2017 Investment Climate Statements: Ethiopia

Policies towards Foreign Direct Investment

Ethiopia’s second five-year Growth and Transformation Plan (GTP II) covers the years 2016 to 2020 and was approved by the Ethiopian Parliament in December 2015.GTP II’s overarching goals are to transform Ethiopia’s subsistence agriculture-based economy to a manufacturing-led economy and to achieve middle income status by 2025. To achieve these goals, the government has focused on improving the quantity and quality of infrastructure, encouraging intensive investment in industrial parks, enhancing productivity in agriculture and manufacturing, and ensuring macro-economic stability to obtain a sustained annual GDP growth rate of at least 11 percent.

Given the scale of public investment required to support GTP II targets and low domestic savings rate, Ethiopia requires significant inflows of foreign financial resources. Tax incentives for investment in the high-priority sectors such as manufacturing, agribusiness, textiles, sugar, chemicals, pharmaceuticals, and mineral and metal processing underscore the government’s focus on FDI.

Ethiopia’s Investment Code prohibits foreign investment in banking, insurance, and financial services. Telecommunications, power transmission and distribution, and postal services, with the exception of courier services, are closed to the private sector entirely, both the foreign and domestic. The manufacture of weapons and ammunition can only be undertaken in joint ventures with the government.

Other areas of investment reserved for Ethiopian nationals include: broadcasting, air transport services (up to 50 seats capacity), travel agency services, forwarding and shipping agencies, retail trade and brokerage, wholesale trade (excluding supply of petroleum and its by-products as well as wholesale by foreign investors of their locally-produced products), most import trade, export trade of raw coffee, khat, oilseeds, pulses, the export of live sheep, goats, and cattle not raised or fattened by the investor, construction companies (excluding those designated as grade 1), tanning of hides and skins up to crust level, hotels (excluding star-designated hotels), restaurants and bars (excluding international and specialized restaurants), trade auxiliary and ticket selling services, transport services, bakery products and pastries for the domestic market, grinding mills, hair salons, clothing workshops (except garment factories), building and vehicle maintenance, saw milling and timber production, custom clearance services, museums, theaters and cinema hall operations, and printing industries. The government has indicated an interest in opening some of the restricted sectors to foreign private sector expertise and privatizing some state-owned enterprises. Foreigners of Ethiopian origin can obtain a resident card from the Ministry of Foreign Affairs that allows them to invest in many sectors closed to other foreigners. Foreign firms cannot partner in a joint venture in closed sectors, but can supply goods and services to Ethiopian firms in these sectors.

The Ethiopian Investment Commission (EIC) has the mandate to promote and facilitate investments in Ethiopia and its services include promoting the country’s investment opportunities; issuing investment permits, business licenses and construction permits; issuing commercial registration certificates and renewals and issuing work permits. In addition, the EIC has the mandate to advise the government on policies to improve the investment climate. Ethiopia’s rank on the World Bank Ease of Doing Business Index dropped by eleven points in 2016, to 159 out of 190 countries, compared to 148 out of 189 countries in 2015. Concerned by continuing drops in its ranking, EIC has begun organizing workshops with the private sector to examine each criterion on the Doing Business Index and identify the factors that inhibit business in Ethiopia. The outcomes of these workshops will be concrete recommendations to government to improve the business climate.

In the past, the International Finance Corporation (IFC) funded a national dialogue with investors through the Public-Private Consultative Forum (PPCF), but the funding was cut in 2016. Private sector input from the forum had sparked reform of business and tax legislation enacted in 2016.

The Addis Ababa Chamber of Commerce organizes a monthly business forum, which enables the business community to discuss issues related to the investment climate with government officials by sector. The American Chamber of Commerce (AmCham) was launched in December 2016, and should provide a voice for U.S. firms.

In February 2017, the Special Economic Advisor to the Prime Minister launched a series of “export promotion” workshops to canvass opinion and collect policy recommendations from the private sector. The workshops are organized by the industrial sector and recommendations are presented to the Prime Minister. To date, no U.S. members of AmCham have been invited to these forums and their opinions and experience on investment challenges have not been canvassed.

In December 2016, Moody’s reaffirmed Ethiopia’s credit worthiness at ‘B 1,’ while S&P and Fitch maintained last year’s rating of ‘B.’ The rating agencies underscored Ethiopia’s stable outlook and positive prospects for continued economic growth in the medium term. The stable outlook emanated from the resiliency of economic growth despite the severe drought in 2016, the continued heavy investment in infrastructure and power generation, and Ethiopia’s focus on improving trade logistics. Moody’s noted that a number of large scale projects have been completed over the past two years, notably the Addis Ababa Light-Rail System, the Ethiopia-Djibouti railway, the 1,870-MW Gibe III hydroelectric dam and the Hawassa industrial park. In addition to supporting trade and economic activity, Moody’s noted that these projects are likely to boost the country’s export capacity and its ability to generate foreign exchange in the near term.

Risks, according to the rating agencies, stem from increasing external vulnerabilities, such as large current account deficits that result in extremely low-levels of foreign exchange reserves; a 30 percent overvalued exchange rate, and rising external indebtedness.

In December 2014, Ethiopia issued its first Euro-bond, raising $1 billion at a rate of 6.625 percent. The 10-year bond was oversubscribed, indicating continued market interest in high-growth sub-Saharan African markets. Ethiopia has exceeded the non-concessional borrowing threshold set by the World Bank, which could limit Ethiopia’s access to additional concessional lending. According to the Ministry of Finance and Economic Cooperation, the bond proceeds are being used to finance industrial parks, the sugar industry, and power transmission infrastructure.

