Policies towards Foreign Direct Investment

Ethiopia needs significant inflows of FDI to meet its ambitious growth goals. Over the past year, to attract more foreign investment, the government has passed a new investment law, ratified the New York Convention on Arbitration, and streamlined commercial registration and business licensing laws. The government has also started implementing the Public Private Partnership (PPP) proclamation (law), to allow for private investment in the power generation and road construction sectors.

The Ethiopian Investment Commission (EIC) has the mandate to promote and facilitate foreign investments in Ethiopia. To accomplish this task, the EIC is charged with 1) promoting the country’s investment opportunities to attract and retain investment; 2) issuing investment permits, business licenses, and construction permits; 3) issuing commercial registration certificates and renewals; 4) negotiating and signing bilateral investment agreements; 5) issuing work permits; and 6) registering technology transfer agreements. In addition, the EIC has the mandate to advise the government on policies to improve the investment climate and hold regular and structured public-private dialogue with investors and their associations. At the local level, regional investment agencies facilitate regional investment. Though Ethiopia has shown relative progress in two doing business indicators, specifically the ease of obtaining construction permits and registering property, its overall rank on the 2020 World Bank Ease of Doing Business Index was 159 out of 190 countries, which is the exact same ranking from 2018 and 2019. In order to improve the investment climate, attract more FDI, and tackle unemployment challenges, the Prime Minister’s Office formed a committee to systematically examine each indicator on the Doing Business Index and identify factors that inhibit businesses.

The American Chamber of Commerce (AmCham) works on voicing the concerns of U.S. businesses in Ethiopia. AmCham provides a mechanism for coordination among American companies and also facilitates regular meetings with government officials to discuss issues that hinder operations in Ethiopia. The Addis Ababa Chamber of Commerce also organizes a monthly business forum that enables the business community to discuss issues related to the investment climate with government officials by sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish, acquire, own, and dispose of most forms of business enterprises. A new Investment Proclamation, approved in early 2020, outlines the areas of investment reserved for government and local investors. There is no private ownership of land in Ethiopia. All land is owned by the state, but can be leased for up to 99 years. Small-scale rural landholders have indefinite use rights, but cannot lease out holdings for extended periods, 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 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 government has not undertaken any third party investment policy review by a multilateral or non-governmental organization. The government has worked closely with some international stakeholders, however, such as the International Finance Corporation, in its recent attempts to modernize and streamline its investment regulations.

Business Facilitation

The EIC has attempted to establish itself as a “one-stop shop” for foreign investors by acting as a centralized location where investors can obtain the visas, permits, and paperwork they need, thereby reducing the time and cost of investing and acquiring business licenses. The EIC has worked with international consultants to modernize its operations, and as part of its work plan has adopted a customer manager system to build lasting relationships and provide post-investment assistance to investors. Despite progress, the EIC readily admits that many bureaucratic barriers to investment remain. In particular, U.S. investors report that the EIC, as a federal organization, has little influence at regional and local levels. According to the 2020 World Bank’s Ease of Doing Business Report, on average, it takes 32 days to start a business in Ethiopia.

Currently, 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. Ethiopia concluded an agreement in March of 2018 with the Somaliland Ports Authority and DP World to acquire a 19 percent stake in the joint venture developing the Port of Berbera. The agreement will help Ethiopia secure an additional logistical gateway for its increasing import and export trade. Following the July 2018 rapprochement with Eritrea, the Ethiopian government has investigated the opportunity of accessing an alternative port at either Massawa or Assab.

The Government of Ethiopia is working to improve business facilitation services by making the licensing and registration of businesses easier and faster, though online registration is not yet available. An amended commercial registration and licensing law eliminates the requirement to publicize business registrations in local newspapers, allows business registration without a physical address, and reduces some other paperwork burdens associated with business registration. U.S. companies can obtain detailed information for the registration of their business in Ethiopia from an online investment guide to Ethiopia: (https://www.theiguides.org/public-docs/guides/ethiopia ). Though the government is taking positive steps to socially empower women (approximately half of cabinet members are women), there is no special treatment provided to women who wish to engage in business.

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

http://www.doingbusiness.org/data/exploreeconomies/ethiopia  http://www.doingbusiness.org/en/data/exploreeconomies/ethiopia#DB_sb 

http://www.doingbusiness.org/en/data/exploreeconomies/ethiopia#DB_sb 

Outward Investment

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

*National Bank of Ethiopia and Ethiopian Investment Commission

Data regarding inward direct investment are not available for Ethiopia via IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS) , the above data is from the Ethiopian Investment Commission. *The yearly average exchange rate is used for each year from 1992-2018 to convert the amount of FDI from domestic currency into U.S. dollars.

*The yearly average exchange rate is used for each year from 1992-2018 to convert the amount of FDI from domestic currency into U.S. dollars. *** Total Outward investment data are not available.

*** Total Outward investment data are not available.