Get Investment Approval

Registering an investment project in Ethiopia differs depending on the mode of the business. For this reason, foreign investors may register a branch company, business organization to be incorporated in Ethiopia and sole proprietorship. Application for an investment permit is available at www.investethiopia.gov.et or relevant documents here) has to be submitted to Ethiopian Investment Commission, One Stop Shop Directorate. The application has to be accompanied by the following required documents:

1.  Business Visa issued by Ethiopian embassy located in the home country, or neighboring country, or visa on arrival

2.  Company profile, if the applicant has an already established entity somewhere else

3.  Detailed project proposal

4.  Bank letter showing that the minimum capital has been deposited in a bank account opened for this purpose (after approval)

5.  Legal documents of the parent company such as business license, certificate of incorporation of the parent company.

6.  Memorandum and articles of association (after approval).


Ethiopian Investment Commission (EIC)

It’s a governmental institution mandated to promote and attract foreign direct investment. EIC provides the following services in its One Stop Shop:

  • Issuing investment permits, business licenses and construction permits;
  • Notarizing memorandum and articles of association and amendments;
  • Issuing commercial registration certificates as well as renewals, amendments, replacements or cancellations;
  • Issuing work permits, including renewals, replacements, suspensions or cancellations;
  • Grading first grade construction contractors;
  • Registering technology transfer agreements and export-oriented non-equity-based foreign enterprise collaborations with domestic investors


Sectoral Opening

Capital requirement

The Investment Proclamation sets minimum capital requirements on foreign investors as below:

  • USD 200,000 for a single investment project by a foreign investor
  • USD 150,000 if joint investment with a domestic investor
  • USD 100,000 if the investment is on architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing work, and is solely owned by a foreign investor, and USD 50,000 if joint investment with a domestic investor in the specific sectors
  • No capital requirement for reinvestment of profit or dividend

Business Visa

  • Business or investment visa is required for all foreign visitors to Ethiopia, except for nationals of Kenya.
  • Visa applications can be obtained at Ethiopia’s diplomatic missions overseas (https://www.evisa.gov.et/).
  • The main department for immigration and nationality affairs issues a residence permit to a foreign investor up on submission of an investment permit issued in his/ her name.
  • A foreign investor who is a shareholder of a company or branch company as well as expatriate personnel who have work permit are entitled to get residence permit.
  • Favorable visa terms for investors in industrial parks: Multiple entry visa valid for up to five years is given for foreign investors; up to three years long visa for industrial park service providers, managers, board members and senior experts employed by foreign investors.


General Information

  • To establish a new business, application process is initiated at the Ethiopian Investment Commission (EIC)
  • To buy an existing enterprise or shares, process will be initiated with the approval from the Ministry of Trade

The Ethiopian Investment Commission and all other government agencies are at the investors disposal to facilitate the establishment and operation of the investor’s business.

Aftercare service: The good hands of the Ethiopian Investment Commission will follow any investor as they lay the ground for operation. EIC provides post-establishment facilitation and follow-up services including, but not limited to:

  • Facilitating acquisition of land and utilities (water, electrical power and telecom services)
  • Processing of loans and residence permit applications
  • Approval of environmental impact assessment studies

Investment Incentives

A number of incentives are available to investors

Tax incentives: These cover income tax exemption, loss carry-forward, export tax and customs duty and are explained further in the taxes tab.

  • Income tax exemption period: - An investor is eligible for income tax exemption period averaging 2 - 6 years, whereas Industrial Park Enterprises and Developers are entitled to income tax exemption period averaging 8 - 10 years and 15 years respectively.
  • Loss carry forward: - If an investor incurs a loss during the income tax exemption period they are allowed to carry the loss forward for half of the income tax exemption period after the period expires.
  • Export tax exemption: With the exception of hides and skins all export products are exempted from export tax.
  • Exemption from customs duty: - Capital goods, construction materials, spare parts, vehicles, raw materials for export and personal effects (only for Industrial Park enterprises) can be imported free of customs duty. 
  • Foreign currency retention: Exporters are allowed to indefinitely retain and deposit in a bank account up to 30% of their foreign exchange earnings in foreign currency. They can also make use of the remaining 70% balance within 28 days as it is.
  • No export price control: No export price control is imposed by the National Bank of Ethiopia.
  • Franco valuta:  Franco valuta import of raw materials is allowed to enterprises engaged in export processing.
  • Export credit guarantee scheme: Exporters can benefit from the export credit guarantee scheme, which is presently in place in order to ensure an exporter receives payment for goods shipped overseas in the event the customer defaults, reducing the risk of exporters’ business and allowing it to keep its price competitive.
  • Streamlined and expedited procedures: Enterprises entering parks receive expedited procedures in terms of licensing, permits, registration certificates, tax identification number, customs clearance etc.

Environment Impact Assessment

The Environmental Impact Assessment (EIA) system which requires investors to conduct Initial Environmental Examination (IEE) to determine whether the project requires full EIA or not.

Environmental Impact Assessments are undertaken by the Ministry of Environment, Climate and Forest Protection, for the purpose of ensuring operations of investment projects align with the countries environmental health standards. Thus, investment projects need approval from the authority for their environmental impacts, in order to be registered.


Link

Visit EIC's Official Website www.investethiopia.gov.et

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Population and Skills

Ethiopia’s population is estimated to be around 105 million (2018). Ethiopia is the second-most populous country of Africa next to Nigeria. More than 63% of the total population is below the age of 24. 

The student population is around half a million at over 50 universities. In the year 2016/17, the total undergraduate enrollment (government and non-government) in all programs was 788,033 while 1,300 technical and vocational education centers had an annual enrollment figure of 302,083 in the same year. 

Ethiopia Offers

  • Labor with globally competitive wage rates
  • Flexible domestic labor laws and regulations: The country doesn’t have minimum wage requirement on private sector employers. Normal working hours per day is 8 (excluding breaks for lunch) with 6 days in a week and 288 days per year.

Wages

Wages are usually set either at company level or based on consensus between the employer and the employee. Wages shall be paid in cash, if mutually agreed to. Wages paid in kind may not exceed the market value and in no case may exceed 30% of the wages paid in cash.

