in Ethiopia. These requirements include areas reserved for specific investors, forms of investment, and capital requirement. 

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Who are considered as domestic and foreign investors?

The new investment law considers among others the following investors as domestic investors:

1. An Ethiopian National;
2. An enterprise incorporated in Ethiopia and wholly owned by Ethiopian national;
3. The government;
4. A public enterprise;
5. A cooperative society established as per the relevant law;
6. A foreign national or foreign enterprise treated as domestic investor as per the relevant law or international treaty ratified by Ethiopia (e.g. foreign nationals with Ethiopian origin); and
7. An enterprise incorporated in Ethiopia jointly between any of the investors specified above.

The investment law regards the following as a foreign investor:

1. A foreign national;
2. An enterprise in which a foreign national has an ownership stake;
3. An enterprise incorporated outside the Ethiopia by an investor;
4. An enterprise established jointly by any of the above investors; and
5. An Ethiopian permanently residing abroad and preferring treatment as a foreign investor.

Requirements pertaining to the area of investment 

As opposed to the repealed investment laws, the new investment laws open all areas of investment areas to foreign investors with an exception to those that are exclusively reserved for joint investment with the government, domestic investors, and joint investment with domestic investors. In other words, the new Investment laws enlist the areas reserved for certain entities and type of investments and allow foreign investors to engage in any activity which is not subjected to such reservations. These reservations are contingent upon the type of investor and form of investment.

The following investment areas are exclusively reserved for the government of Ethiopia:

1. Import and export of electricity; 
2. Bus-rapid transit;
3. Postal services except for courier services;
4. International air transport services; and
5. Manufacturing of weapons and ammunition.

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The following areas of investment are exclusively reserved doemstic investors:

1. 1. subject to relevant laws, banking, insurance, and micro finance (note that foreign investors are eligible to engage in capital goods finance business);
   2. transmission and distribution of electrical energy through national grid system;
   3. primary and middle level health services; 
   4. wholesale trade of petroleum and petroleum products and wholesale of one’s products produced in Ethiopia excluding wholesale of electronic commerce; 
   5. import of fertilizers and petroleum, excluding liquefied petroleum gas and bitumen; 
   6. construction and drilling services below Grade 1; 
   7. hotel, lodge, resort, motel, guesthouse and pension services excluding those that are star-designated; 
   8. restaurant, tearoom, coffee shops, bars, nightclubs, and catering services, excluding star-designated national cuisine restaurant service;
   9. travel agency, travel ticket sales and trade auxiliary services; 
   10. tour operation; 
   11. Operating lease of equipments, machineries and vehicles, excluding industry-specific heavy equipments, machineries and specialized vehicles; 
   12. transport services, excluding railway transport, cable-car transport, cold-chain transport, freight transport having a capacity of more than 25 tones, and transport services and those reserved for joint investment with the government and domestic investors; 
   13. Making indigenous traditional medicines;
   14. bakery products and pastries for domestic market;
   15. grinding mills; 
   16. barbershop and beauty salon services, smithery and tailoring except by garment factories; 
   17. maintenance and repair services, including aircraft maintenance repair and overhaul, but excluding repair and maintenance of heavy industry machineries and medical equipment;
   18. Aircraft ground handling and other related services;
   19. sawmilling, timber-making and assembling of semi-finished wood products;
   20. media services
   21. customs clearance services; 
   22. brick and block manufacturing; 
   23. quarrying; 
   24. lottery and sports betting; 
   25. laundry services, excluding those provided on an industrial scale;
   26. translation and secretarial services;
   27. security services; 
   28. brokerage services; 
   29. attorney and legal consultancy services, and 
   30. Private employment agency services. 

Areas of investment allowed for joint investment with domestic investors:

Foreign investors can invest in certain areas jointly with a domestic. Notably, a foreign investor jointly investing with a domestic investor in the following areas cannot hold more than 75% of the share capital of the enterprise:

1. Freight forwarding and shipping agency services; 
2. domestic air transport services;
3. cross-country public transport service using buses having a seating capacity of more than 45;
4. urban mass transport service with large carrying capacity;
5. advertisement and promotion works; 
6. audiovisual services, motion picture, and video-recording, and production and distribution services; and
7. accounting and auditing services. 

