The Government of Ethiopia is preparing to introduce legislation that would permit foreign nationals to own immovable property, such as residential and commercial real estate, for the first time in the country’s modern legal history. This initiative, announced by Prime Minister Abiy Ahmed in March 2024, is part of broader economic reforms aimed at liberalizing Ethiopia’s economy and attracting foreign investment. This legal brief examines the current legal framework governing property ownership in Ethiopia, outlines the key provisions and objectives of the proposed legislation, and assesses the potential legal, economic, and social implications of these changes.
Current Legal Framework
Constitutional Provisions
The Federal Democratic Republic of Ethiopia (FDRE) Constitution assigns land ownership to the state and the Ethiopian people. Article 40(3) states “The right to ownership of rural and urban land, as well as of all natural resources, is exclusively vested in the State and in the peoples of Ethiopia.” Consequently, land cannot be privately owned, sold, or mortgaged. Instead, individuals and entities, including foreign investors, may acquire land use rights through lease agreements.
Civil Code Restrictions
The Ethiopian Civil Code (Refer Articles 390–393) generally prohibits foreign nationals from owning immovable property. Exceptions exist for inheritance, but even then, the property must be sold to an Ethiopian within six months, or it will be seized and sold by the state, with proceeds returned to the foreigner minus a penalty.
Investment Proclamations
Proclamation No. 280/2002: Introduced the right for foreign investors to own a dwelling house and other immovable property necessary for their investment, excluding land.
Proclamation No. 1180/2020: Reaffirmed these rights and specified that foreign investors or foreign nationals treated as domestic investors could own one dwelling house if they have made a significant investment.
These proclamations allow foreign investors to own buildings and structures essential for their operations but do not extend to land ownership.
Proposed Legislative Changes
In March 2024, Prime Minister Abiy Ahmed announced plans to introduce new legislation permitting foreign nationals to own real estate in Ethiopia. While the full text of the draft law has not been publicly released, key points from the announcement include:
Expansion of Ownership Rights: Foreigners would be allowed to own residential and commercial properties, a significant shift from current restrictions.
Economic Liberalization: The move is part of broader efforts to open up Ethiopia’s economy, including sectors like retail, which are currently restricted to Ethiopian nationals.
The exact mechanisms, limitations, and implementation timelines of the proposed law remain to be detailed.
Legal Analysis
Constitutional Considerations
Given that the FDRE Constitution vests land ownership in the state and the people, any legislation permitting foreign ownership of immovable property must navigate this provision carefully. The proposed law would likely continue to exclude land from private ownership, focusing instead on the structures built upon leased land. This approach aligns with existing investment proclamations and would not require constitutional amendments.
Alignment with Investment Laws
The proposed legislation appears to build upon the framework established by Proclamation No. 1180/2020, which allows foreign investors to own immovable property necessary for their investment. By extending ownership rights to a broader category of foreign nationals, the new law would further liberalize Ethiopia’s investment climate.
Economic and Social Implications
Potential Benefits
Increased Foreign Investment: Allowing foreign ownership of immovable property could attract more investors, leading to job creation and economic growth.
Real Estate Development: The real estate sector may benefit from potential increased demand for residential and commercial properties.
Enhanced Revenue: Property taxes and related fees from foreign owners could boost government revenues.
Potential Challenges
Affordability Concerns: An influx of foreign buyers might drive up property prices, making housing less affordable for local residents.
Regulatory Oversight: Ensuring compliance with property laws and preventing speculative practices will require robust regulatory mechanisms.
Social Equity: There may be public concern over foreign ownership of property, necessitating transparent communication and equitable policies.
Ethiopia’s proposed legislation to allow foreign nationals to own immovable property represents a significant shift in the country’s economic and legal landscape. While the move has the potential to attract foreign investment and stimulate economic growth, careful consideration must be given to constitutional constraints, regulatory frameworks, and social implications. Transparent policymaking and stakeholder engagement will be crucial to the successful implementation of this reform.
If you have questions, comments or need further assistance with legal experts familiar with Ethiopian investment laws don’t hesitate to get in touch with us.