Prices

Non-Wage Benefits

The following non-wage benefits are payable to employees in addition to the leave entitlements in the table below. The non-wage benefits are negotiable:

    • Over-time pay;
    • Per-diems, hardship allowances, transport allowance, transfer expenses, and similar allowance payable to the worker on the occasion of travel or change of his residence;
    • Bonus;
    • Commission;
    • Other incentives paid for additional work results;
    • Service charge received from customers and others

Leave Entitlement

Type of Leave Period / Number of Days Comment
Annual leave 14 Add one day of annual leave for every additional year of service
Special leave 3 The necessary supporting evidence should be presented at the request of the employer
Sick Leave Maximum 6 months 1) First month at full pay; 2) Next two months at half pay; 3) Next three months without pay

Social Security Contributions

Employers are required to provide pension contributions, according to the below table, for their employees excluding workers involved in cotton collection, sugar cane cutting and such other similar works regularly repeated in the course of the year. These contributions provide for the following benefits:

  • Retirement benefits
  • Invalidity benefit
  • Incapacity benefits
  • Reimbursement of contribution

Minimum Pension Contributions

From Employer From Employee
Minimum Contribution 11% 7%

Work Permits

Ethiopian Investment Commission issues work permits to investors. A work permit is issued upon presentation of all the necessary documents. Issuance of a work permit takes 2 hours.

Documents required for work permit

  • Educational certificate
  • Renewed investment permit
  • Work visa
  • 5 passport sized photographs
  • Completed application form

Link

Visit EIC's Official Website www.investethiopia.gov.et

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Electricity

  • Currently operational power generation of about 4,100 MW; additional power generating plants with a capacity of 6,300 MW under construction
  • The Grand Ethiopian Renaissance Dam (the largest hydro-electric power dam in Africa, being built on the Nile river with generation capacity of 6,000 MW)
  • Three-phased hydroelectric power development project completed on the Omo River (with installed capacity of 2,500 MW)
  • Reliable electricity in industrial parks with government provision of dedicated power substation for each park
  • Electricity rate is estimated at USD 0.03/kWh – globally competitive rate

Water

Ethiopia is gifted with immense water resources. The spatio-temporal variability of the water resources is characterized by multi-weather systems rainfall of the country. Most of the river courses become full and flood their surroundings during the three main rainy months (June–August). The country has about 124.4 billion cubic meter (BCM) river water, 70 BCM lake water, and 30 BCM groundwater resources. It has a potential to develop 3.8 million ha of irrigation and 45,000 MW hydro-power prod1uction.

Prices

Telecommunications

Ethiopia’s telecommunication service has been growing extensively in terms of area coverage and number of telephone subscribers. The number of subscribers has surged drastically from 30 million in 2014 to 54 million as of 2017. However, this fast growth still falls short of the government’s target of 113 million subscribers in the GTP II period which will end by 2020. The percentage of rural population with access to telephone services within 5 km radius improved from 62.1% in 2009/10 to 96% in 2013/14. 

International links are maintained via satellite earth stations and fiber optics providing telephone telex fax internet television digital data transmission pre and postpaid cellular phones and coin box services.

The above relative success has been achieved through the Ethiopian Telecommunication Corporation (ETC) that provides Landline, Mobile telephone, Internet and data communication services. 

Prices

Transport infrastructure

Road

The government of Ethiopia has been strongly involved in new road construction as well as expansion of the existing road network through Ethiopia's Road Sector Development Programs (RSDP). Consequently, Ethiopia’s road network has been improving each year.  As of the end of FY 2016, Ethiopia had 113,066 kilometers (70,256 miles) of all-weather roads. the GoE has planned to further expand country’s road network to 220,000 kilometers (136,701 miles) within the GTP II.

Rail-ways

Ethiopia's Railway Design

  • Addis Ababa-Djibouti railway: A 656 Kilometers railway network that connects the capital city Addis Ababa to the port of Djibouti was constructed and inaugurated on October 5, 2016. This rail way plays a significant role in facilitating Ethiopia`s international trade and reducing logistics cost and delivery time.

For example, it cuts transport time from Djibouti to Modjo (dry port city 70 kilometers away from the capital city, Addis Ababa) from 84 hours to just 10 hours. Cargo trains which are operating on this rail network have a capacity to carry some 3500 to 4000 tons of freight. Almost all industrial parks are situated alongside of these rail way networks.

  • Awash to Weldiya: A 391 km long rail line from Awash to Weldiya and 216 km rail line from Weldiya to Mekelle are currently under construction by Turkish company named Yapi Merkezi and China Communications Construction Company (CCCC) respectively. These rail lines will link the central and eastern parts of the country with northern Ethiopia by connecting to the Addis Ababa-Djibouti Railway at Awash.
  • Addis Ababa Light Rail Transit: All major places in Addis Ababa are inter-connected by 34 km long light-rail way network. This rail way has a paramount role in alleviating transportation problems in Addis Ababa.

Air-ways

Bearing the country`s flag, Ethiopian airlines (now called Ethiopian) flies to more than 100 international and 21 domestic destinations. It is one of the most renowned and highly regarded air lines in Africa.

The airline has been a member of the International Air Transport Association since 1959 and of the African Airlines Association (AFRAA) since 1968. Ethiopian is a Star Alliance member, having joined in December 2011.

Its hub and headquarters are at Bole International Airport in Addis Ababa, from where it serves a network of 125 passenger destinations—20 of them domestic—and 44 freighter destinations. The airline has secondary hubs in Togo and Malawi. Ethiopian flies to more destinations in Africa than any other carrier. It is one of the fastest-growing companies in the industry and is the largest on the African continent.

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Land

Land belongs to the People of Ethiopia, regional governments administer land and other natural resources. Thus, foreign investors are not allowed to buy immoveable property.

Acquisition Procedures

The prevailing land holding system for investors is the lease system, which allows investors to be eligible for land use rights for a limited period of time which doesn’t exceeds 99 years but can be renewed upon expiration. Lease of land in Ethiopia is categorized into housing, urban and rural land lease; and land can be acquired in one of the following ways:

  1. Through negotiation with the government; or
  2. From private lease holders through sub-lease

Any lease holder may transfer or undertake guarantee on his lease-hold (may use their land use right as a guarantee/pledge as a contingent to a commitment); and he may also use it as a capital contribution to the amount of the lease payment they have made. 