Limits on Foreign Control and Right to Private Ownership and Establishment

Both foreign and domestic private entities have the right to establish, acquire, own and dispose of most forms of business enterprises. However, there are a number of sectors (mentioned above) that are closed to foreign investors. There is no right to private ownership of land. All land is owned by the state, but can be leased for a maximum of99 years. Small-scale rural landholders have an indefinite period of use rights, but cannot lease out holdings for a longer period of time, except in the Amhara Region. The 2011 Urban Land Lease Proclamation allows the government to determine the value of land in transfers of leasehold rights, in an attempt to curb speculation by investors. A foreign investor intending to buy an existing private enterprise or buy shares in an existing enterprise needs to obtain prior approval from the EIC.

While foreign investors have complained about inconsistent interpretation of the regulations governing investment registration (particularly relating to accounting for in-kind investments), they generally do not face undue screening of FDI, unfavorable tax treatment, denial of licenses, discriminatory import or export policies, or inequitable tariff and non-tariff barriers.

Other Investment Policy Reviews

Over the past three years, the EIC has undertaken an independent review of its investor services in an effort to streamline the investment process. According to the EIC, the Commission has already implemented at least 28 services pertaining to licensing and registration, customs duty-free importation approval for capital goods for investment in manufacturing. Additionally, in an effort to improve investor facilitation services, the EIC appointed three Deputy Commissioners each responsible for three divisions:

• Investment Operations;
• Industrial Parks Regulation; and
• Policy Research and Improvement.

EIC is hiring 30 additional staff, and has also introduced the Account Manager system to provide post-investment support to investors.

Business Facilitation

The EIC has established a one-stop shop service to cut the time and cost of acquiring investment and business licenses. If all requirements are met, it is now possible to obtain a business license in a single day, although this remains the exception rather than the rule. Meanwhile, the EIC has adopted a Customer or Account Manager system to build lasting relationships and provide post-investment assistance to investors. While U.S. investors report that the EIC often fails to meet its own stringent deadlines, a hiring and training initiative is underway to recruit 30 more employees. The EIC readily admits that many bureaucratic barriers to investment remain, but hopes to eliminate many of these in the future.

The 2017 World Bank Doing Business Report states that starting a business in Ethiopia requires 14 procedures and takes 35 days, but does not reflect new legislation and administrative changes that have significantly improved the situation in the past year. Online business registration is not yet available, but it is a long-term plan of the Ministry of Trade to migrate the paper-based registration process to a digital system. In 2016, the government revised its commercial registration and business licensing legislation, which eliminated some cumbersome and duplicative requirements, like the yearly renewal of business registrations and the 15,000 ETB (approximately $680) minimum capital requirement to set up limited liability companies.

The full Doing Business Report is available here: http://www.doingbusiness.org/data/exploreeconomies/ethiopia 

Outward Investment

There is no outward investment by domestic investors from Ethiopia as citizens or local investors are not allowed to hold foreign accounts.

Ethiopia has bilateral investment and protection agreements with Algeria, Austria, China, Denmark, Egypt, Germany, Finland, France, Iran, Israel, Italy, Kuwait, Libya, Malaysia, the Netherlands, Russia, Sudan, Sweden, Switzerland, Tunisia, Turkey and Yemen. Other bilateral investment agreements have been signed but are not in force with Belgium/Luxemburg, Equatorial Guinea, India, Nigeria, South Africa, Spain, United Kingdom, United Arab Emirate, South Sudan and Morocco. Ethiopia signed a protection of investment and property acquisition agreement with Djibouti. A Treaty of Amity and Economic Relations, which entered into force in 1953, governs economic and consular relations with the United States.

There is no double taxation treaty between the United States and Ethiopia. Ethiopia has such taxation treaties with fourteen countries, including Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel, South Africa, Sudan and the United Kingdom.

Transparency of the Regulatory System

Ethiopia’s regulatory system is generally considered fair, though there are instances in which burdensome regulatory or licensing requirements have prevented the local sale of U.S. exports, particularly health-related products. Investment decisions can involve multiple government ministries lengthening the registration and investment process.

The government engages the public for feedback before passage of draft legislation through public meetings, and regulatory agencies request comments on proposed regulation from stakeholders.

Most laws are available online: http://www.hopr.gov.et/web/guest/122  and https://chilot.me/federal-laws/2/ .

In 2011, Ethiopia’s central bank, the National Bank of Ethiopia (NBE), issued a directive for all banks and insurance companies to adhere to International Financial Reporting Standards (IFRS).

Foreign investors have complained about the abrupt cancellation of some government tenders, a perception of favoritism toward vendors who provide concessional financing, and a general lack of transparency in the procurement system. In September 2009, the government established the Public Procurement and Property Administration Agency, an autonomous entity with its own judicial arm accountable to the Ministry of Finance and Economic Cooperation. Ethiopia participated in the U.S. Global Procurement Initiative, to improve the government procurement system.

A 2017 regulation requires the Auditor General’s office to directly identify irregularities in the procurement process. The regulation provides for criminal charges against officials involved in procurement irregularities. Those who are found to have knowingly signed off on falsified or incorrectly prepared documents will be punished with a 10-15 year prison sentence and a fine between ETB 25,000 to ETB 35,000.

