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.
|Investment Proclamation No. 1180/2020
|Council of Ministers Investment Regulation No. 474/2020
|The New Ethiopian Commercial Code
|Council of Ministers Investment Incentives Regulation No. 517/2022
|A Directive to Provide for the Application of Tax Incentives for Expansion/Upgrading of Investment - No. 941/2023
|The Ethiopian Commercial Code of 1960
|Industrial Parks Proclamation No. 886/2015
|Council of Ministers Regulation No. 417/2017 on Industrial Parks
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.
Who are considered as domestic and foreign investors?
The new investment law considers among others the following investors as domestic investors:
- An Ethiopian National;
- An enterprise incorporated in Ethiopia and wholly owned by Ethiopian national;
- The government;
- A public enterprise;
- A cooperative society established as per the relevant law;
- 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
- An enterprise incorporated in Ethiopia jointly between any of the investors specified above.
The investment law regards the following as a foreign investor:
- A foreign national;
- An enterprise in which a foreign national has an ownership stake;
- An enterprise incorporated outside the Ethiopia by an investor;
- An enterprise established jointly by any of the above investors; and
- 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As opposed to the repealed investment laws, the new investment laws open all areas of investment areas to foreign investors with an exception to those that are exclusively reserved for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:
- Import and export of electricity;
- Bus-rapid transit;
- Postal services except for courier services;
- International air transport services; and
- Manufacturing of weapons and ammunition.
The following areas of investment are exclusively reserved doemstic investors:
- subject to relevant laws, banking, insurance, and micro finance (note that foreign investors are eligible to engage in capital goods finance business);
- transmission and distribution of electrical energy through national grid system;
- primary and middle level health services;
- wholesale trade of petroleum and petroleum products and wholesale of one’s products produced in Ethiopia excluding wholesale of electronic commerce;
- tetail trade, excluding retail of and electronic commerce produced in Ethiopia as provided under the appropriate law;
- import trade, excluding liquefied petroleum gas and bitumen;
- export trade of raw coffee, Khat, oilseeds, pulses, minerals, hides and skins, products of natural forest, chicken and livestock including pack animals bought on the market;
- construction and drilling services below Grade 1;
- hotel, lodge, resort, motel, guesthouse and pension services excluding those that are star-designated;
- restaurant, tearoom, coffee shops, bars, nightclubs, and catering services, excluding star-designated national cuisine restaurant service;
- travel agency, travel ticket sales and trade auxiliary services;
- tour operation;
- Operating lease of equipments, machineries and vehicles, excluding industry-specific heavy equipments, machineries and specialized vehicles;
- 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;
- Making indigenous traditional medicines;
- bakery products and pastries for domestic market;
- grinding mills;
- barbershop and beauty salon services, smithery and tailoring except by garment factories;
- maintenance and repair services, including aircraft maintenance repair and overhaul, but excluding repair and maintenance of heavy industry machineries and medical equipment;
- Aircraft ground handling and other related services;
- sawmilling, timber-making and assembling of semi-finished wood products;
- media services
- customs clearance services;
- brick and block manufacturing;
- lottery and sports betting;
- laundry services, excluding those provided on an industrial scale;
- translation and secretarial services;
- security services;
- brokerage services;
- attorney and legal consultancy services, and
- 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:
- Freight forwarding and shipping agency services;
- domestic air transport services;
- cross-country public transport service using buses having a seating capacity of more than 45;
- urban mass transport service with large carrying capacity;
- advertisement and promotion works;
- audiovisual services, motion picture, and video-recording, and production and distribution services; and
- accounting and auditing services.
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.
2. The Ethiopian Commercial Codes
he new commercial 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
3.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.
4. Regarding Industrial ParksIndustrial Park Proclamation No. 886/2015 and Council of Ministers Regulation No. 417/2017 on Industrial Parks
These laws emphasize the establishment and administration of industrial parks. The laws have the aim to enhance domestic and foreign direct investments FDI's) through the establishment of industrial parks so that the country can realize an effective economic transformation and development.