Construction Permit Procedures

Construction Permits are issued at different levels such as woreda, district, municipality, or ministry level- depending on the location of the construction.

Any investor intending to carry out construction has to apply to the urban administration or designated organ at the location of the construction. The application should contain the following:

  • Full name and address of the applicant
  • Investment permit
  • Location of construction
  • Table showing the total area of the floors
  • Planning consent
  • Architectural, structural and electrical designs for buildings of Category “A” having concrete roofing
  • Architectural and electrical designs for buildings of Category “A” which have no concrete roofing
  • Architectural, structural, sanitary, electrical designs and soil test and structural analysis report for buildings of Category “B”
  • In addition to the plans required for buildings of Category “B”, fire safety plans and descriptions thereof shall be submitted for buildings of Category “C”
  • Electro-mechanical designs and analysis for buildings using lifts and artificial ventilation
  • Number of floors of neighboring buildings below and above ground level and their distance from the boundary lines
  • Full name, address, signature and a copy of registration certificate of professionals who prepared plan of the building.

Key:

NB. A plan which has been approved constitutes a construction permit.

Land Disputes

Disputes over land rights are mainly dealt with by courts. Federal and Regional land laws and court establishment laws stipulate provisions for land dispute settlement. Regular courts (woreda/first instance, high, and supreme) have binding power over all disputes including one emanating from land. However, in some instances, administrative authorities entertain land related disputes even without having specific authority under the law.


Industrial Parks

The government has embarked on construction of industrial parks in strategic locations with a view to accelerating the country’s economic growth through targeted foreign direct investment attraction.

Ethiopia has industrial park legal frameworks by which it regulates and controls the parks and their constituents (i.e. developers, enterprises and operators) to ensure that industrial park objectives set by the government are met and observed. Parks in Ethiopia are developed by either the government or private developers. Private developers who wish to develop their own parks have to submit detailed project proposal along with other mandatory documents to the Ethiopian Investment Commission. 

Key industrial park principles the government upholds:

  • Specialized parks: Enhancing economy of scale and efficiency through the development of specialized/clustered industrial parks that are dedicated to priority sectors such as Apparel and Textile, Leather and Leather Products, Pharmaceuticals, Agro-processing etc.
  • Export oriented: Government provision of industrial park incentives and support measures targeted at increased export performance and competitiveness; 
  • Skills development and competitiveness:  Creating and developing a pool of trained industrial work force & enabling environment for skills attraction & retention which will lead to enterprise competitiveness; 
  • Vertical integration:  Enhancing backward and forward linkages in the economy;
  • Sustainability:  Maintaining high environmental standards through the utilization of environment friendly technologies, zero liquid discharge systems and other socially sustainable facilities such as housing accommodations for staff through various loan schemes, etc.

Quick facts on Industrial Park

  • Located along strategic economic corridors, connected to ports by electric driven railway lines and asphalted roads;
  • Close proximity to high labor force pool;
  • Ready for plug-and-play, equipped with all the necessary infrastructures;
  • Tailored fiscal and non-fiscal incentives;
  • Strong government support;

Industrial Park Facilities

  • One stop services including processing & issuance of permits, licenses, registration certificates, agreements, tax identification number, customs clearance, banking services,
  • Dedicated power sub-station
  • Waste treatment facilities
  • Commercial buildings
  • Housing facilities inside the parks
  • Health stations
  • Fire brigade
  • 24 x 7 security services 

Hawassa Industrial Park – Flagship Park

  • Eco-Industrial park (ZLD) inaugurated in July 2016 with construction cost of more than USD 250 million
  • Labor: 5 million people within 50 km radius
  • Land area: 1.4 million m2
  • 1st phase: >400,000 m2 factory shed built up area
  • Cluster: Apparel & Textile
  • Factory sheds fully leased out to leading global manufacturers in the sector
  • Operational manufacturers: Hela-Indochine Apparel, PVH-Arvind, TAL Garments, ONTEX, EPIC, Raymond, Hirdaramani, JP Textile, Chargeurs Fashion, Century Garments, Isabella Socks, Best International, Silver Spark Apparel, Arvind Lifestyle, ITL.
  • Employment: ~ 20,000 workers


Bole Lemi I Industrial Park

  • Ethiopia’s 1st industrial park commenced operation in 2014
  • Labor: 4 million people within 25km radius
  • Land area: 3.4 million m2
  • 1st phase: 1,500,000 m2
  • Cluster: Apparel & Textile, Leather & Leather products
  • Factory sheds fully leased out to leading global manufacturers in the sector
  • Operational manufacturers: New Wide Garment, George Shoe, Shints ETP Garment, Vestis Garment, Jay Jay Mills, C&H Garments, Ashton Apparel, KEI Industrial Engineering, Evertop Sportswear, Arvind Lifestyle.
  • Employment: ~ 14,000 workers


Mekelle Industrial Park

  • Labor: 1 million people in & around the city
  • Cluster: Apparel & Textile, Leather & Leather products
  • Land area: 10 million m2
  • 1st phase: 750,000 m2 with factory shed built up area of 60,500 m2
  • Signed manufacturers: Ananta, Dewhirst Group, Pretty Group, SCM Garments, Intrade Co. and Taj Imports


Kombolcha Industrial Park

  • Labor: 1 million people in & around the city
  • Cluster: Apparel & Textile, Leather & Leather products
  • Land area: 10 million m2
  • 1st phase: 750,000 m2 with factory shed built up area of 60,500 m2
  • Operational manufacturers: Carvico, Kanoria, Trybus, Pungkook Corporation, Saytex

Adama Industrial Park

  • Labor: 500,000 people in & around the city
  • Cluster: Apparel & Textile, Leather & Leather products
  • Land area: 10 million m2
  • 1st phase: 1.2 million m2

Dire Dawa Industrial Park

  • Dire Dawa Industrial Park, built along the path of the Ethio-Djibouti railway, is to be inaugurated soon. It will have easy access to the worldwide market through the Port of Djibouti.
  • Labor: 600,000 people in & around city
  • Cluster: Apparel & Textile, Leather & Leather products
  • Land area: 10 million m2
  • 1st phase: 1.5 million m2

Link

Visit EIC's Official Website www.investethiopia.gov.et

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Taxation system in Ethiopia

General introduction

In Ethiopia, tax payers are classified into the following three categories:

  • Category A: This group of tax payers consists of companies incorporated in Ethiopia or abroad (operating in Ethiopia) and business enterprises having an annual turnover of 1,000,000ETB or more.
  • Category B: Any business having an annual turnover of over Birr 500, 000 but less than 1,000,000 is classified under Category “B” taxpayers.
  • Category C: Businesses whose annual turnover is projected up to Birr 500, 000 are grouped under this category of taxpayers.