Ethiopia is a member of UNCTAD’s international network of transparent investment procedures . Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures.

International Regulatory Considerations

Ethiopia is a member of Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 19 member countries and it has introduced 10% tariff reduction on goods imported from member states. However, Ethiopia has not yet joined the COMESA free trade area.

Ethiopian standards have a national scope and applicability and some of them which are related to human health and environmental protection are referred by Ethiopian regulations to be mandatory standards. The Ethiopian Standards Agency is the national standards body of Ethiopia.

Legal System and Judicial Independence

Ethiopia’s civil law as well as criminal law are codified and it has written commercial and contractual law. According to the contractual law, the contract agreement between contracting parties shall be taken as law between the parties. If there is any dispute between the parties, the case can be taken to the court. There is no specialized court in Ethiopia’s court structure, but there are specialized benches both at the Federal and state courts for criminal as well as civil matters.

There are allegations of executive branch interference in judiciary if a case has political implications, but there is no evidence of interference on purely commercial disputes. The country has a procedural code for civil and criminal court but the practice is minimal. Enforcement actions are appealable and there are at least three appealing processes from the lower to the supreme court. If the appealing body thinks that there is error of law on judge’s ruling, he/she can appeal to the Cassation Division of the Federal Supreme Court. The Criminal Procedure Code follows the inquisitorial system of adjudication.

Companies that operate businesses in Ethiopia assert that the courts lack adequate experience and staffing, particularly with respect to commercial disputes. While property and contractual rights are recognized, with respect to commercial and bankruptcy laws judges often lack understanding of commercial matters and cases can face extended scheduling delays. Contract enforcement remains weak, though Ethiopian courts will at times reject spurious litigation aimed at contesting legitimate tenders.

Ethiopia is in the process of reforming the Commercial Code to bring it in line with international best practices. The draft legislation appears to address many concerns raised by the business community, including creation of a commercial court under the regular court system to improve the expertise of judges in business practices as well as increase the speed with which commercial disputes can be resolved.

Laws and Regulations on Foreign Direct Investment

The following industrial sectors have been designated priorities: textiles and garments, leather and leather products, sugar and sugar-related products, cement, metals and engineering, chemicals, pharmaceuticals, renewable energy, and agro-processing. Investments in those areas receive tax and duty incentives as established in Proclamation 769/2012 .

A 2014 amendment to the Investment Proclamation authorizes the EIC to adjudicate appeals submitted by foreign and domestic investors. The EIC Investment Board is empowered to authorize the granting of new or additional incentives other than those outlined under the regulations and to authorize foreign investment in areas otherwise exclusively reserved for domestic investors, if the exception is in the national interest. The EIC’s website  (http://www.investethiopia.gov.et/ ) outlines the government’s focus sectors, registration processes, and provides regulatory details for investors.

The revised Commercial Registration and Business Licensing Proclamation eliminates some cumbersome and duplicative requirements, like the yearly renewal of business registrations and the minimum capital requirements to set up limited liability companies. The law removes the requirement to obtain a “competency certificate” except in technical sectors such as health and environment. The Proclamation now allows registration of franchises and holding companies.

Competition and Anti-Trust Laws

Ethiopia’s Trade Practice and Consumers Protection Authority (TPCPA), under the Ministry of Trade, is tasked with promoting a competitive business environment by regulating anti-competitive, unethical, and unfair trade practices to enhance economic efficiency and social welfare. In addition, the Authority provides market information on some goods to the public using print and electronic media.

There are no restrictions for foreign companies or foreign-owned subsidiaries in the areas open to foreign investments. The EIC reviews investment transactions for compliance with FDI requirements and restrictions as outlined by the Investment Proclamation and its amendments. However, companies have complained that state-owned enterprises receive favorable treatment in the government tender process. As the public sector is heavily involved in economic development, this translates into a sizeable portion of the open tenders.

Expropriation and Compensation

Per the 2012 Investment Proclamation, no investment by a domestic or foreign investor or enterprise can be expropriated or nationalized wholly or partly, except when required by public interest in compliance with the law and with payment of adequate compensation. Such investments may not be seized, impounded, or disposed of except under a court order.

The former Derg military regime nationalized many properties in the 1970s. The current government’s position is that property seized lawfully by the Derg (by court order or government proclamation published in the official gazette) remains the property of the state. In most cases, property seized by oral order or other informal means is gradually being returned to the rightful owners or their heirs through a lengthy bureaucratic process. Claimants are required to pay for improvements made by the government during the time it controlled the property. Ethiopia’s Ministry of Public Enterprises stopped accepting requests from owners for return of expropriated properties in July 2008.

Dispute Settlement

ICSID Convention and New York Convention

Since 1965, Ethiopia has been a non-signatory member state to the International Centre for Settlement of Disputes (ICSID Convention), but has not ratified the convention on The Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

According to the Investment Proclamation, any investor shall have the right to lodge complaints related to his investment with the appropriate investment organ. If he/she has a grievance against the decision of the appropriate investment organ, he/she can appeal to the investment board or to the concerned regional organ as appropriate. However, if a dispute arises between foreign investors and the state, it will be settled based on the relevant bilateral investment treaty.

Due to an overloaded court system, dispute resolution can last for years. According to the 2017 World Bank’s Ease of Doing Business report, it takes on average 530 days to enforce contracts through the courts.