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Capital requirement for foreign investors

Any foreign investor is required to allocate a minimum capital of 200,000 US dollars for a single investment project.

However, the minimum capital requirement for a foreign investor investing jointly with domestic investors shall be 150,000 US dollars.

Further, the minimum capital required of a foreign investor investing in architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing shall be:

• 100,000 US dollars if the investment is made wholly on his own;
• 50,000 US dollars if the investment is made jointly with domestic investors.

Forms of Investment in Ethiopia

Foreign investors in Ethiopia are allowed to carry out their business in any of the following forms;

• Sole proprietorship;
• Enterprise established in Ethiopia or abroad;
• Public enterprise established in accordance with the relevant law; and 
• Cooperative society formed in accordance with the relevant law. 

In addition to the requirements, the laws also deal with investment administration, investment guarantees and protections, and investment incentives. The proclamation also sets the procedures on investment permit which is dealt on the article dealing with investment procedures.

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2. Import, Export, Wholesale and Retail Trade

Import Trade

The ban on import trade on foreign investors is now lifted by Directive No. 1001/2024 Except for fertilizer and petroleum import trade, any foreign investor can engage in all import trade investments. Accordingly, a foreign investor who wants to engage in the import business is required to fulfill the following in order to receive an investment permit:

1. Where the investor is a manufacturer of the imported product, adducing an evidence thereof,
2. Where the investor is an agent of a manufacturer, adducing an evidence thereof
3. Where the investor is an existing manufacturer in Ethiopia exporting 50% or above of its produces to overseas market

If the investor is neither a manufacturer nor an agent, but commits to submit a detailed plan and enter into agreement with the appropriate body to annually import commodities worth of at least USD 10,000,000 (ten million).

Export Trade

Foreign investors are allowed to engage in export trade investment of raw coffee, khat, oilseeds, pulses, hides and skins, forest products, poultry and livestock bought on the market. The foreign investor who wants to engage in these export business needs to have relevant experience, capacity or market linkages. Accordingly, the investor needs to fulfill the following conditions before it receives the investment permit:

• Export trade of raw coffee: The foreign investor must have been procuring from Ethiopia an average of at least USD 10,000,000 (Ten Million) worth of raw coffee annually for the last three consecutive years and contractually agree to attain the export of at least USD 10,000,000 (Ten Million) worth of the commodity within the permit year;
• Export trade of oilseeds: The foreign investor must have been procuring from Ethiopia an average of at least USD 5,000,000 (Five Million) worth of oilseeds annually for the last three consecutive years and contractually agree to attain the export of at least USD 5,000,000. (Five Million) worth of the commodity within the permit year;
• Export trade of khat and pulses: The foreign investor must have been procuring from Ethiopia an average of at least USD 1,000,000 worth of khat and pulses annually for the last three consecutive years, and contractually agree to attain the export of at least USD 1,000,000 worth of each commodity within the permit year;
• Export trade of hides and skins, forest products, and poultry: The foreign investor’s annual performance for the last three consecutive years must be at least USD 500,000 (Five Hundred Thousand) and shall contractually agree to attain the export of at least USD 500,000 (Five Hundred Thousand) worth of each commodity within the permit year;

To invest in Ethiopia without a prior history of procurement from the country, foreign investors must demonstrate an established market and submit purchase order contracts of specific minimum values for different commodities:

• Raw coffee: USD 12,500,000
• Oilseeds: USD 7,500,000
• Khat and pulses: USD 1,500,000
• Hides and skins, forest products, and poultry: USD 750,000
• Other export trade products: USD 500,000

For foreign manufacturing enterprises using raw materials imported from or procured in Ethiopia, they must declare and prove their usage in finished products. No prior experience or permit-linked contractual commitments are required for the export trade of livestock.

