Policies Towards Foreign Direct Investment

In November 2018, the GOE created a new one page government priority dashboard entitled “Ethiopia: A New Horizon of Hope.”  The dashboard, which predominantly focuses on the economy, pinpoints “Key Facts and Challenges” in areas such as “Financial Sector,” “Macro-Economic Management,” and “Export and Revenue Mobilization.”  The dashboard proposes push-to-grow manufacturing and emphasizes agriculture, information communication and technology, and tourism as pillars of a productive economy. The plan also sets concrete targets to raise credit available to the private sector by 20 percent per year and encourages increased private sector participation in several sectors, including power generation and logistics.  The government is currently undertaking changes in legislation and institutions to implement the economic reforms laid out in the dashboard. In addition, Ethiopia has started implementing a Public Private Partnership (PPP) proclamation, equivalent to a law, which would permit foreign investment and ownership of public infrastructure, with an initial focus on power generation and road construction.

Given the scale of investment required to achieve the goal of becoming a middle income economy by 2025 and the announcement of new economic reforms, the country needs significant inflows of FDI.  Tax incentives for investment in the high-priority sectors, such as manufacturing, agribusiness, textiles, sugar, chemicals, pharmaceuticals, minerals, and metal processing, underscore the government’s focus on FDI.

In June 2018, the GOE announced plans to partially privatize Ethiopian Airlines, EthioTelecom, Ethiopian Electric Power, and Ethiopian Shipping and Logistics Service Enterprise, and fully privatize railways, sugar projects, industrial parks and government-owned hotels.  The GOE has taken concrete measures to open up closed sectors, including drafting a bill to open the aviation sector, drafting legislation to create a new telecommunications regulator and allow foreign investment in that sector, allow minority stakes in joint-ventures by foreign logistics companies, allowing Ethiopian diaspora to hold shares in private Ethiopian banks, and commissioning a study to advise on how best to open up the financial sector.

While laws and regulations may change relatively quickly under the current dynamic reform period, under the existing code, foreign investment is prohibited in wholesale trade (excluding supply of petroleum and its by-products as well as wholesale trade by foreign investors of their locally-produced products), most import trade, export trade of raw coffee, khat, oilseeds, pulses, the export of live sheep, goats, and cattle not raised or fattened by the investor, construction companies (excluding those designated as grade 1), tanning of hides and skins up to crust level, hotels (excluding star-designated hotels), restaurants and bars (excluding international and specialized restaurants), trade auxiliary and ticket selling services, transport services, bakery products and pastries for the domestic market, grinding mills, hair salons, clothing workshops (except garment factories), building and vehicle maintenance, saw milling and timber production, museums, theaters and cinema hall operations, and printing industries.  As part of its ongoing economic reform efforts, the government is in the process of revising the investment code. Foreigners of Ethiopian origin can obtain a resident card from the Ministry of Foreign Affairs that allows them to invest in many sectors closed to other foreigners. While foreign firms cannot engage in joint ventures in closed sectors, they are allowed to supply goods and services to Ethiopian firms in these sectors.

The Ethiopian Investment Commission (EIC) has the mandate to promote and facilitate investments in Ethiopia and its services including: 1) to promote the country’s investment opportunities; 2) to issue investment permits, business licenses, and construction permits; 3) to issue commercial registration certificates and renewals; 4) to negotiate and sign bilateral investment agreements; and, 5) to issue work permits.  In addition, the EIC has the mandate to advise the government on policies to improve the investment climate. At the local level, regional investment agencies facilitate regional investment. Ethiopia’s rank on the 2019 World Bank Ease of Doing Business Index improved from 2018, moving from 161 to 159 out of 190 countries. Progress was primarily in the area of reducing barriers to starting a new business by removing competence certificate for certain businesses; reducing the time it takes to obtain planning consent for construction permits; and, establishing specialized benches to resolve commercial cases addressing contract enforcement.  The World Bank also identified areas where Ethiopia’s Ease of Doing Business worsened from 2018 relative to other ranked countries, including getting electricity, registering property, and resolving insolvency. In order to improve the investment climate, attract more FDI, and tackle unemployment challenges, a committee has been formed by the Prime Minister’s Office to systematically examine each indicator on the Doing Business Index, identify factors that inhibit businesses, and envision placing Ethiopia among the top 100 doing business ranking countries.

The American Chamber of Commerce (AmCham) works on voicing the concerns of the U.S. businesses in Ethiopia.  AmCham has provided a mechanism to compete with investors from India, China, the U.K, and the Netherlands, who meet regularly with government officials through their respective associations to discuss issues that hinder their operation in Ethiopia.  The Addis Ababa Chamber of Commerce also organizes a monthly business forum, which 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.  However, there are sectors (mentioned above) that are closed to foreign investors. There is no private ownership of land. 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 buy 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 four years, the EIC has undertaken an independent review of its investor services in an effort to streamline the investment process.  According to the EIC, the Commission has already implemented at least 28 services pertaining to licensing and registration, and duty-free importation of capital goods for investment in manufacturing.  The EIC has three Deputy Commissioners, with responsibilities for the following divisions: Investment Operations; Industrial Parks Regulation; and, Policy and Investment Climate Improvement.