International Commercial Arbitration and Foreign Courts

While disputes can be resolved by international arbitration at the agreement of both parties, enforcement is contingent on the Ethiopian court system. Both foreign and domestic investors involved in disputes have expressed a lack of confidence in the judiciary to objectively assess and resolve investment disputes. Ethiopia’s judicial system is overburdened, poorly-staffed and inexperienced in commercial matters, although efforts are underway to strengthen its capacity. While property and contractual rights are recognized and there are commercial and bankruptcy laws, judges often lack understanding of commercial matters and case scheduling suffers from extended delays. The Addis Ababa Chamber of Commerce has an Arbitration Center to assist with arbitration. There is no guarantee that the award of an international arbitral tribunal will be accepted and implemented by Ethiopian authorities.

Bankruptcy Regulations

The Ethiopian Commercial Code (Book V) outlines bankruptcy provisions and proceedings and confirms that the Ethiopian court system has jurisdiction over bankruptcy filings and proceedings subject to international conventions. The primary purpose of the law is to protect creditors, equity shareholders and other contractors. Bankruptcy is not criminalized. In practice, there is limited application of bankruptcy procedures due to lack of knowledge on the part of the private sector.

According to the 2017 World Bank Doing Business Report, Ethiopia stands at 120 in the ranking of 190 economies with respect to resolving insolvency. Ethiopia’s score on the strength of insolvency framework index is 7.0 out of 16. (The index ranges from 0 to 16 with higher values indicating insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones).

Investment Incentives

The Investment Regulation 270/2012 and its amendment outline incentives for investors. New investors in the manufacturing, agro-processing, or production of selected agricultural products are entitled to income tax exemption ranging from two to five years depending on the location of investment. Any investor who exports or supplies to an exporter, or who exports at least 60 percent of his products or services shall be entitled to an additional two years of income tax exemption.

An investor who invests in an Industrial Development Zone is entitled to an additional two years of income tax exemptions, if in an industrial zone located in Addis Ababa or its immediate surroundings, and to four more years income tax exemption if the investment is made in an industrial park in other areas, provided 80 percent or more of production is for export or constitutes input to an exporter.

An investor who establishes a new enterprise in less prosperous areas (i.e. Gambella, Benshangul/Gumuz, Afar(except in areas within 15kilometers from each bank of the Awash River); Somali, Guji and Borena Zones of Oromia; or South Omo Zone, Segen, Bench Maji Zone, Sheka Zone, Dawro Zone, Kaffa Zone or Konta and Basketo Special Woredas of the Southern Nations, Nationalities and Peoples Region) shall be entitled to an income tax deduction of 30 percent for three consecutive years after the expiry of the regular income tax exemption period.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Industrial Park Proclamation 886/2015 designates industrial parks as duty-free zones, and operators in the parks are exempt from income tax for up to 10 years. They are also exempt from duties and other taxes on the import of capital goods, construction materials and raw materials for production of export commodities and vehicles.

The government has announced plans to construct 17 industrial parks in various locations around the country. The Proclamation awards the same privileges to privately financed industrial parks as to joint-ventures between government and private investors. As of March 2017, only four industrial parks were operational: Hawassa, Bole Lemi-I, East Industrial Park and George Shoe Park.

Trade through the Port of Assab in Eritrea has been prohibited since the 1998-2000 Ethiopian-Eritrean border war. In consequence, more than 95 percent of Ethiopia’s trade passes through the Port of Djibouti, with residual trade passing through the Somaliland port of Berbera or Port Sudan. Unregulated exports of coffee, live animals, khat, fruit and vegetables, and imports of cigarettes, alcohol, textiles, electronics and other consumer goods continue despite Ethiopia’s efforts to clamp down on smuggling.

Performance and Data Localization Requirements

Ethiopia does not formally impose performance requirements on foreign investors. However, investors in Ethiopia routinely encounter business visa delays and onerous paperwork.

Any foreign investor is required to allocate a minimum capital of $200,000 per project. If he/she is investing jointly with a domestic investor, the investment requirement is lowered to $150,000.

There are no forced localization or data storage requirements for private investors. Local content in terms of hiring, products and services is strongly encouraged but not required. An investor can employ qualified expatriate experts necessary to operations, but is responsible for replacing, within a limited period, expatriate personnel by locals by arranging the necessary training. However, a foreign investor may employ expatriate employees in top management positions without any restrictions.

In the case of joint ventures with state-owned enterprises, investors have reported informal requirements of up to 30 percent domestic content in goods and/or technology.

Real Property

All land in Ethiopia belongs to “the people” and is administered by the government. Private ownership does not exist, but land-use rights have been registered in most populated areas. The government retains the right to expropriate land for the common good, which it defines to include expropriation for commercial farm, industrial zones and infrastructure development. While the government claims to allocate only sparsely settled or empty land to investors, some people have been resettled. In particular, traditional grazing land has often been defined as empty and expropriated leading to resentment, protests and, in some cases, conflict. Confusion with respect to the registration of urban land-use rights, particularly in Addis Ababa, is commonplace. Allegations of corruption in the allocation of urban-land to private investors by government agencies are a major source of popular discontent. Successful investors in Ethiopia conduct thorough due diligence on land titles at both state and federal levels, and conduct consultations with local communities regarding the proposed use of the land. Land leasehold regulations vary in form and practice by region. As land is public property, land cannot be mortgaged.