Wholesale Trade

A foreign investor can engage in wholesale trade in Ethiopia excluding the import and trade of fertilizers. In order to secure a permit for such trade, the investor has to:

1. Priory express consent, in writing, to enter into agreement with the appropriate body; and
2. Contractually commit to build modern marketing infrastructure and provide streamlined logistics service facilitating its wholesale operations

Retail Trade

A foreign investor can engage in any retail trade services. In order to secure permit, it has to fulfill the following conditions:

1. undertakes to carry out the retail trade on land/building having a floor area of at least 2000 sq.mt. managed under one unified ownership structure, commits to establish five such supermarkets within a total of three years, completes the opening of at least two supermarkets in order to receive a business permit, and consents to enter into agreement before taking out an investment permit; or
2. undertakes to carry out the retail trade on land/building having a floor area of at least 5000 sq.mt. managed under one unified ownership structure, commits to establish two such hypermarkets within a total of three years, completes the opening of at least one hypermarket in order to receive a business permit, and consents to enter into agreement before taking out an investment permit; or
3. undertakes to carry out the retail trade on land/building having a floor area of at least 10,000 sq.mt. managed under one unified ownership structure, and commits to complete the construction and enter into agreement in order to receive a business license;

3. The Ethiopian Commercial Code

Ethiopia updated its commercial code in March 2021, replacing the outdated version from 1952 after a review process that spanned over thirty years. The new code significantly expands regulated economic activities from 21 to 37, reflecting advancements in technology, science, and societal development. It introduces modern business structures, including one-person companies and limited liability partnerships (LLPs), and provides detailed regulations for holding companies, LLPs, and foreign investments. The code also modernizes bankruptcy procedures, offering preventive restructuring and simplified proceedings for small and medium enterprises (SMEs).

Notable changes include an overhaul of corporate governance rules. The code allows for the establishment of a supervisory board alongside traditional boards of directors, enhancing oversight and accountability. It also extends corporate governance provisions to private limited companies. Additionally, the code lays out clear guidelines for the roles and liabilities of directors, emphasizing prudent financial management and risk mitigation.

The Code provides the legal bases for doing business in Ethiopia. The new commercial code is composed of three books; (1) Traders and Businesses, (2) Business organizations, and (3) Bankruptcy and scheme of arrangements. On the other hand, the Ethiopian Commercial Code of 1960’s contained two additional books: (1) Carriage and Insurance, and (2) Negotiable Instruments and Banking Transactions

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4.Ethiopian Investment Commission and Ethiopian Investment Board

The new investment proclamation re-establishes the bodies empowered to regulate and administer the investment laws, the Ethiopian Investment Commission and Ethiopian Investment Board. It is important to note that these regulatory bodies have the mandate to promote, facilitate, regulate, and administer foreign direct investments.

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5. Special Economic Zones

• Designation of Special Economic Zone (article 5 – 12)
• Issuance of Permits and one stop services (article 15 – 23)
• Rights and obligations of special economic zone end-users and conditions under which it undertakes investment activity (articles 24 – 38)
• Requirements of entering into agreement (articles 35 – 36)
• Acquisition of special economic zone land, movable and immovable property (article 37 – 46)
• Construction and permit procedures (articles 47 – 53)
• Incentive granted to a developer operator or enterprise of an SEZ (article 57 – 58)
• Investment Guarantee Protection and Treatment (article 65 – 66)
• Customs Service (article 67 – 77)
• Grievance dispute handling procedure and sanctions (article 82 – 89)

1. Economic and commercial feasibility study of special economic zone project
2. Job creation potential
3. Transfer of knowledge, skill and technology potential
4. Potential to incease export or substitute import products
5. Backward and forward linkaegs
6. Proximity to resources, population centers and infrastructure, including road and power necessary for pursuing the project, or failing such, written guarantees from the appropriate authority that such infrastructure will be availed
7. Depending on the investment’s nature - a hydrological study and proof of water availability,
8. Proof of strategic environmental impact assessment, social and environmental impact assessment report and environmental management plan clearance issued in respect of the project by the appropriate federal or regional authority, as well as a generic plan regarding social inclusiveness and sustainable social benefit objectives of the project,
9. The stipulation of Sub-Article (1)(g) of this Article notwithstanding, the developer may submit proof of strategic environmental impact assessment, social and environmental impact assessment report and environmental management plan within six months of after a designation decision is taken,
10. A time-bound and milestone-based special economic zone development plan,
11. Proof of title over the proposed land and clearance from any encumbrance, or a guarantee letter from the regional cabinet or analogous higher governance structure of the area in which the land is located confirming that the applicant will be issued with a holding title over the land within six months should the Board approve the designation, and
12. Where the project implementation area has a land use master plan, proof of compatibility of the proposed project with local land use master plan issued by the pertinent local administration.

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