Business Facilitation

The EIC has established a one-stop shop service to cut the time and cost of acquiring investment and business licenses.  If all requirements are met, it is now possible to obtain a business license in a single day, although this remains the exception rather than the rule.  According to the 2019 World Bank’s Ease of Doing Business Report, on average, it takes 32 days to start a business in Ethiopia. Meanwhile, the EIC has adopted a Customer or Account Manager system to build lasting relationships and provide post-investment assistance to investors.  U.S. investors report that the EIC often fails to meet its own stringent deadlines. The EIC readily admits that many bureaucratic barriers to investment remain, but hopes to eliminate many of these in the future.

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.  In March 2018, Ethiopia concluded an agreement 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 Asseb.

The Government of Ethiopia is working to improve business facilitation services by making the licensing and registration process easier and faster, by registering foreign Chambers and business associations in Ethiopia to advocate for their respective country businesses.  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 (half of the new cabinet are women), there is no special treatment provided to those who wish to engage in business.

Online business registration is not yet available, but the Ministry of Trade and Industry claims to have plans to migrate the paper-based registration process to a digital system at some unnamed time in the future.  In 2016, the government revised its commercial registration and business licensing legislation, which eliminated some cumbersome and duplicative requirements, such as the yearly renewal of business registrations and the 15,000 ETB (approximately USD 680) minimum capital requirements to set up limited liability companies.  In 2018 the government removed the need to obtain a certificate of competence for certain types of businesses, made the process of obtaining construction permits faster by reducing the time to obtain planning consent, and made enforcing contracts easier by establishing specialized benches to resolve commercial cases.

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

Outward Investment

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

Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA) and it has bilateral investment and protection agreements with Algeria, Austria, China, Denmark, Egypt, Germany, Finland, France, Iran, Israel, Italy, Kuwait, Libya, Malaysia, the Netherlands, Sudan, Sweden, Switzerland, Tunisia, Turkey and Yemen.  Other bilateral investment agreements have been signed but are not in force with Belgium/Luxemburg, Brazil, Equatorial Guinea, India, Morocco, Nigeria, South Africa, Spain, the United Kingdom, and the United Arab Emirates. Ethiopia signed a protection of investment and property acquisition agreement with Djibouti. A Treaty of Amity and Economic Relations, which entered into force in 1953, governs economic and consular relations with the United States.

Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 21 member countries.  The body has introduced a 10 percent tariff reduction on goods imported from member states. However, Ethiopia has not yet joined the COMESA free trade area.

In 2019 Ethiopia ratified the African Continental Free Trade Area (AfCFTA) Agreement, which aims to create a single continental market for goods and services, with free movement of business persons and investments, to pave the way for accelerating the establishment of the Continental Customs Union and the African customs union.  Ethiopia is the 21st country to sign the agreement, with just one more country needing to ratify to make AfCFTA operational.

There is no double taxation treaty between the United States and Ethiopia.  Ethiopia has such taxation treaties with fourteen countries, including Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel, South Africa, Sudan, and the United Kingdom.

Transparency of the Regulatory System

Ethiopia’s regulatory system is generally considered fair, though there are instances in which burdensome regulatory or licensing requirements have prevented the local sale of U.S. exports, particularly health-related products.  Investment decisions can involve multiple government ministries lengthening the registration and investment process.

The Constitution is the highest law of the country.  The Parliament enacts proclamations, which are followed by regulations that are passed by the Council of Ministers, and implementing directives that are passed by ministries or agencies.  The government engages the public for feedback before passage of draft legislation through public meetings, and regulatory agencies request comments on proposed regulations from stakeholders.  Ministries or regulatory agencies do neither impact assessment for proposed regulations nor ex-post reviews. Parties that are affected by an adopted regulation can request reconsideration or appeal to the relevant administrative agency or court.  But there is no requirement to periodically review regulations to see whether they are still needed or should be revised.

All proclamations and regulations in Ethiopia are published in official gazettes and most of them are available online http://www.hopr.gov.et/web/guest/122   and https://chilot.me/federal-laws/2/  

Legal matters related to the federal government are entertained by Federal Courts while state matters go to state courts.  To ensure consistency of legal interpretation and promote predictability of courts, the Federal Supreme Court Cassation Division is empowered to give binding legal interpretation on all federal and state matters.  Though there are no publicly listed companies in Ethiopia, all banks and insurance companies are obliged to adhere to International Financial Reporting Standards (IFRS).

Regulations related to human health and environmental pollution are often enforced.  In January 2019, the Federal and Oromia State Environment, Forest and Climate Changes Commissions shut down three tanneries in Oromia state for what was said to be repeated environmental pollution offenses.  The government also suspended the business license of MIDROC Gold Mine in May 2018 following weeks of protests by local communities who accused the company of causing health and environmental hazard in the Oromia regional state.  In February 2019, the Ethiopian parliament passed a bill entitled ‘Food and Medicine Administration Proclamation,’ which bans smoking in all indoor workplaces, public spaces, and means of public transport and prohibits alcohol promotion on broadcasting media.

Ethiopia is a member of UNCTAD’s international network of transparent investment procedures  .  Foreign and national investors can find detailed information from the investment commission website http://www.investethiopia.gov.et/investment-process   and https://www.theiguides.org/public-docs/guides/ethiopia   on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.