We encourage potential investors to make sure their needs are communicated clearly to the host government. It is important for investors to understand who had land-use rights preceding them, and to research the attitude of local communities to an investor’s use of that land, particularly in region of Oromia, where conflict between international investors and local communities has occurred.

Intellectual Property Rights

The Ethiopian Intellectual Property Office (EIPO) oversees Intellectual Property Rights (IPR) issues. Ethiopia has not signed a number of major IPR treaties, such as the Paris Convention for the Protection of Industrial Property, the World Intellectual Property Organization (WIPO) copyright treaty, the Berne Convention for Literary and Artistic Works, the Madrid System for the International Registration of Marks, and the Patent Cooperation Treaty. The government expressed its intention to accede to the Berne Convention, Paris Convention, Marrakesh Protocol and Madrid Protocol, and currently EIPO is drafting a ratification proclamation. EIPO has been tasked primarily to protect Ethiopian patent rights and copyrighted materials, and to fight pirated software. Generally, EIPO is weak in terms of staff and budget, and does not have law enforcement authority. Abuse of U.S. trademarks is rampant, particularly in the hospitality and retail sectors. The government does not publicly track counterfeit goods seizures, and no estimates are available. Ethiopia is not listed in USTR’s Special 301 report and notorious market report.

EIPO contact and office information is available at http://www.eipo.gov.et/ 

For additional information about treaty obligations and points of contact at IP offices, please see WIPO’s country profiles  from this page:

http://www.wipo.int/directory/en/details.jsp?country_code=ET 

Embassy POC: Economic Officer, Helena Schrader, USEmbassyPolEconExternal@state.gov

Capital Markets and Portfolio Investment

Lack of access to finance impedes domestic private investment. While credit is available to investors on market terms, a 100 percent collateral requirement limits the ability to take advantage of business opportunities. An April 2011 measure forcing non-government banks to invest the equivalent of 27 percent of each loan in National Bank of Ethiopia (NBE) bonds has exacerbated liquidity shortages that further reduce the ability of banks to lend to the private sector.

Ethiopia does not have a securities market, and sales/purchases of debt are heavily regulated. The government is drafting legislation to regulate the over-the-counter market for private share companies. Moody’s rated Ethiopia’s credit worthiness a ‘B+,’ while S&P and Fitch gave it a ‘B.’

The government offers a limited number of 28-day, 3-month, and 6-month Treasury bills, but prohibits the interest rate from exceeding the bank deposit rate. The government began to offer a one-year Treasury bill in November 2011 with yields below 2 percent. This market remains unattractive to the private sector and more than 95 percent of the T-bills are held by the state-owned Commercial Bank of Ethiopia and public enterprises. The National Bank of Ethiopia is planning to introduce a market for government securities at end of 2017, for corporate bonds at the end of 2018 and a stock market in 2019.

The Ethiopia Commodity Exchange (ECX), launched in 2008, trades commodities such as coffee, sesame seeds, maize, wheat, mung beans, haricot beans. The government launched ECX to increase transparency in commodity pricing, alleviate food shortages, and encourage the commercialization of agriculture. However, critics allege that ECX policies and pricing structures are inefficient compared to direct sales at prevailing market rates.

Money and Banking System

Ethiopia has eighteen banks – two state-owned, and sixteen privately owned. The state-owned Development Bank of Ethiopia provides loans to investors in priority sectors. In September 2011, the NBE raised the minimum paid-up capital required to establish a new bank from
ETB75 million to 500 million, which effectively stopped the entry of most new banks. Foreign banks are not permitted to provide financial services in Ethiopia, but since April 2007, Ethiopia has allowed some foreign banks to open liaison offices in Addis, to facilitate credit to companies from their countries of origins. Chinese, German, Kenyan, Turkish, and South African banks have opened liaison offices in Ethiopia, but the market remains completely closed to foreign retail banks.

Based on the most recently available data, the state-owned Commercial Bank of Ethiopia mobilizes more than 60 percent of total bank deposits, bank loans and foreign exchange. The NBE controls the bank’s minimum deposit rate, which now stands at 5 percent, while loan interest rates are allowed to float. Real deposit interest rates have been negative in recent years mainly due to inflation.

Foreign Exchange and Remittances

Foreign Exchange

All foreign currency transactions must be approved by the NBE. Ethiopia’s national currency (birr) is not freely convertible. A 2004 NBE directive allows non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin to establish and operate foreign currency accounts up to $50,000.

Foreign Exchange reserves were heavily depleted in2012 and remain at low levels. By July 2016, gross reserves were $3.05 billion, covering approximately 1.7 months of imports. According to the IMF, heavy government infrastructure investment has fueled the need for foreign exchange. In addition, the decrease in foreign exchange reserves has been exacerbated by weaker-than-expected earnings from coffee exports and low international commodity prices for other important exports such as gold and oil seeds. Businesses usually expect delays in the foreign exchange supply of six weeks to three months. The foreign exchange crunch has intensified recently, with delays of more than a year, especially to investors in non-priority sectors, reported. Slow-downs in manufacturing due to foreign exchange shortages are common. Although government policy gives the repatriation of profits “priority,” in reality companies have experienced delays of up to 2 years in the repatriation of dollars for large sale volumes. Local sourcing of inputs and partnering with export-oriented partners are strategies employed by the private sector to address the foreign exchange shortage, but access to foreign exchange remains a problem that can limit growth, interfere with maintenance and spare parts replacement, and inhibit imports of adequate raw materials.