Tax payers have to submit the tax declaration to the Tax Authority (Ethiopian Revenue and Customs Authority) at the time of submitting the balance sheet, and the profit and loss account for that tax year within the time set below:

  • Category “A “taxpayers within four months from the end of the taxpayers’ tax year; and
  • Category “B” taxpayers within two months from the end of the taxpayers’ tax year.

Business income tax

Ethiopia has a flat corporate income tax rate which is 30%. As a result, all companies are required to pay 30% tax on their annual profit (net of all deductibles). Businesses other than companies are subject to progressive tax rates.

The following expenses shall be deducted from gross income in computing taxable income:

  • The direct cost of producing the income, such as the direct cost of manufacturing, purchasing, importation, selling and such other similar costs;
  • General and administrative expenses connected with the business activity;
  • Premiums payable on insurance directly connected with the business activity;
  • Expenses incurred in connection with the promotion of the business inside and outside the country, subject to the limits set by the directive issued by the Minister of Revenue;
  • Commissions paid for services rendered to the business;
  • Sums paid as salary, wages or other emoluments to the children of the proprietor or member of the partnership shall only be allowed as deduction if such employees have the qualifications required by the post.

Taxable Business Income rates by income category

Taxable Business Income (per year) Birr Business Income tax rate
0 - 7200 0%
7201 -19800 10%
19801 -38400 15%
38401 -63000 20%
63001 -93600 25%
39601 -130800 30%
Over 130800 35%

Employment income tax

Employment income can come in the form of salary, wage, allowance, bonus, commission, gratuity, or other remuneration received by an employee in respect of past, current, or future employment. Employment income tax shall be imposed each calendar month or part thereof at the rate specified hereunder on an employee who receives employment income during the month or part thereof.

Employment income tax

Employment Income (per monthly) Birr Tax rate
0 - 600 0%
601 - 1650 10%
1651 -3200 15%
3201 -5250 20%
5251 -7800 25%
7801- 10900 30%
Over 10900 35%

Value Added Tax

VAT is paid at a rate of 15% of the value of every taxable transaction by a registered person and all imports of goods and services other than those exempted. In addition, there are some transactions charged with VAT at a zero percent rate. Registration is compulsory where the annual turnover is expected to be 1,000,000 Ethiopian Birr and more.

VAT Registration

A person/business enterprise undertaking any taxable business activity and is not registered is required to file an application for VAT registration with the Ethiopian Revenue and Customs Authority if

  • At the end of any period of 12 calendar months the person made, during that period, taxable transactions the total value of which exceeded 1,000,000 Birr; or
  • At the beginning of any period of 12 calendar months there are reasonable grounds to expect that the total value of taxable transactions to be made by the person during that period will exceed 1,000,000 Birr.

VAT Refund

  • The amount of tax payable for any accounting period is the difference between the amount of tax charged on taxable transactions and the amount of tax creditable.
  • If at least 25 percent of the value of a registered person's taxable transactions for the accounting is taxed at a zero rate, the Authority shall refund the amount of VAT applied as a credit in excess of the amount of VAT charged for the accounting period within a period of two months after the registered person files an application for refund, accompanied by documentary proof of payment of the excess amounts.

Excise tax

Excise tax is levied on selected items when produced locally or imported. The tax rate ranges from 10% to 100% depending on the nature of the goods.

Withholding tax

Withholding tax is imposed on imported goods at a rate of 3% on the sum of CIF (Cost, insurance and freight); and is levied at a rate of 2% in case of business entities, non-governmental organizations, private not- for- profit institutes and government agencies.

Turnover tax

Turnover tax is collected from non-VAT taxpayers. Filing of Tax Return and Payment of Turnover tax (TOT) can be done either at the end of each Ethiopian calendar month or once in at the end of every quarterly year of the tax year (that is every three months starting from 8th of July (Hamle 1).

Rate of Turnover Tax:

  • 2% (two percent) on goods sold locally
  • For services rendered locally; (a) 2% (two percent) on contractors, grain mills, tractors and combine-harvesters; (b) 10% (ten percent) on others.

Customs duties

All imported goods to Ethiopia are subjected to customs duties and taxes, unless exempted by law. Taxes applicable to imported goods are: Import (Customs) duty (0-35%), withholding tax(a fixed rate of 3%), excise tax (if applicable), VAT(a fixed rate of 15%) and surtax (a fixed rate of 10%). The taxes are levied depending on the type of the product imported and there are goods which are not subject to all the five import taxes.

Double taxation agreements

Ethiopia has concluded double taxation avoidance agreements with a number of countries such as Slovakia, Malta Poland, Ireland, Cyprus, Switzerland, United Arab Emirates, Singapore, Kenya, Sudan, Portugal, Qatar, United Kingdom, India, Saudi Arabia, Netherlands, Seychelles, Egypt and Uganda.

Link

Visit EIC's Official Website www.investethiopia.gov.et

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Legal framework

THE LEGAL FRAMEWORK OF ETHIOPIA

The Federal Democratic Republic of Ethiopia follows a civil law legal system. The Constitution is the supreme law of the land. Next in hierarchy are the substantive and procedural laws which can be found in codes, proclamations, regulations and directives. Accordingly, there are the Civil, Commercial, Criminal, Family and Maritime codes including the procedures; the Civil and Criminal Procedure codes. There are proclamations addressing various issues that are passed down by the parliament, followed by regulations that are enacted by the Council of Ministers and implementing directives passed by Ministries or Agencies. All proclamations and regulations are published in the official gazette, Federal Negarit Gazette.

