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).
It’s a governmental institution mandated to promote and attract foreign direct investment. EIC provides the following services in its One Stop Shop:
The Investment Proclamation sets minimum capital requirements on foreign investors as below:
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:
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.
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.
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.
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.
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:
|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|
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:
|From Employer||From Employee|
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
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.
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.
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.
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.
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.
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:
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 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:
NB. A plan which has been approved constitutes a construction permit.
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.
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.
In Ethiopia, tax payers are classified into the following three categories:
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:
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:
|Taxable Business Income (per year) Birr||Business Income tax rate|
|0 - 7200||0%|
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 (per monthly) Birr||Tax rate|
|0 - 600||0%|
|601 - 1650||10%|
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.
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
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 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 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:
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.
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.
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:
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)
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
Ethiopia is a member of the East African Community (EAC), Inter Governmental Authority on Development (IGAD), Common Market for Eastern and Southern Africa (COMESA).
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.
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.
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.
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
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:
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.
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.
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.
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.
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.
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
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).
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.
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 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 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
Horticulture and floriculture
Oilseeds: Sesame, Niger seeds, canola, linseed, groundnuts and sunflower
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.
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
Conducive economic factors
Favorable market factors
|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|
|Annual GDP||about 80billion USD|