The Ethiopian government encourages and works on the expansion of investment. But this doesn’t mean that the government doesn’t regulate the investments. Accordingly, the administration of investments by domestic and foreign investors is regulated by the Ethiopian Investment Agency. The law that addresses issues concerning investments in Ethiopia is proclamation number 769/2012 (known as a Proclamation on Investment). 

Investment Objectives and Areas of Investment

In general investment is highly encouraged in Ethiopia with government, keeping in mind, of improving the living standards of the people of Ethiopia through the realization of sustainable economic and social development.

These include

  1. Accelerating  the country’s economic development;
  2. Exploiting  and develop the immense natural resources of the country;
  3. Developing the domestic market through the growth of production, productivity and services;
  4. Increasing foreign exchange earnings by encouraging expansion in volume, variety and quality of the country’s export products and services as well as to save foreign exchange through production of import substituting products locally;
  5. Encouraging balanced development and integrated economic activity among the Regions and to strengthen the inter-sect oral linkages of the economy;
  6. Enhancing the role of the private sector in the acceleration of the country’s economic development;
  7. Enabling foreign investment play its role in the country’s economic development;
  8. Creating ample employment opportunities for Ethiopians and to advance the transfer of technology required for the development of the country.

Areas of Investment in Ethiopia

Any interested person can’t just go ahead and invest in the area that one wants. There are areas that are reserved for certain groups. Investment areas can be categorized in to three based on their reservation.

  1. Areas of investment reserved for domestic investors or joint investment with the government;
  2. Areas of investment allowed for domestic investors;
  3. Areas of investment allowed for foreign investors.
  1. Areas of investment reserved for domestic investors or joint investment with the government in Ethiopia

The areas of investment that are exclusively reserved for the Government are stipulated under proclamation number 769/2012 are

  1. Transmission and distribution of electrical energy through the integrated national grid system;
  2.  Postal services with the exception of courier services;
  3. Air transport services using aircraft with a seating capacity of more than fifty passengers.

Investors are only allowed to invest in the following areas if they invest jointly with the Government:

  1. Manufacturing Of Weapons And Ammunition;
  2. Telecommunication Services.

The Privatization and Public Enterprises Supervising Agency shall receive investment proposals submitted by any private investor intending to invest jointly with the Government; it shall submit same to the Ministry of Industry for decision and, upon approval, designate a public enterprise to invest as partner in the joint investment.

One should keep in mind that it doesn’t necessarily mean the above areas are completely banned from private investors, The Council of Ministers may, whenever it deems necessary, determine, by issuing regulations, that areas of investment exclusively reserved for the government or for joint investment with the government be opened to private investors.

Areas of Investment Allowed For Foreign and Domestic Investors in Ethiopia

The areas of investment exclusively reserved for domestic and foreign investors will be specific by the regulation to be issued by the council of ministers.

Forms of Investment and Capital Requirements for Foreign Investors in Ethiopia

Forms of Investment in Ethiopia

Investments may be carried out in one of the following forms:

  1. Sole proprietorship;
  2. Business organizations incorporated in Ethiopia or abroad;
  3. Public enterprises established in accordance with the relevant law;
  4. Cooperative societies formed in accordance with the relevant law.

One should keep in mind that any investment made in the forms prescribed above has to be registered in accordance with the Commercial Code of Ethiopia or other applicable law.

Capital Requirements for Foreign Investors

Before any foreign investor is allowed to invest in Ethiopia, one is required to allocate a minimum capital of USD 200,000 for a single investment project.

But if this foreign investor is trying to invest jointly with a domestic investor the minimum capital required of the foreign investor will be USD 150,000.

This capital requirement is a bit different in architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing work. In such cases the minimum capital required of a foreign investor investing in will be:  

  1. USD 100,000 if the investment is made wholly on his own;
  2. USD 50,000 if the investment is made jointly with a domestic investor.

But there is certain exception to the above rule. This is where a foreign investor re-investing his profits or dividends generated from his existing enterprise. In such case the foreign investor will not be required to allocate a minimum capital.

Investment Incentives, Guarantees and Protection in Ethiopia

Due to the above reasons mentioned earlier investment is highly encouraged in Ethiopia. Hence the government has laid down certain incentive for investors investing in Ethiopia.

       I.            Ownership of Immovable Property.

As per the Investment Proclamation a foreign investor has the right to own a dwelling house and other immovable property requisite for his investment. This right includes those investors who have invested prior to the coming in to force of Proclamation Number 769/2012.

    II.             Investment Guarantees and Protection against expropriation in Ethiopia

In Ethiopia, no investment can be expropriated or nationalized by the government except for public interest and then, only in conformity with the requirements of the law.

But even so, adequate compensation, corresponding to the prevailing market value, has to be paid in advance in case of expropriation or nationalization of an investment for public interest.

 III.            Remittance of Funds

As per the Investment Proclamation a foreigner or a foreign investor is allowed to make the following remittances out of Ethiopia in convertible foreign currency at the prevailing rate of exchange on the date of remittance

  1. Profits and dividends accruing from investment;
  2. Principal and interest payments on external loans;
  3. Payments related to a technology transfer agreement registered in accordance with Article 21 of this Proclamation;
  4. Payments related to a collaboration agreement registered in accordance with Article 22 of this Proclamation;
  5. Proceeds from the transfer of shares or of partial ownership of an enterprise to a domestic investor.
  6. Proceeds from the sale or liquidation of an enterprise; and
  7. Compensation paid to an investor pursuant to Article 25(2) of this Proclamation.

But the above remittance does not apply to a local partner who is in a joint investment with a foreigner.

The Emergence of Industrial Development Zones in Ethiopia

The Federal government is currently encouraging the establishment of manufacturing industries. Accordingly for the industrial sector to have a leading role in the economy, the Federal Government of Ethiopia has established Industrial Development Zones in regions. This zone development will be undertaken by the Federal Government or where necessarily by joint investment of government and private sector.

The organ responsible for administering and supervising industrial development zones will be determined by the regulation to be issued by the council of ministers.

This organ will submit recommendations to the council of ministers for the reduction and expansion of industrial development zones. If the recommendation becomes approved lease hold lands within or adjacent to industrial development zones may be possessed by negotiation or decision. This land may be possessed for one of the following reasons.

  • Incorporating the land with existing Industrial Development Zone;
  • Getting passage to enter in to Industrial Development Zones;
  • To maintain natural resources, heritages and places required by law to be preserved. 

Any pertinent information about investment in Ethiopia, Business Incorporation in Ethiopia, tax in Ethiopia, can be available from an Ethiopian Lawyer, Ethiopian Business Incorporation Lawyer ,Ethiopian Investment Lawyer, Ethiopian Tax lawyer, Ethiopian, Ethiopian Employment Lawyer, Ethiopian Labour Relationships Lawyer, Ethiopian Immigration lawyer.

If you have an additional question or comment please  Contact us.