Some excerpts from the Ethiopian laws; for foreign investors and their investments include:

  • Foreign Investor has the right to own a dwelling house and other immovable property requisite for the investment.
  • Foreign Investors have the right to appear in court as a witness ,and have the right to communicate through a translator appointed by the court. 
  • Clearly provided legal frame work for undertaking business and investment activities in Ethiopia.
  • Remittance of profits, dividends and other funds out of Ethiopia in convertible foreign currency. 
  • Investment Guarantees and Protection where no investment may be expropriated or nationalized except for public interest and only in conformity with the requirements of the law.

Investment related legislation's include: 

1) Investment Proclamations:

i)  Investment Proclamation No. 769/2012(G.C)

ii)  Investment(Amendment) Proclamation No. 849/2014(G.C)

 2) Investment Regulation: 

i)  Investment incentives and Investment Areas reserved for Domestic Investors Regulation No.270/2012(G.C)

ii)  Investment Incentives and Investment Areas Reserved for Domestic Investors (Amendment) Regulation No. 312/2014(G.C)

iii)  Ethiopian Investment Board and the Ethiopian Investment Commission Establishment Regulation No. 313/2014(G.C)

 3) Investment Directives:

i)  Directive on Duty-free Import of Vehicle for Investment Projects No. 4/2012 (G.C)

 4) Industrial park laws:

i)  Industrial Parks Proclamation No. 886/2015

ii)  Industrial Parks Regulation, 2017

5) Commercial matters:

i)  Commercial Code of Ethiopia

ii)  Commercial Registration and Business Licensing Proclamation No. 980/2016(G.C).

iii)  Trade Practices and Consumer Protection Proclamation No. 813/2013(G.C)

6) Civil matters

  I.  Civil Code of Ethiopia

  II.  Immigration Proclamation No.354/2003(G.C) and Council of Minister Immigration Regulation No.114/2005(G.C)

Investment Protection

With the intent to create and maintain favorable conditions for investors and their investments, Ethiopia has put in place various mechanisms of Investment Protection with the view of ensuring a stable and working environment for investors.

PROTECTION AGAINST EXPROPRIATION

Investments will not be expropriated or nationalized whether direct or indirect; where no investment may be expropriated or nationalized except for public interest and only in conformity with the requirements of the law. This is a primary investment guarantee and protection provided in the Constitution and subsequent Investment laws and investment treaties that Ethiopia is party to.

REGIONAL AND INTERNATIONAL COMMITMENTS

Beyond the national legal framework, Ethiopia is a party to Investment treaties and a member in regional and international arrangements which provides coordination and harmonization for regional and global economic stability. Accordingly, they are as follows: 

1, Bilateral Investment Treaties

Ethiopia has signed over 30 Bilateral Investment Treaties.  The treaties are negotiated in a way which can safeguard the investors and their investments by clearly articulating the substantive and procedural protections. The country has also signed several Double Taxation Avoidance Treaties with countries such as China, India and the United Kingdom with the purpose of eliminating international double taxation, promotion of exchange of goods, persons, services and investment of capital.

2, Membership in Regional and International Organizations

  • Regional Organizations

Ethiopia is a member of the East African Community (EAC), Inter Governmental Authority on Development (IGAD), Common Market for Eastern and Southern Africa (COMESA).

  • International Organizations

Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA), the World Intellectual Property Organization (WIPO), United Nations Conference on Trade and Development (UNCTAD), United Nation Industrial Development Cooperation (UNIDC). The country has an observer status in the World Trade Organization(WTO) as well

Ethiopia is also a member of Everything but arms(EBA) which provides duty and quota free imports to the European Union(EU)market except for armaments and African Growth and Opportunity Act(AGOA) providing duty free entry of specified goods to the United States of America market.

                                  

DISPUTE SETTLEMENT MECHANISM

The Constitution as well as subsequent laws guarantee the right of a person to lodge complaints.  As per the investment law, any investor shall have the right to lodge complaints related to this investment. If there happens to be a grievance the person also has the right to appeal. 

Not only in the national legal frameworks, dispute settlement mechanisms are regulated by the Bilateral Investment Treaties(BITs) that the country has signed. The settlement of disputes between a contracting party and an investor of another contracting party and state to state disputes are regulated extensively in the treaties.

DID YOU KNOW?

ETHIOPIA HAS RECEIVED THE FOLLOWING RECOGNITION FROM THE INTERNATIONAL ARENA FOR THE FAVORABLE INVESTMENT CLIMATE IN THE COUNTRY

  • ‘2017 United Nations Award’ for “Outstanding performance in targeted promotion, facilitation and execution of sustainable investment projects”
  • 2017 Global ‘Star Reformer Award’ to the Government of Ethiopia for its effective foreign direct investment (FDI) related reforms and the resulting success.   
  • 2018 "Best Investment Promotion Agency in East Africa" at the Annual Investment Forum held in UAE.
  • Ranked 80th out of 190 economies for ease of enforcing commercial contracts, World Bank's Doing Business Report, 2017 
  • Top 10 Most Attractive Investment Destination in Africa, Africa investment Index, 2018
  • Top East African investment Destination by the Rand Merchant bank(RMB), 2018

Repatriation of Funds

REPATRIATION OF PROFITS

Repatriation of funds is a privilege granted to foreign investors provided that the investors are in compliance with the requirements set out by the National Bank of Ethiopia.

The Ethiopian Investment Law provides that any foreign investor shall have the right to the remittance of its profits, dividends, principal, interest payments and compensation paid, out of Ethiopia in a convertible foreign currency. This mechanism allows foreign investors to expatriate their capitals and profits in respect of their approved investment.