The government released its five year public finance administration strategic plan (2018-2022) in March 2018, mapping out reforms in government revenue and expenditure forecasting, government accounts management, internal audit, public procurement administration, public debt management, and public financial transparency and accountability.  In support of this initiative, the Ministry of Finance (MOF) issued a directive on Public Financial Transparency and Accountability in October 2018. The directive mandates that all public institutions report their budgetary performance and financial accounts in platforms that are accessible to the wider public in a timely manner. It also makes the MOF responsible for disseminating a regular and detailed physical and financial performance evaluation of large publically-funded projects.  The directive further outlines a clear timeline for the publication of each major piece of budgetary information, such as the pre-budget macroeconomic and fiscal framework, the enacted budget, quarterly execution reports, annual execution reports, and the annual audit report.

International Regulatory Considerations

Ethiopia ratified the AfCFTA on March 21, 2019.  ACFTA aims to create a single, continental market for goods and services, with free movement of business persons and investments.  Ethiopia is also a member of Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 21 member countries and has introduced a 10 percent tariff reduction on goods imported from member states.  However, Ethiopia has not yet joined the COMESA free trade area. Ethiopia resumed the WTO accession process in 2018, which began in 2003, with the goal of acceding in 2020.

Ethiopian standards, however, have a national scope and applicability and some of them, particularly those related to human health and environmental protection, are mandatory.  The Ethiopian Standards Agency is the national standards body of Ethiopia.

Legal System and Judicial Independence

Ethiopia has codified criminal and civil laws, including commercial and contractual law.  According to the contractual law, a contract agreement is binding between contracting parties.  Disputes between the parties can be taken to the court. There are, however, no specialized courts for commercial law cases, although there are specialized benches both at the federal and state courts.

While there have been allegations of executive branch interference in judiciary cases with political implications, there is no evidence of interference in purely commercial disputes.  The country has a procedural code for civil and criminal court but the practice is minimal. Enforcement actions are appealable and there are at least three appeal processes from the lower courts to the Supreme Court.  The Criminal Procedure Code follows the inquisitorial system of adjudication.

Companies that operate businesses in Ethiopia assert that courts lack adequate experience and staffing, particularly with respect to commercial disputes.  While property and contractual rights are recognized, judges often lack understanding of commercial matters, including bankruptcy and contractual disputes.  In addition, cases often face extended scheduling delays. Contract enforcement remains weak, though Ethiopian courts will at times reject spurious litigation aimed at contesting legitimate tenders.

Ethiopia is in the process of reforming the Commercial Code to bring it in line with international best practices.  The draft legislation appears to address many concerns raised by the business community, including the creation of a commercial court under the regular court system to improve the expertise of judges as well as increase the speed with which commercial disputes can be resolved.

Laws and Regulations on Foreign Direct Investment

The Investment Proclamation and Regulation of 2012 (later amended in 2014), is Ethiopia’s main legal regime related to foreign direct investment (FDI).  These laws instituted the opening of economic sectors to FDI, the requirements for FDI registration, and the investment incentives that are available to investors.

The following industrial sectors have been designated investment priorities: textiles and garments, leather and leather products, sugar and sugar-related products, cement, metals and engineering, chemicals, pharmaceuticals, renewable energy, and agro-processing.  Investments in those areas receive tax and duty incentives as established in Proclamation 769/2012  .

The 2014 amendment to the Investment Proclamation authorizes the EIC to adjudicate appeals submitted by foreign and domestic investors.  The EIC Investment Board is empowered to authorize the granting of new or additional incentives other than those outlined under the regulations and to authorize foreign investment in areas otherwise exclusively reserved for domestic investors, if the exception is in the national interest.  The EIC’s website  (http://www.investethiopia.gov.et/  ) outlines the government’s policy and priorities, registration processes, and provides regulatory details for investors.  In addition, the Ethiopian Investment Guide website (https://www.theiguides.org/public-docs/guides/ethiopia  ) provides relevant laws, rules, procedures, and reporting requirements for investors.

The revised Commercial Registration and Business Licensing Proclamation eliminated some cumbersome and duplicative requirements, including the yearly renewal of business registrations and the minimum capital requirements to set up limited liability companies, and requires a competency certificate in sectors such as health, security and environment.  The Proclamation allows registration of franchises and holding companies.

Competition and Anti-Trust Laws

Ethiopia’s Trade Practice and Consumers Protection Authority (TPCPA), operating under the Ministry of Trade and Industry, is tasked with promoting a competitive business environment by regulating anti-competitive, unethical, and unfair trade practices to enhance economic efficiency and social welfare.  It has an administrative tribunal with a jurisdiction on matters pertaining to market competition and consumer protection. The authority also annually entertains many cases associated with consumer protection and unfair trade practices.

There are no restrictions for foreign companies or foreign-owned subsidiaries in the areas open to foreign investments.  The EIC reviews investment transactions for compliance with FDI requirements and restrictions as outlined by the Investment Proclamation and its amendments. Nonetheless, companies have complained that SOEs receive favorable treatment in the government tender process.  The public sector’s heavy involvement in economic development means that SOEs often obtain a sizeable portion of open tenders.

Expropriation and Compensation

Per the 2012 Investment Proclamation, no investment by a domestic or foreign investor or enterprise can be expropriated or nationalized, wholly or partially, except when required by public interest in compliance with the law and with payment of adequate compensation.  Such investments may not be seized, impounded, or disposed of except under a court order.