According to data from NBE, the birr depreciated approximately 97 percent against the U.S. dollar between January 2009 and January 2016, primarily through a series of controlled steps, including a 20 percent devaluation in September 2010. As of March 2017, the official exchange rate was approximately ETB 22.65 per dollar. The illegal parallel market exchange rate for the same period was approximately ETB 27.50 per dollar, a premium of 21 percent over the official rate.

Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding ETB 200, 000 (roughly equivalent to U.S. reporting requirements for currency transfers exceeding $10,000). Only ETB 200 in cash can be carried out of the country.

Remittance Policies

Ethiopia’s Investment Proclamation allows all registered foreign investors, whether or not they receive incentives, to remit profits and dividends, principal and interest on foreign loans, and fees related to technology transfer. Foreign investors may remit proceeds from the sale or liquidation of assets, from the transfer of shares or of partial ownership of an enterprise, and funds required for debt service or other international payments. The right of expatriate employees to remit their salaries is granted by NBE foreign exchange regulations.

Sovereign Wealth Funds

Ethiopia has no sovereign wealth funds.

State-owned enterprises and ruling party-owned entities dominate major sectors of the economy. There is a state monopoly or state dominance in telecommunications, power, banking, insurance, air transport, shipping, and sugar. Ruling-party-affiliated endowment companies have a strong presence in ground transportation, fertilizer, and textile sectors. State-owned enterprises have considerable advantages over private firms, including access to credit and customs clearances. Ethiopian business owners and foreign investors complain of the lack of a level playing field when it comes to state-owned and party-owned businesses. While there are no conclusive reports of credit preference for these entities, there are indications that they receive incentives such as priority foreign exchange allocation, preferences in government tenders, and marketing assistance. Ethiopia does not publish financial data for most state-owned enterprises, but Ethiopian Airlines and the Commercial Bank of Ethiopia have transparent accounts.

Ethiopia is not a member to the Organization for Economic Cooperation and Development (OECD) and does not adhere to the guidelines on corporate governance of SOEs. Corporate governance of state-owned enterprises is structured and monitored by a board of directors composed of senior government officials and politically-affiliated individuals, but there is a lack of transparency in the structure of SOEs.

Privatization Program

The government continues to privatize some government-owned entities, which were largely nationalized by the Derg military regime in the 1970s. The government’s position is that property seized lawfully by the Derg (by court order or government proclamation published in the official gazette) remains the property of the state. Nearly all tenders issued by the Ethiopian government’s Ministry of Public Enterprises are open to foreign participation. In some instances, the government prefers to engage in joint ventures with private companies rather than sell an entire entity. The government has sold more than 370 public enterprises since 1995, mainly small companies in the trade and service sectors. The Ministry privatized one enterprise and sold its minority share in two enterprises in 2016. Currently twenty two public enterprises remain under the Ministry’s control. The government has also announced its plan to sell minority shares in the Ethiopian Shipping Lines and Logistics Enterprise and in ongoing sugar projects to foreign firms.

Some larger international companies have introduced corporate social responsibility (CSR) programs; however, most Ethiopian companies do not practice CSR. There are efforts to develop CSR programs by the Ministry of Industry in collaboration with the World Bank, U.S. Agency for International Development, and others. CSR programs supporting workforce capacity-building and services, community-building and infrastructure investment programs by foreign corporations can align company objectives with the government GTP II development goals.

The government encourages CSR programs for both local and foreign direct investors but does not maintain specific guidelines for these programs, which are inconsistently applied and not controlled or monitored. In early 2015, the Ethiopian Chamber of Commerce & Sectorial Associations published a ‘Model Code of Ethics for Ethiopian Businesses’ that was endorsed by Ethiopian President Mulatu Teshome as a model for the business community.

Ethiopia was admitted as a candidate-member to the Extractive Industry Transparency Initiative (EITI) in 2014, but has not embraced the need for independent, non-governmental organizations. As a result, full-membership during the next scheduled review in March 2018 remains uncertain. Per the Commercial Code, extractive industries and other businesses are expected to conduct statuary audits of their financial statements at the end of each financial year. However, the financial statements are not available to the public, only to financial institutions and share companies.

Transparency International’s 2016 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 34 (with 0 indicating highly corrupt and 100 indicating very clean).Its comparative rank was108 out of 176 in 2016, compared to 103 out of 168 countries in 2015.

Businesses note corruption in areas such as government procurement, tax collection, customs clearance and land administration.

The Federal Ethics and Anti-Corruption Commission (FEACC) is charged with preventing corruption and is accountable to the Office of the Prime Minister. The Commission is mandated to provide ethics training and education to prevent corruption. The investigation and prosecution of corruption crimes are now the mandates of Federal Police Commission and Federal Attorney General respectively. The Ethiopian Federal Ethics and Anti-Corruption Commission reported increasing involvement of government officials in corruption in the last year.

In 2015 the government promulgated new legislation that broadens the coverage of corruption law to enable the Federal Police to investigate corruption crimes committed by “Public Organizations.” The latter are defined as any organs in the private sector that administer money, property or any other resources for public purposes. Examples of such organizations include share companies, real estate agencies, banks, insurance companies, cooperatives, labor unions, professional associations, and others.