Intellectual property

THE PROTECTION OF INTELLECTUAL PROPERTY RIGHT IN ETHIOPIA

Ethiopia has put in place the system for the protection of Intellectual Property which include Trademarks, Certification and Collective marks. There are established legal and institutional regimes safeguarding IP rights. Accordingly, the country's national and international commitments are as follows;

National Laws and Regulations

  • Copyright and Neighboring Rights Protection (Amendment) Proclamation No. 872/2014
  • Trademark Registration and Protection Proclamation No. 501/2006
  • Access to Genetic resources and Community Knowledge, and Community Rights Proclamation No. 482/2006
  • Plant Breeders’ Right Proclamation No. 481/2006
  • Inventions, Minor Inventions and Industrial Designs Proclamation No. 123/1995
  • Inventions, Minor Inventions and Industrial Designs Regulation No. 12/1997 
  • Commercial Registration and Business Licensing Proclamation No. 686/2010
  • Research and Conservation of Cultural heritage Proclamation No. 209/2000
  • Investment Proclamation No. 280/2002

Treaty Membership

  • Member of World Intellectual Property Organization (WIPO)
  • Convention on the means of Prohibiting and preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (2018)
  • Convention for the Protection of Cultural Property in the Event of Armed Conflict(2015)
  • Convention for the Safeguarding of Intangible Cultural Heritage (2006)
  • Cultural Charter for Africa (1990)
  • Bilateral Investment Treaties that Ethiopia is a party to with Intellectual Property provisions.

Competition Law

THE COMPETITION LAW OF ETHIOPIA

Ethiopia has established a competition law to protect consumers from anti-competitive acts of traders or firms. There are also enforcement organs established to ensure the legal framework are effectively implemented.

The laws that deal with trade competition are the Commercial Code of Ethiopia and the Trade Competition and Consumer Protection Proclamation 813/2013(G.C). The proclamation has balanced ensuring benefits of trade liberalization on one hand and enhancing consumer welfare on the other. It is formulated in a way which protects the business community from anti-competitive and unfair trade practices with the ultimate aim of establishing a system that is conducive for the promotion of competitive free market. Some of the rights guaranteed in the proclamations are:

  • Prohibition of abuse of market dominance, anti-competitive agreements, concerted practices and decisions
  • Protection against unfair competition.
  • Protection of consumers

The implementing organ is the Trade Competition and Consumer Protection Authority which works with the United Nations Conference on Trade and Development (UNCTAD) to implement the laws. The Authority has been established to take measures to increase market transparency and perform activities to ensure a stable working environment for producers.

Link

Visit EIC's Official Website www.investethiopia.gov.et

What investors think

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Economy and production

Following the down fall of Dergu regime, the Federal Democratic Republic of Ethiopia has been implementing a number of programs to reduce and end poverty. Currently the country is implementing its second growth and transformation plans(GTPII) that aim at making the country lower-middle income country by 2025. Ethiopia’s economy experienced strong and broad-based growth averaging 10.3% a year from 2005/06 to 2015/16, compared to a regional average of 5.4%. The shift from agriculture to services and manufacturing and from private consumption to public investment account for this drastic and unprecedented economic growth.


Economic composition

Ethiopia’s economy is pre-dominantly based on agriculture, however, the government is working diligently to diversify into light manufacturing such as agro-processing, leather and leather products, textile and textile products and import substituting sectors (chemicals, basic iron, steel and pharmaceuticals). Manufacturing accounts for 5% of the GDP and employs 0.5% of the population while agriculture contributes around 36% to the GDP and has 80% of the population employed in it. The service sector is the fastest growing sector with a contribution of about 47 percent to the GDP. Due to the government’s continued effort and improving general investment climate, the textiles, leather, commercial agriculture and manufacturing sectors have attracted significant foreign direct investments.

Exports: Ethiopia’s export trade is largely dominated by agricultural commodities such as Coffee, tea, spices, Vegetables, Oil seeds, Live trees, plants, cut flowers, Gems, precious metals, Meat, Raw hides, skins not fur skins, leather, Live animals and footwear. Ethiopia exported US$3.2 billion worth of goods around the globe in 2017, up by 10.5% since 2013. The country is diversifying its export products.

Imports: Contrary to its exports, Ethiopia imports manufactured industrial and consumer goods. Its major import products are Machineries, Vehicles, Electronic equipment, mineral fuels, Iron and steel, pharmaceuticals and others. In 2017, Ethiopia bought US$14.7 billion worth of imported products up by 34.1% since 2013 but down by -10.5% from 2016 to 2017.

Market access

Ethiopia is a member and signatory of a number of bilateral, multilateral and international free trade and preferential duty-free agreements. These agreements lay a fertile ground for investors exporting from Ethiopia to enjoy quota and duty-free market access opportunities such as AGOA, GSP and EBA.

Regional and international markets

AGOA: Under the African Growth and Opportunity Act (AGOA) Sub-Saharan African countries benefit from duty-free access to the United States for an additional range of 1,800 products that are excluded from the Generalized system of preferences. These include most textiles and apparel; watches; and most footwear, handbags, and luggage products. With regards to apparels, the textiles and yarns must in general originate from Sub-Saharan African countries or the United States.

EBA: Under European Union's Everything But Arms Initiative (EBA), least developed countries (LDCs) enjoy duty-free access to the EU market for all products except arms and ammunition. Sugar and other processed foods are permitted.

GSP: Developing countries benefit from preferential duty-free access to the United States for up to 5,000 products, under its Generalized system of preferences (GSP). Eligible include: most manufactured items; many types of chemicals, minerals and building stone; jewelry; many types of carpets; and certain agricultural and fishery products. Among the products that are not eligible are: most textiles and apparel; watches; and most footwear, handbags, and luggage products.  

Opportunities

Ethiopia has plentiful investment opportunities which have not yet been exploited and used up to their full potentials. These investment opportunities exist in many nascent and still growing manufacturing sectors including the ones the government embedded in its strategy as priority sectors such as agriculture, agro-processing, textile and textile products, leather and leather products and import substituting sectors (Chemicals, steel and pharmaceuticals).

Manufacturing

The share of manufacturing in the country is still stagnant at about 5% of GDP and employs about 0.5% of the population. However, Ethiopia possesses huge investment potential in the sector especially in light manufacturing and import substituting sectors. Besides, the sector is regarded by the government as the engine of accelerated and sustained economic growth.