The former Derg military regime nationalized many properties in the 1970s.  The current government’s position is that property seized lawfully by the Derg (by court order or government proclamation published in the official gazette) remain the property of the state.  In most cases, property seized by oral order or other informal means is gradually being returned to the rightful owners or their heirs through a lengthy bureaucratic process. Claimants are required to pay for improvements made by the government during the time it controlled the property.  Public Enterprises, Assets, and Administration stopped accepting requests from owners for return of expropriated properties in July of 2008.

According to local and foreign businesses operating in the Oromia region, there have been a number of isolated incidents threatening investors in the region.  Various pretexts have been used to close down legitimate operations. False charges have been filed with regional courts, property has been confiscated, and bank accounts have been frozen, all in the name of “returning the land” to the “rightful owners” or “creating job opportunities” for the youth.  Regional officials, however, deny any systematic attack on investors and have repeatedly provided assurance that all legitimate investors will be protected. Meanwhile, other investors who have invested heavily in government and community relations and actively engaged local and regional officials have prospered.  The experience of investors is overall uneven and clear trends are not evident.

Dispute Settlement

ICSID Convention and New York Convention

Since 1965, Ethiopia has been a non-signatory member state to the International Centre for Settlement of Disputes (ICSID) Convention, but has not ratified the convention on The Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

The constitution as well as the investment law guarantees the right of any investor to lodge complaints related to his/her investment with the appropriate investment agency.  If he/she has a grievance against the decision, he/she can appeal to the investment board or to the respective regional agency as appropriate. While disputes can be resolved by international arbitration if both parties agree, enforcement of an arbitration decision is contingent on the Ethiopian court system.  However, if a dispute arises between foreign investors and the state, it will be settled based on the relevant bilateral investment treaty.

Due to an overloaded court system, dispute resolution can last for years.  According to the 2019 World Bank’s Ease of Doing Business report, it takes on average 530 days to enforce contracts through the courts.

International Commercial Arbitration and Foreign Courts

Arbitration has become a widely used means of dispute settlement among the business community as Ethiopian civil code recognizes Alternative Dispute Resolution (ADR) mechanisms as means of dispute resolution.  The Addis Ababa Chamber of Commerce has an Arbitration Center to assist with arbitration. However, there is no guarantee that the award of an international arbitral tribunal will be accepted and implemented by Ethiopian authorities.  Ethiopia is not a party to the Convention on the Recognition and Enforcement of Arbitral Awards, which creates uncertainty for potential investors and serves as disincentive to invest. There are no publicly available statistics that indicate courts’ decision bias towards state-owned enterprises (SOEs) on investment/commercial disputes that involve them.

Bankruptcy Regulations

The Ethiopian Commercial Code (Book V) outlines bankruptcy provisions and proceedings and   establishes a court system that has jurisdiction over bankruptcy proceedings. The primary purpose of the law is to protect creditors, equity shareholders, and other contractors.  Bankruptcy is not criminalized. In practice, there is limited application of bankruptcy procedures due to lack of knowledge on the part of the private sector.

According to the 2019 World Bank Doing Business Report, Ethiopia stands at 148 in the ranking of 190 economies with respect to resolving insolvency.  Ethiopia’s score on the strength of insolvency framework index is 5.0. (Note: The index ranges from zero to 16, with higher values indicating insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones.)

Investment Incentives

The Investment Regulation 270/2012 and the 2014 amendment outline incentives for investors.  New investors in manufacturing, agro-processing, and selected agricultural products are entitled to income tax exemption ranging from two to five years depending on the location of the investment.  Any investor who produces for export or supplies to an exporter, or who exports at least 60 percent of his products or services, is entitled to an additional two years of income tax exemption.

An investor who establishes a new enterprise in less prosperous areas shall be entitled to an income tax deduction of 30 percent for three consecutive years after the expiry of the regular income tax exemption period.  These areas include Gambella, Benshangul/Gumuz, Afar (except in areas within 15 kilometers from each bank of the Awash River), Somali, Guji, Borena Zones of Oromia, South Omo Zone, Segen, Bench Maji Zone, Sheka Zone, Dawro Zone, Kaffa Zone, Konta, and Basketo Special Woredas of the Southern Nations, Nationalities and Peoples Region.

Ethiopian investment laws provide protection and guarantees to local and foreign investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Industrial Park Proclamation 886/2015 mandates Ethiopian Industrial Parks Corporation to develop and administer industrial parks owned by government.  The law designates industrial parks as duty-free zones, and domestic as well as foreign operators in the parks are exempt from income tax for up to 10 years.  Investors operating in parks are also exempt from duties and other taxes on the import of capital goods, construction materials, and raw materials for production of export commodities and vehicles.

An investor who operates in a designated Industrial Development Zone in or near Addis Ababa is entitled to two years of income tax exemptions, and four more years income tax exemption if the investment is made in an industrial park in other areas, provided 80 percent or more of production is for export or constitutes input for an exporter.

Industrial Parks can be developed by either government or private developers.  In practice, the majority have been developed by the Ethiopian government with Chinese financing.  The government has announced plans to construct a total of 17 industrial parks in various locations around the country.  As of April 2019, operational industrial parks include Hawassa Industrial Park, Bole Lemi-I, East Industrial Park, George Shoe Park, Meleke Industrial Park,  Kombolcha Industrial Park, Adama Industrial Park and Debreberhan Industrial Park.