In 2003, Ethiopia signed the UN Anticorruption Convention which was ratified in November 2007. It is a criminal offense to give or receive bribes, and bribes are not tax deductible.

Ethiopia is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Ethiopia is a signatory to the African Union Convention on Preventing and Combating Corruption. Ethiopia is also member of the East African Association of Anti-Corruption Authorities.

Resources to Report Corruption

Contacts at government agency or agencies are responsible for combating corruption:

ORGANIZATION: Federal Police Commission
ADDRESS: Addis Ababa
TELEPHONE NUMBER: +251 11 861-9595
EMAIL ADDRESS: N/A

Contact at “watchdog” organization:

ORGANIZATION: Transparency Ethiopia
ADDRESS: Addis Ababa
TELEPHONE NUMBER: +251 11 827-9746
EMAIL ADDRESS: TiratEthiopia@gmail.com

Since 1991, Ethiopia has been relatively stable for investors. However, beginning mid-November 2015, violent protests destabilized towns throughout Oromia and security forces were deployed to quell the unrest. In January 2016, the government of Ethiopia stated it was halting implementation of the planned expansion of the City of Addis Ababa into the surrounding region of Oromia – a trigger for the protests – until the government carried out further consultation with Oromo communities. On October 2, the security forces’ crowd control measures at a religious celebration in the town of Bishoftu (south of Addis Ababa) resulted in a stampede that killed at least 50 people, although opposition groups claim hundreds were killed. The resulting public anger triggered a wave of burning and looting of factories and flower farms in Oromia, including some that were foreign-owned. In the Amhara region, in mid-July 2016, an ongoing dispute over identity and administrative boundaries triggered three days of protests and confrontations with security forces in Gondar. There continue to be periodic reports of clashes between security forces and local militias in the North Gondar Zone of Amhara. Throughout August and September 2016, there were reports of continued protests and violence in both Oromia and Amhara, including looting and burning of businesses and government offices. At least 500 protestors have been killed in the unrest since November 2015, although estimates vary and Amnesty International reports that more than 800 persons were killed between November 2015 and October 2016.

Since October 8, Ethiopia has been under a state of emergency (SOE) that severely curtails basic liberties but has tamped down the protests and unrest, according to citizens in Amhara and Oromia regions. Under the initial SOE directive, law enforcement could arrest and detain individuals without a court warrant and had greater latitude to search individuals and property. Individuals could also be detained for an indefinite period without reason. Public gatherings were prohibited without prior consent of the governing body of the SOE. Since the SOE declaration, more than 24,000 people have been arrested and detained in official and unofficial detention centers throughout the country where torture has allegedly occurred. The bulk of the detainees have since been released, and some of the most onerous provisions of the SOE, including the right to search and arrest without warrant and most curfews, have been lifted. Controls on social media, telecommunications and communication with foreign entities remain in place, as do curtailments of freedom of assembly and speech. Preceding the state of emergency, the government censored the internet and media. The government does not notify consular officers at the American Embassy when American citizens are arrested or detained, and in 2016 the validity and duration of Ethiopian visas issued American business travelers and tourists was severely limited and usually single-entry, in violation of the 1992 bilateral Visa Liberalization Agreement.

Occasional attacks by armed groups in the Somali Region of Ethiopia have disrupted travel in the region, and, in the past, armed groups have warned investors against exploring for oil or natural gas resources in that area. Some elements of the Ethiopian government-designated terrorist group, the Ogaden National Liberation Front (ONLF), continue to operate in parts of the Somali Region and there are reports of sporadic clashes with security forces.

Ahead of the May 2015 election, opposition parties across the country alleged widespread intimidation of its supporters by the ruling party. Political violence against opposition groups on election day and in the aftermath of the vote resulted in the deaths of six opposition party members, observers and one candidate. There were election-related protests in Oromia, Amhara and the Southern Nations, Nationalities and People’s regions that resulted in deaths. Following student demonstrations in the Oromia region in 2014, the government has retained tight control on university campuses out of concern for the possibility of repeated unrest. There were reports of student demonstrations at several universities in the Oromia and Tigray regions in 2016 and early 2017.

Ethnic conflict—often sparked by resource competition or land disputes—occasionally becomes violent. In the fall of 2016, there were reports of ethnic Tigrayans moving from the Amhara region into Tigray, to escape ethnically-based unrest in Amhara. Resource competition is alleged to be one cause of recent conflict along the border of Oromia and Somali regions. Since late 2016, there have been reports of raids and clashes, possibly involving Somali Region security forces, in neighboring Oromia that has resulted in civilian deaths. In January and February 2016, deadly violence between the Nuer and the Anuak ethnic groups in Gambella Region resulted in the loss of lives, revenge killings, destruction of property and general insecurity in the region. In April 2016, Murle tribesmen from neighboring South Sudan killed almost 200 Nuer and Anuak in Gambella region, and kidnapped more than 100 children. Throughout 2016 and continuing into 2017, the Murle periodically conducted smaller-scale raids into Gambella, killing Nuer and Anuak, and kidnapping children.

More than 80 percent of Ethiopia’s 100 million people work in agriculture, the second-most important employer after the government. If current population growth rates continue (2.5 percent), Ethiopia will have more than 138 million people by 2030, 27 percent of whom will be urban. Almost 65 percent of the population is under the age of 25, and 2 million people are added to the workforce every year. The very high youth unemployment rate – estimated at anywhere from 25-50 percent for the 15-24 year old age group – contributes to instability.