Ethiopia's Manufacturing

Ethiopia’s manufacturing sector has the following market opportunities:

  • Industrial parks ready for ’plug and play’
  • Attractive investment incentives
  • 100 plus million people and growing annually at 2.9%; GDP of US$ 80 billion (IMF report – 2017)
  • Preferential access to US markets through AGOA and the Generalized System of Preferences (GSP) of the United States,
  • Preferential access to the European markets through the Everything but Arms (EBA) agreement
  • Closest proximity to the Middle East and Southern Asia
  • Electricity connection: US$ 0.03/kW 

Textile and Apparel

The government of Ethiopia has spearheaded the sector as one of the key priority sectors which are believed to contribute immensely to the realization of the country’s development goals. The sector has been able to grow by more than 51% over the past six/seven years mainly due to expansion and increment of foreign direct investment. The country’s comparative cost advantage in the sector is supported by investor friendly policies, industrial parks dedicated to the sector, attractive investment incentives, quota and duty-free access to a number of markets such as USA and Europe and huge and affordable labor. 

The sector has been able to garner many internationally renowned brands/companies such as H&M, PVH, Kanoria, DBL from Bangladesh, Ayka Addis (the Ethiopian subsidiary of the Turkish textile giant Ayka Textiles) and many others.

Ethiopia's Textile and Apparel

Opportunities of the sector:

  • State-of-the art industrial parks that focus on textile and apparel
  • Affordable, competitive and trainable labor force
  • Production potential: 3 million hectares of land suitable for cotton production
  • Investment Opportunities: Commercial cotton production, spinning, weaving, etc.
  • Attractive investment incentives
  • New electric-driven railway: 4-12 hours from industrial parks to Djibouti port
  • Africa’s aviation hub: Ethiopian Airlines serving 93 international destinations 
  • Current electricity rate at 3 US cents/kwh:  one of the lowest in the world 

Leather and Leather products

    • Ethiopia has the largest population of cattle in Africa and the tenth-largest in the world: 54 million cattle, 25.5 million sheep, 24 million goats, seven million donkeys, two million horses and one million camels. Livestock contributes 16.5% of GDP, and some 11 to 13 million households are engaged in it.
    • 2.7 million hides, 8.1 million sheepskins and 7.5 million goatskins are produced every year.
    • Ethiopian leather products are exported to the UK, Italy, the US, Canada, China, Japan, the Far East and the Middle East. Earnings from the sector amounted to US$ 132 million in 2013, having grown from US$ 76 million in 2008. 
    • Huge domestic demand: Ethiopia is still importing large quantities of shoes, leather and synthetic leather products from across the world, spending millions of hard currencies. This offers import substitution advantage.

Ethiopia's Leather and Leather Products

Big multinational companies in the sector:

  • In 2011, Chinese footwear manufacturer Huajian Group established a factory at Bole Lemi industrial park located on the outskirts of Addis. It is now developing its own industrial park on 138 ha land at a cost of US$ 2.2 billion.
  • UK’s Pittards has installed a factory to produce high-quality leather items for export.
  • A Taiwanese company named George Shoe established a factory with an initial investment cost of about 150 million USD. It has a daily production capacity of 16,000 Shoes.
  • US shoe company Brown is now exporting shoes to China from the country under its own trademark.

Pharmaceuticals

Ethiopia’s Pharmaceutical manufacturing is an infant sector which has huge investment potential. The annual pharmaceutical market in Ethiopia is estimated to be worth about US$ 500 million, and it is growing at a remarkable 25% per annum. More than 85% of the country’s demand for pharmaceutical products is met by imported drugs. In July 2015, the Government of Ethiopia (GoE) put forth an ambitious 'National Strategy for Pharma manufacturing Development which covers a period of 10 years from 2015-2025. Ethiopia is the first country in Africa to establish a pharmaceutical strategy. The sector is one of the priority sectors set by the government under “growth and transformation plan II(GTPII).

Ethiopia's Pharamceuticals

Opportunities in the sector:

  • Huge domestic market ≥ $500m
  • A state of the art industrial park situated in the suburb of Addis Ababa
  • Preferential government procurement with advance payment of 30% of sales,
  • 100% exemption from payments of custom duties and other taxes levied on imports such as raw materials, capital goods and construction materials.
  • 25% price protection when competing with foreign suppliers
  • Government-pronounced strategic plans for development of the pharmaceutical value chain
  • More than 10 colleges of pharmacy

Agro-processing

The government has been striving to transform the country’s agriculture-oriented economy to industry mainly manufacturing driven economy. Thus, efforts have been made to take advantage of the country’s vast and arable land to dive into agro-processing.

Ethiopia's Agro-Processing

Opportunities in the sector:

  • Extensive and broad agricultural raw material. 
  • Electric power supply at $0.03/KWH.
  • Agro-industrial parks equipped with specialized infrastructure consists of cold storage units, quarantine facilities, quality control labs, quality certification centers, raw material storage and central processing centers etc.
  • Favorable climatic conditions
  • Huge demand for consumer goods mainly processed food items.

Agriculture

Ethiopia’s economy is highly dominated by subsistence agriculture. The agriculture sector employs more than 80% of the population and accounts for around 46% of the GDP. Ethiopia is a huge country with generally good agronomic conditions for the cultivation of a wide variety of food crops, industrial crops, cash crops, beverage crops and oilseeds. The following areas of focus and cross-types have been identified as offering the greatest opportunity for investment in Ethiopian agriculture.

Cereal crops: Wheat, barley, corn, rice and teff

  • Up to 10.65 million hectares of land in Ethiopia is under cereals cultivation, producing an average annual crop yield of about 18.34 million tons. Cereals production accounts for 80% of total cultivated land and employs 60% of rural labor.
  • Corn is Ethiopia’s largest cereal crop, accounting for 22% of total land area covered by cereals and 30% of the total cereal crop.
  • Wheat is the second most significant cereal in the country. Average annual production is 3.2 million tons.
Pulses: Soya beans, haricot beans, chickpeas, beans and lentils
  • Pulses occupy about 13% of cultivated land and account for approximately 10% of agricultural value addition.
  • They contribute significantly to Ethiopia’s export earnings, being the second after coffee and sesame.