Performance and Data Localization Requirements

Ethiopia does not formally impose performance requirements on foreign investors, though investors in Ethiopia routinely encounter business visa delays and onerous paperwork requirements.  In addition, investors are required to allocate a minimum capital of USD 200,000 per project. For joint investments with a domestic partner, the investment requirement is lowered to USD 150,000.

There are no forced localization or data storage requirements for private investors.  Local content in terms of hiring, products, and services is strongly encouraged but not required.  The Department for Immigration and Nationality Affairs issues residence permits for those with investment permits.  The government also provides multiple entry five year visas for investors in industrial parks. An investor can employ qualified expatriate experts necessary to operations, but is responsible for replacing them by local experts within a limited period.  Top management positions are exempted from this requirement and ex-patriates can fill these positions indefinitely. Although not a legal requirement, in joint ventures with state-owned enterprises investors report informal requirements of up to 30 percent domestic content in goods and/or technology.

EthioTelecom is the sole telecommunications service provider in Ethiopia. In 2018, the government announced plans to liberalize the sector and open the market to foreign service providers.  In February of 2019, the Council of Ministers approved a bill to establish a regulatory agency for communication services that would adequately regulate the telecommunications sector and open it to foreign investment; the bill is awaiting approval by the Parliament.  Proclamation No. 808/2013 mandates the Information Network Security Agency (INSA) to control the import and export of information technology, to build an information technology testing and evaluation laboratory center, and to regulate cryptographic products and their transactions.

Real Property

The constitution recognizes and protects ownership of private property.  However, all land in Ethiopia belongs to “the people” and is administered by the government.  Private ownership does not exist, but land-use rights have been registered in most populated areas.  As land is public property, it cannot be mortgaged. Confusion with respect to the registration of urban land-use rights, particularly in Addis Ababa, is common.  Allegations of corruption in the allocation of urban-land to private investors by government agencies are a major source of popular discontent. The government retains the right to expropriate land for the common good, which it defines as including expropriation for commercial farms, industrial zones, and infrastructure development.  While the government claims to allocate only sparsely settled or empty land to investors, some people have been resettled. In particular, traditional grazing land has often been defined as empty and expropriated, leading to resentment, protests and, in some cases, conflict. In addition, leasehold regulations vary in form and practice by region.  Successful investors in Ethiopia conduct thorough due diligence on land titles at both state and federal levels, and conduct consultations with local communities regarding the proposed use of the land before investing.

We encourage potential investors to ensure their needs are communicated clearly to the host government.  It is important for investors to understand who had land-use rights preceding them, and to research the attitude of local communities to an investor’s use of that land, particularly in region of Oromia, where conflict between international investors and local communities has occurred.

The 2019 World Bank Doing Business Report has ranked Ethiopia 144 out of 190 economies in registering property, as it take on average 52 days to register property.

Intellectual Property Rights

The Ethiopian Intellectual Property Office (EIPO) oversees intellectual property rights (IPR) issues.  Ethiopia is not yet a signatory to a number of major IPR treaties, such as the Paris Convention for the Protection of Industrial Property, the World Intellectual Property Organization (WIPO) Copyright Treaty, the Berne Convention for Literary and Artistic Works, the Madrid System for the International Registration of Marks, or the Patent Cooperation Treaty.  The government expressed its intention to accede to the Berne Convention, the Paris Convention, the Marrakesh Protocol, and the Madrid Protocol. To meet this objective, EIPO is drafting a ratification proclamation. EIPO has been tasked primarily to protect Ethiopian patents and copyrights and to fight pirated software. Generally, EIPO is weak in terms of staff and budget, and it does not have law enforcement authority.  Abuse of U.S. trademarks is rampant, particularly in the hospitality and retail sectors. The government does not publicly track counterfeit goods seizures, and no estimates are available. Ethiopia is not included in the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.

EIPO contact and office information is available at http://www.eipo.gov.et/  

For additional information about treaty obligations and points of contact at IP offices, please see WIPO’s country profiles   from this page

http://www.wipo.int/directory/en/details.jsp?country_code=ET  

Embassy POC: Economic Officer, Helena Schrader, USEmbassyPolEconExternal@state.gov

Capital Markets and Portfolio Investment

Credit is tight and banks often require 100 percent collateral, making access to credit one of the greatest hindrances on the Ethiopian economy writ large.  A 2011 measure requiring non-government banks to invest the equivalent of 27 percent of their loan disbursement portfolio in National Bank of Ethiopia (NBE) bonds has exacerbated liquidity shortages.

Ethiopia does not have securities markets, and sales/purchases of debt are heavily regulated.  The government is drafting legislation to regulate the over-the-counter market for private share companies.  In March 2019, Moody’s reaffirmed Ethiopia’s credit worthiness at ‘B1 stable,’ while S&P and Fitch maintained their original rating of ‘B.’  According to Moody’s, Ethiopia’s credit profile reflects its very high levels of economic growth; strong investment in infrastructure, energy, and manufacturing; and, low debt-servicing costs set against challenges that include external vulnerability risks and internal stability problems.  Moody’s expects Ethiopia’s economy to grow by approximately 8 percent over the next few years. It puts external vulnerability, geopolitical risk, continued social unrest, and the vulnerability of its relatively small economy to weather cycles and volatility in coffee and gold prices as the key credit challenges going forward.  Conversely, successful export diversification, the smooth and timely completion of infrastructure programs, improved business conditions, a structural reduction of external vulnerabilities leading to a steady accumulation of foreign exchange reserves, and a cessation of domestic and regional geopolitical tensions would all improve Ethiopia’s credit profile.

