Recent Changes in Ethiopia’s Capital Account Regulations

This brief provides an overview of the recent changes to Ethiopia’s capital account regulations, focusing on key areas such as capital repatriation, external loans and suppliers’ credits, special allowances for offshore accounts, and foreign portfolio flows. These reforms are aimed at enhancing Ethiopia’s financial integration with the global market and providing a conducive environment for foreign investment.

Capital Account Regulations

1. Capital Repatriation

1.1 General Provisions

• Authorization Requirement: Capital account transactions by residents are not permitted without explicit authorization from the National Bank of Ethiopia (NBE). The National Bank of Ethiopia has recently issued a directive permitting businesses investing in strategic sectors to utilize offshore bank accounts for settling payments related to capital expenditures, insurance, contractors, maintenance and operational expenses, as well as external debt services.

1.2 Remittance of Registered Foreign Investments

• Repatriation Rights: Registered foreign investments may repatriate profits, dividends, proceeds from liquidation or share transfers, and returns on portfolio investments, subject to NBE approval.

1.3 Transfers of Profits and Dividends

• Requirements for Remittance: Investors must submit authenticated documents, audited financial statements, tax receipts, and other relevant documentation to remit profits and dividends abroad.

1.4 Remittance of Liquidation Proceeds

• Documentation: Investors must provide liquidation reports, audited balance sheets, tax clearance, and other documents to transfer capital from ceased operations.

1.5 Remittance of Share Sale Proceeds

• Documentation: Foreign investors selling shares must provide updated capital registration certificates, sales agreements, and tax clearance for remittance approval.

2. External Loans and Suppliers’ Credits

2.1 General Requirements

• Prior Approval: External loans and suppliers’ credits require prior NBE approval and registration.

2.2 Eligible Borrowers and Requirements

2.2.1 Exporters

• Eligibility: Exporters can acquire external loans for export-oriented investments that generate foreign currency.

2.2.2 Foreign Investors

• Eligibility: Foreign investors can acquire external loans with a debt-to-equity ratio not exceeding 60:40, subject to specific requirements.

2.2.3 Domestic Manufacturers

• Eligibility: Domestic manufacturers can acquire external loans with a debt-to-equity ratio not exceeding 60:40, subject to specific requirements.

2.2.4 Agricultural and LPG Imports

• Eligibility: Importers of agricultural machines, inputs, and LPG gas can acquire suppliers’ credit subject to specific requirements.

2.3 Approval and Registration

• Approval Process: NBE will issue approval letters for external loans and register them upon fulfilling the specified conditions.

2.4 All-In Cost Disclosure

• Transparency: Borrowers must disclose the all-in cost of external loans, including fees and charges, spread over the repayment period.

3. External Loans In-Kind

3.1 General Provisions

• Approval Requirement: External loans in-kind require prior NBE approval and registration.

3.2 Eligible Borrowers and Requirements

3.2.1 Exporters

• Eligibility: Exporters can acquire capital goods through external loans in-kind for export-oriented investments.

3.2.2 Foreign Investors

• Eligibility: Foreign investors can acquire capital goods through external loans in-kind with specific documentation and a debt-to-equity ratio not exceeding 60:40.

4. Special Allowances for Offshore Accounts

4.1 Eligible Strategic Sectors

• Eligibility: Strategic Foreign Direct Investment Projects in sectors like power generation, infrastructure, and mining can open offshore accounts for specific purposes.

4.2 Debt-to-Equity Ratio

• Ratio Limit: The debt-to-equity ratio for strategic sectors may not exceed 80:20, with possible exceptions by NBE approval.

4.3 Transparency and Reporting

• Monitoring: NBE will monitor offshore account contracts and require quarterly financial statements and annual projections from strategic projects.

5. Foreign Portfolio Flows

5.1 Participation in Capital Markets

• Eligibility: Foreign portfolio inflows can participate in Ethiopian capital markets through licensed securities exchanges, subject to NBE and ECMA regulations.

5.2 Regulatory Requirements

• Ownership Limits: NBE will set maximum ownership shares and mandatory investment periods for foreign portfolio investors.

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