Horticulture and floriculture

  • Ethiopia’s cut flower business has been able to turn out to be the second largest on the continent after Kenya. There are about 120 high-tech flower growers on about 1,700 ha of land and generating US$ 265 million in revenues (2014) from just US$ 28.5 million in 2005.
  • The climate is really by far Ethiopia’s best source of competitive advantage. South of Addis, rising about 2,800 feet above sea level, it is ideal for floriculture. Plus, the country has 12 river basins, 18 natural lakes and a potential of 3.7 million hectares of irrigable land.
  • Attractive investment features such as strong export-oriented agricultural policies, wide-ranging incentives, cheap electricity and affordable and competitive labor,
  • The country is at the crossroads between Africa, the Middle East and Europe.

Oilseeds: Sesame, Niger seeds, canola, linseed, groundnuts and sunflower

  • Oilseeds are the second most important export commodity in Ethiopia after coffee. It is currently cultivated on about 860,000 ha by about four million smallholder farmers who produce about 86% of the annual yield.
  • The main crops are sesame seed, Niger seed and linseed. Thirty-three per cent of oilseed production is sesame, and linseed is 13%. Ethiopia is the third world exporter of sesame after India and Sudan.
  • All the seeds have two parts to them – the oil, which is extracted by pressing the seeds, and the seed cake, which is used for animal feeds.
  • Most of Ethiopia’s oilseeds are sold raw and unprocessed. About 850 small-scale and micro enterprises account for 95% of the manufacturing base. Capacity utilization is seriously constrained and the technology is obsolete and the equipment dilapidated.

Hotel and Tourism

Ethiopia, the cradle of humankind and possessor of astounding natural and human made tourist destinations, has a huge potential in the sector. However, it has been underutilized with 4.1% contribution to the country’s GDP, and 3.6% of total employment. The government has been working diligently on improving infrastructures which are believed to pave the way for the country to benefit immensely from its enormous potential.

Ethiopia has ten UNESCO registered global sights. The hospitality report by Jumia Travel shows that over 800 thousand tourists visited Ethiopia in 2016, bringing over 5.6 billion US dollars to the country. This is diminishing performance compared to its 2015 performance of 900,000 visitors in 2015. 

Opportunities :

  • Moderate dry climate
  • Historical and religious sites
  • Beautiful ecology
  • Ethiopian airlines which flies to more than 100 international destinations 

Link

Visit EIC's Official Website www.investethiopia.gov.et

What investors think

Short explanation about how investors' advice was collected

Why invest in the country?

 

Ethiopia has become a preferred destination for foreign direct investment and emerging hub for manufacturing in Africa due to its:

Political stability and committed government

  • Stable socio-economic governance with sustained peace and security. 
  • High level political commitment for investment promotion and protection; investment policy making is led by the Ethiopian Investment Board chaired by the Prime Minister 
  • Ranked 34th /138 economies for impartial public decision making (Global Competitiveness Report, 2016).
  • Wide-ranging incentive packages for priority sectors and export-oriented investments. 
  • Bold initiative in the development of state-of-the art industrial parks, electric-powered railway connecting the capital and other economic corridors to the port of Djibouti.

Conducive economic factors

  • An average of about 11% annual GDP growth for the last 14 years, one of the fastest growing economies in the world during the same period (World Bank Global Economic Prospects).
  • Stable and conducive macroeconomic environment. •  Implementing phase II of its Growth and Transformation Plan (GTP II) which aims to realize a structural transformation of the economy.
  • 46%  growth  in  FDI  inflow–  one  of  the  most dynamic  and  largest FDI  recipients  in  Africa (UNCTAD World Investment Report, 2017).

Favorable market factors 

  • Africa’s second most populous nation with a population size close to 100 million.
  • 54 million active labor force, trainable and available at competitive wage rate.
  • Duty-free, quota-free access to the USA and EU markets through AGOA and EBA, respectively
  • Duty-free, quota-free access to Japan, Canada, China, Turkey, Australia and New Zealand-covering substantially all export  goods  from Ethiopia including preferential market access to India.
  • Member of COMESA with preferential market access to a regional market of 400 million people.
  • Strategic location with proximity to the Middle East, Europe and Asia.

Well-developed infrastructure

  • Newly built Addis-Djibouti electric-powered railway
  • Africa’s world-class and  Star  Alliance  member  Ethiopian Airlines flying  to  about  100  international  passenger  and  36  dedicated cargo  destinations;  also  flies  to  over  20  domestic passenger destinations
  • Huge investment potential in renewable energy including hydro, wind and geothermal; Grand  Ethiopian  Renaissance  Dam  –  the  largest hydroelectric power dam  in  Africa  –  under  construction  (close  to 60%  completed),  expected  to  generate  additional  6,000MW electricity.
  • Expanding telecommunication services.
  • Expansive road networks connecting national and regional markets. 
  • Two operational and seven upcoming government industrial parks; eight private industrial parks in the pipeline.

Country data

Quick facts about Ethiopia

Official name Federal Democratic Republic of Ethiopia
Political system Federal State with a multi-party system
Capital city Addis Ababa, seat of the African Union (AU) and United Nations Economic Commission for Africa (UNECA)
Location Horn of Africa, at the crossroads between Africa, the Middle East and Asia
Area 1.1 million square kilometers
Population 2nd most populous country in Africa with a population size of over 105 million
Language Working Federal language - Amharic, English is widely spoken
Exports Leading exports: coffee, oilseeds, gold, pulses, horticulture, live animals, growing manufacturing export (textile and apparel, leather and leather products etc.)
Climate Temperate in the highlands: 20°C - 30°C, low in the lowlands: up to 45°C Rainfall ranges from 200 mm to 2000 mm and highly suitable for production.
GDP per capita 842 USD
Currency Ethiopian Birr(ETB)
Time Zone GMT+3
Country Code +251
Annual GDP about 80billion USD

Country map

Map of Ethiopia

last update on: 31/10/2018