The Ethiopian government has announced, as part of the overall economic reform effort, its intention to liberalize the financial sector, to include introducing capital markets, opening the banking sector to foreign companies, expanding credit available to the private sector, enabling a system of e-commerce, and expanding the monetary policy tools available to the NBE.  While most outside observers believe that PM Abiy Ahmed and other key economic officials are sincere in their intentions, entrenched interests, low capacity, and financial constraints will likely delay the full implementation of these goals.

The government offers a limited number of 28-day, 3-month, and 6-month Treasury bills, but prohibits the interest rate from exceeding the bank deposit rate.  The government began to offer a one-year Treasury bill in 2011, with yields currently below 3 percent. This market remains unattractive to the private sector and 100 percent of the T-bills are held by public enterprises, primarily the Public Social Security Agency and the Development Bank of Ethiopia.  The NBE plans to introduce a market for government securities, corporate bonds, and a stock market.

In December 2014, Ethiopia issued its first eurobond, raising USD 1 billion at a rate of 6.625 percent.  The 10-year bond was oversubscribed, indicating continued market interest in high-growth sub-Saharan African markets.  According to the Ministry of Finance, the bond proceeds are being used to finance industrial parks, the sugar industry, and power transmission infrastructure.  Due to an increasing external debt load, the Ethiopian government has committed to refrain from non-concessional financing for new projects and to shift ongoing projects to concessional financing when possible.

The Ethiopian Commodity Exchange (ECX), launched in 2008, trades commodities such as coffee, sesame seeds, maize, wheat, mung beans, chickpeas, soybeans, and green beans.  The government launched ECX to increase transparency in commodity pricing, alleviate food shortages, and encourage the commercialization of agriculture. Critics allege that ECX policies and pricing structures are inefficient compared to direct sales at prevailing market rates, triggering an amendment to the ECX law in July 2017, which eliminated a number of criticized regulations, and permitted the trading of financial instruments at a future date.  This amendment paves the way for securities markets in the future using the framework of the commodities exchange.

Money and Banking System

Ethiopia has seventeen commercial banks, two of which are state-owned banks, and fifteen of which are privately owned banks.  The Development Bank of Ethiopia, a state-owned bank, provides loans to investors in priority sectors. In September 2011, the NBE raised the minimum paid-up capital required to establish a new bank from ETB 75 million to 500 million, which effectively stopped the entry of most new banks.  Foreign banks are not permitted to provide financial services in Ethiopia; however, since April 2007, Ethiopia has allowed some foreign banks to open liaison offices in Addis Ababa to facilitate credit to companies from their countries of origins. Chinese, German, Kenyan, Turkish, and South African banks have opened liaison offices in Ethiopia, but the market remains completely closed to foreign retail banks.

Based on recently made available data, the state-owned Commercial Bank of Ethiopia mobilizes more than 60 percent of total bank deposits, bank loans, and foreign exchange.  The NBE controls the bank’s minimum deposit rate, which now stands at 7 percent, while loan interest rates are allowed to float. Real deposit interest rates have been negative in recent years, mainly due to inflation.

Foreign Exchange and Remittances

Foreign Exchange

All foreign currency transactions must be approved by the NBE.  Ethiopia’s national currency (the Ethiopian birr) is not freely convertible.  In September 2018, the GOE removed the limit on holding foreign currency accounts faced by non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin.

Foreign exchange reserves were heavily depleted in 2012 and have remained at critically low levels since then.  By June 2018, gross reserves were USD 2.2 billion, covering approximately 1.6 months of imports. According to the IMF, heavy government infrastructure investment, along with debt servicing and a large trade imbalance, have all fueled the intense demand for foreign exchange.  In addition, the decrease in foreign exchange reserves has been exacerbated by weaker-than-expected earnings from coffee exports and low international commodity prices for other important exports such as gold and oil seeds. Businesses encounter delays of six months to two years in obtaining foreign exchange, and they must deposit the full equivalent in birr in their account to begin the process to obtain foreign exchange.  The foreign exchange crunch has intensified recently, with delays of more than a year reported. Slowdowns in manufacturing due to foreign exchange shortages are common, and high-profile local businesses have closed their doors altogether due to the inability to import required goods in a timely fashion.

Although government policy gives the repatriation of profits “priority,” in reality, due to the foreign exchange shortage, companies have experienced delays of up to two years in the repatriation of larger volumes of profits.  Local sourcing of inputs and partnering with export-oriented partners are strategies employed by the private sector to address the foreign exchange shortage, but access to foreign exchange remains a problem that limits growth, interferes with maintenance and spare parts replacement, and inhibits imports of adequate raw materials.

The foreign exchange shortage distorts the economy in a number of other ways: it fuels the contraband trade through Somaliland because birr is an unofficial currency there and can be used for the purchase of products from around the world.  Exporters, who have priority access to foreign exchange, sell their allocations to importers at inflated rates, creating a black-market for dollars that is roughly 33 percent over the official rate. Other exporters use their foreign exchange earnings to import consumer goods with high margins rather than re-investing profits in their core business.  Meanwhile, the lack of access to foreign exchange impacts the ability of American citizens living in Ethiopia to pay their taxes, or for students to pay school fees abroad.