Although labor remains readily available and inexpensive in Ethiopia, skilled manpower is scarce. Approximately 50 percent of Ethiopians over the age of 15 are illiterate according to UNESCO’s definition. Primary school enrollment rate (age 7 to 14), on the other hand, has now reached 94 percent. To increase the skilled labor force, the government of Ethiopia has undertaken a rapid expansion of the university system in the last 20 years, increasing the number of higher public education institutions from three to 34, with eleven more under construction. It has adopted an education policy that requires 70 percent of the annual student intake in public universities to focus on science, engineering and technology, but many students are not well-prepared by secondary school to study in those fields.

Ethiopia boasts robust worker protections, but the country’s federal and regional enforcement mechanisms struggle with low resources and capacity. Ethiopia has ratified all eight core International Labor Organization (ILO) conventions. The Ethiopian Criminal Code outlaws work specified as hazardous by ILO conventions. There is no national minimum wage, and public sector employees – the largest group of wage earners – earned a monthly minimum wage of ETB420 (approximately $19).

Labor unions and confederations are separate entities from the government, although they are subject to a great deal of regulation and direct pressure/involvement from the government. The Confederation of Ethiopian Trade Unions (CETU) comprises well over two hundred thousand members in enterprise-based unions in a variety of sectors, but there is no formal requirement for unions to join the CETU. Much of the labor force remains in small scale agriculture/industry and thus is not covered by an enterprise union. The Ministry of Labor and Social Affairs’ Directorate of Harmonious Industrial Relations provides labor dispute resolution services, although the caseload and the directorate’s capacity are low.

Constitution and other laws provide workers, except for civil servants and certain categories of workers primarily in the public sector, with the right to form and join unions, conduct legal strikes, and bargain collectively. Other laws and regulations that explicitly or potentially infringe upon workers’ rights to associate freely and to organize include the Civil Society and Organizations (CSO) law, Council of Ministers Regulation No. 168/2009 on Charities and Societies to reinforce the CSO law, and Proclamation No. 652/2009 on Antiterrorism. Such laws and detailed requirements make legal strike actions difficult to carry out. In practice, labor strikes are rare and no strikes occurred in the last year. Employers offering contracted employment are required to provide severance pay. vast majority of employees that work in small scale agriculture and textiles, however, do so without a contract. Large labor surpluses and lax labor law enforcement allow employers to retain employees without contracts that ensure strong worker protections.

Although the government actively engages with the international community to combat child labor and human trafficking, which includes forced/coerced labor, both remain widespread in Ethiopia. The Ethiopian Parliament ratified ILO Convention 182 on the Worst Forms of Child Labor in May 2003. While not a pressing issue in the formal economy, child labor is common in the informal sector, including construction, agriculture, textiles, manufacturing, mining, and domestic work. Child labor is present in both urban and rural areas. According to the International Labor Organization (ILO) International Program for the Elimination of Child Labor, more than 50 percent of Ethiopia’s child laborers work in the agriculture sector. Ethiopian traditional woven textiles are included on the U.S. government’s Executive Order 13126 list of goods that have been known to be produced by forced or indentured child labor. Both NGO and Ethiopian government sources concluded that goods produced (in the agricultural sector and traditional weaving industry in particular) via child labor are largely intended for domestic consumption, and not slated for export. Employers are prohibited from hiring children under the age of 14, and for certain types of hazardous work the minimum age is 18. Ethiopia has a National Action Plan (NAP) on the Elimination of the Worst Forms of Child Labor, which it is currently updating. The Ministry of Labor and Social Affairs conducts tens of thousands of targeted inspections on occupation safety and standards, although they are not legally empowered to assess fines for infractions and they do not make this data publically available. Due to the shortage of labor inspectors and other enforcement resources, and the fact that inspectors do not inspect informal work sites, most child labor goes unreported.

In 2015, the Ethiopian Parliament ratified an overhaul to its Anti-Human Trafficking and Smuggling criminal code (covered in the 2016 Trafficking In Persons report published by the Department of State). The government also passed an Overseas Labor Proclamation that legalizes and regulates the employment of Ethiopians in foreign countries, although there is still a ban on Ethiopians traveling to the Gulf States to engage in domestic work. Over the past few years, the government has become much more engaged in combatting trafficking in persons, and the number of arrests and prosecutions of traffickers has increased.

The Overseas Private Investment Corporation (OPIC) has offered risk insurance and loans to U.S. investors in Ethiopia in the past but not recently.

*National Bank of Ethiopia (Year ends on July 7) and Ethiopian Investment Commission

Table 3: Sources and Destination of FDI

Source: Ethiopian Investment Commission, March 2017

*The yearly average exchange rate is used for each year from 1992-2017 to convert the amount of FDI from domestic currency into $.

** Total Outward investment data is not available
Table 4: Sources of Portfolio Investment

Data regarding the equity/debt breakdown of portfolio investment assets is not available for Ethiopia via the IMF’s Coordinated Portfolio Investment Survey (CPIS) and is not available for external publication from the government of Ethiopia.

U.S. Embassy main number is +251 011 130 6000.

Senior Foreign Commercial Service Officer, Tanya Cole, Tanya.Cole@trade.gov

Economic Officer, Helena Schrader, USEmbassyPolEconExternal@state.gov

Trade and Investment Specialist, Abdulkader Hussen, USEmbassyPolEconExternal@state.gov