Changes in External Loan and Supplier’s Credits for Foreign Investors in Ethiopia
This legal brief provides an overview of the recent regulatory changes concerning external loan and supplier’s credits in Ethiopia. These changes aim to enhance foreign investment by clarifying the requirements and procedures for obtaining and managing external financial resources. This brief is structured to assist foreign investors in understanding the updated regulations and ensuring compliance with Ethiopian law.
1. External Loan and Supplier’s Credits
1.1 General
1.1.1 Borrowings from Abroad and Repayments
- National Bank Approval: All foreign loan contracts require prior consultation with the National Bank of Ethiopia (NBE) for the government and approval by the NBE for all other entities.
- Registration Requirement: External loan guaranteed by the Federal Government must be registered with the NBE, along with the presentation of the agreement and guarantee.
- Repayment Conditions: Foreign exchange for loan repayment may be denied if the loan contract does not meet NBE requirements.
1.1.2 Usance Letters of Credit
- Authorized banks may issue usance letters of credit for exporters importing equipment, raw materials, machinery, and accessories for export businesses, payable against future export proceeds.
2. Eligible Borrowers and Requirements
2.1 Exporters
- Eligibility: Exporters are eligible for External Loan and Supplier’s Credits if the funds support export-oriented investments generating foreign currency.
- Requirements:
- Application letter
- Valid export license
- Draft loan agreement with detailed terms
- Pro forma invoice for supplier’s credit
- Proof of repayment capacity
2.2 Foreign Investors
- Eligibility: Foreign investors can acquire External Loan and Supplier’s Credits if the debt-to-equity ratio does not exceed 60:40.
- Requirements:
- Application letter
- Valid investment or business license
- Foreign capital registration certificate
- Draft loan agreement or pro forma invoice for supplier’s credit
2.3 Domestic Manufacturers (Non-exporters)
- Eligibility: Must meet a debt-to-equity ratio of 60:40.
- Requirements:
- Application letter
- Valid manufacturing license
- Capital registration certificate
- Draft loan agreement or pro forma invoice
2.4 Importers of Agricultural Machines/Inputs and LPG Gas
- Eligibility: Must meet a debt-to-equity ratio of 60:40.
- Requirements:
- Application letter
- Valid import license
- Pro forma invoice with a minimum one-year credit period
2.5 Construction Sector
- Eligibility: Must meet a debt-to-equity ratio of 60:40.
- Requirements:
- Application letter
- Valid business license
- Pro forma invoice with a minimum one-year credit period
3. Approval and Registration of External Loans
- Approval Process: The NBE issues approval letters if all conditions are met.
- Registration Documents:
- Application letter
- Bank advice (for cash loans)
- Customs declaration and shipping documents (for in-kind loans)
- Copy of approval letters
4. All-in Cost
- Borrowers must disclose the all-in cost of an external loan, including fees like front-end and supervision fees, spread over the loan’s repayment period.
5. Guarantees
- Government and banks are prohibited from issuing guarantees for private loans.
6. Repayment of External Loans
- Approval Requirement: NBE approval is necessary for repayment of registered external loans.
- Required Documents:
- Application letter
- Copy of registration letter
- Loan repayment schedule, including principal, interest, and charges
These regulatory changes provide a clear framework for foreign investors seeking external financing in Ethiopia. Adherence to these External Loan and Supplier’s Credits guidelines will facilitate compliance with Ethiopian financial regulations and contribute to the successful execution of investment projects.
For further assistance or clarification, foreign investors are encouraged to get in touch with our professionals specializing in Ethiopian finance law. Contact us.