According to data from NBE, the birr depreciated approximately 98 percent against the U.S. dollar between August 2010 and February 2018, primarily through a series of controlled steps, including a 20 percent devaluation in September 2010 and a 15 percent devaluation in October 2017.  As of March 2019, the official exchange rate was approximately 28.40 birr per dollar. The illegal parallel market exchange rate for the same time was approximately 36 per dollar with spikes up to 38 birr per dollar.

Following the 15 percent devaluation of the Ethiopian birr, the NBE increased the minimum saving interest rate from four percent to seven percent, and limited the outstanding loan growth rate in commercial banks to 16.5 percent, which limits their loan provision for businesses other than export and manufacturing sectors.  Moreover, banks were instructed to transfer 30 percent of their foreign exchange earnings to the account of NBE so the regulator can use the foreign exchange to meet the strategic needs of the country, including payments to procure petroleum and sugar, as well as to cover transportation costs of imported items.

Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding ETB 200,000 (roughly equivalent to U.S. reporting requirements for currency transfers exceeding USD 10,000).  Ethiopia citizens are not allowed to hold or open an account in foreign exchange. Ethiopian residents entering the country from abroad should declare their foreign currency in excess of USD 1,000 and non-residents in excess of USD 3,000. Residents are not allowed to hold foreign currency for more than 30 days after acquisition.  A maximum of ETB 1000 in cash can be carried out of the country.

Remittance Policies

Ethiopia’s Investment Proclamation allows all registered foreign investors, whether or not they receive incentives, to remit profits and dividends, principal and interest on foreign loans, and fees related to technology transfer.  Foreign investors may remit proceeds from the sale or liquidation of assets, from the transfer of shares or of partial ownership of an enterprise, and funds required for debt servicing or other international payments. The right of expatriate employees to remit their salaries is granted by NBE foreign exchange regulations.

Sovereign Wealth Funds

Ethiopia has no sovereign wealth funds.

State-owned enterprises (SOEs) dominate major sectors of the economy.  There is a state monopoly or state dominance in telecommunications, power, banking, insurance, air transport, shipping, railway, industrial parks, petroleum importing, and sugar sectors.   State-owned enterprises have considerable advantages over private firms including priority access to credit and customs clearances. While there are no conclusive reports of credit preference for these entities, there are indications that they receive incentives, such as priority foreign exchange allocation, preferences in government tenders, and marketing assistance.  Ethiopia does not publish financial data for most state-owned enterprises, but Ethiopian Airlines and the Commercial Bank of Ethiopia have transparent accounts.

Ethiopia is not a member to the Organisation for Economic Co-operation and Development (OECD) and does not adhere to the guidelines on corporate governance of SOEs.  Corporate governance of SOEs is structured and monitored by a board of directors composed of senior government officials and politically-affiliated individuals, but there is a lack of transparency in the structure of SOEs.

Privatization Program

In July 2018 the government announced the intention to privatize a minority share of Ethiopian Airlines, EthioTelecom, Ethiopian Shipping and Logistics Service Enterprise, and power generation projects, and to fully privatize sugar projects, railways, and industrial parks.  The privatization program will be implemented through public tenders and will be open to local and foreign investors. The background work for the privatization in several sectors is underway, including asset valuation of the enterprises, standardization of the financial reports, and establishment of modernized legal and regulatory frameworks.

The government has sold more than 370 public enterprises since 1995, mainly small companies in the trade and service sectors, which were largely nationalized by the Derg military regime in the 1970s.  Currently, twenty two SOEs are under the Public Enterprise, Assets, and Administration Agency.

Some larger international companies in Ethiopia have introduced corporate social responsibility (CSR) programs; however, most Ethiopian companies do not officially practice CSR, although individual entrepreneurs engage in charity, sometimes on a large scale.  There are efforts to develop CSR programs by the Ministry of Industry in collaboration with the World Bank, U.S. Agency for International Development, and other institutions.

The government encourages CSR programs for both local and foreign direct investors but does not maintain specific guidelines for these programs, which are inconsistently applied and not controlled or monitored.  In early 2015, the Ethiopian Chamber of Commerce & Sectorial Associations published a ‘Model Code of Ethics for Ethiopian Businesses’ that was endorsed by former Ethiopian President Mulatu Teshome as a model for the business community.

Ethiopia was admitted as a candidate-member to the Extractive Industry Transparency Initiative (EITI) in 2014, but has not embraced the need for independent, non-governmental organizations and civil society to be engaged in the process.  As a result, full-membership during the next scheduled review in 2019 remains uncertain. Per the Commercial Code, extractive industries and other businesses are expected to conduct statuary audits of their financial statements at the end of each financial year, though the financial statements are not available to the public, only to financial institutions and share companies.

The Federal Ethics and Anti-Corruption Commission (FEACC) is charged with preventing corruption and is accountable to the Office of the Prime Minister.  The Commission is mandated to provide ethics training and education to prevent corruption.  The investigation and prosecution of corruption crimes are the mandates of the Federal Police Commission and the Federal Attorney General, respectively.

The Federal Police are mandated to investigate corruption crimes committed by public officials as well as “Public Organizations.”  The latter are defined as any organs in the private sector that administer money, property, or any other resources for public purposes.  Examples of such organizations include share companies, real estate agencies, banks, insurance companies, cooperatives, labor unions, professional associations, and others.

Transparency International’s 2018 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 34 (the score indicates the perceived level of public sector corruption on a scale of zero to 100, with the former indicating highly corrupt and the latter indicating very clean).  Its comparative rank in 2018 was 114 out of 180 countries, compared to 107 out of 180 countries in 2017.

In December, the American Chamber of Commerce in Ethiopia polled its members and asked what the leading business climate challenges were.  Transparency and governance ranked as the 4th leading business climate challenge, ahead of licensing and registration and public procurement.

Ethiopian and foreign businesses routinely encounter corruption in tax collection, customs clearance, and land administration.  Many past procurement deals for major government contracts, especially in the power generation, telecommunications, and construction sectors were widely viewed as corrupt.

PM Abiy Ahmed has launched a corruption clean-up that has resulted in several hundred arrests.  In connection with the embezzlement schemes involving hundreds of millions of U.S. dollars, particularly with government procurement irregularities, the government arrested and charged in September 2018 over 40 mid- and senior-level Metal Engineering Technology Corporation (METEC) officials.  In addition, the PM transferred the management of large government projects from METEC (which is widely viewed by the public as corrupt) to other government organizations. Similarly, in April 2019, the government arrested 59 officials and business people suspected of corruption. The officials are primarily from the following government institutions: Public Procurement & Property Disposal Service, Food & Drug Administration Agency, Pharmaceuticals Fund & Supply Agency, and the Ethiopian Water Works Construction Enterprise.

Ethiopia is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  Ethiopia is a signatory to the African Union Convention on Preventing and Combating Corruption. Ethiopia is also member of the East African Association of Anti-Corruption Authorities.  In 2003, Ethiopia signed the UN Anticorruption Convention that was ratified in November 2007.  It is a criminal offense to give or receive bribes, and bribes are not tax deductible.

Resources to Report Corruption

Contacts at government agency or agencies are responsible for combating corruption:

Federal Police Commission
Addis Ababa
+251 11 861-9595

Contact at “watchdog” organization:

Transparency Ethiopia
Addis Ababa
+251 11 827-9746
Email: TiratEthiopia@gmail.com

Ethnic conflict —often sparked by historical grievances or resource competition, including land disputes— has resulted in varying levels of violence that have internally displaced as many as two million people nationwide.  Communal conflict between Oromos and Somalis has persisted along their shared border.  Remnants of the Oromo Liberation Front, an opposition movement, have battled ethnic neighbors, regional security forces, and the military.  In the south, conflict between communities in the Guji and Gedeo zones has been particularly violent and intractable.  Disputed territory in the north between the Amhara and Tigray regions is a continuing flash point.  Recent violence between Oromos and Amharas has occurred along a main road from Addis Ababa to the north.

Under PM Abiy’s administration, political space in Ethiopia has opened dramatically.  Constitutional rights, including freedoms of assembly and expression, are broadly respected.  Political prisoners have been released. Opposition parties have been allowed to form or return to the country, and they operate freely. Independent media is re-establishing itself, and laws are being revised to facilitate the rebuilding of civil society.  Nationwide elections are scheduled for May of 2020.  The electoral and pre-electoral period could represent a potential catalyst for unrest.

PM Abiy has also initiated a process of modernization, de-politicization, professionalization, and civilian accountability in his security services.  The past year provides numerous examples where security forces have allowed demonstrators space to operate peacefully.  In some instances, though, security forces have failed to stop ethnic violence in a timely fashion.  Though foreigners are rarely, if ever, specifically targeted, spillover ethnic violence has occasionally resulted in the deaths of foreign employees.

The new administration has also increased regional autonomy.  Successful American investors tell us that understanding the different business climates across the regions—there are different regional taxation regimes, unique ethnic conflicts, varying levels of reception towards profit-making companies, and contrasting approaches to policing and security issues—is key to successfully investing in Ethiopia.

More than 80 percent of Ethiopia’s 100 million people work in agriculture.  The second-most important employer is the government. If the population continues to grow at the current rate of 2.5 percent, Ethiopia will have more than 138 million people by 2030, only 27 percent of whom will live in urban areas.  Ethiopia’s youth, between the ages of 15 and 29, account for 30 percent of the population; 70 million Ethiopians are under the age of 30. The youth unemployment rate in urban settings is over 25 percent (CSA, 2018). The gender gap in employment is high; the unemployment rate among young women in urban areas is over 30 percent, compared with 19 percent for young men.  Young women are three times more likely to be neither in employment, education, or training (NEET). According to International Labor Organization (ILO) statistics, Ethiopia’s youth NEET accounts for 10.5 percent of the youth population (5.7 percent for men, 15.1 percent for women).

Although labor remains readily available and inexpensive in Ethiopia, skilled manpower is scarce.  Approximately 50 percent of Ethiopians over the age of 15 are illiterate according to UNESCO’s definition.  Primary school enrollment rate (age 7 to 14), on the other hand, has now reached 94 percent. To increase the skilled labor force, the GOE has undertaken a rapid expansion of the university system in the last 20 years, increasing the number of higher public education institutions from three to 49.  It has adopted an education policy that requires 70 percent of public university students to study science, engineering, or technology subjects, but many students are not well-prepared by secondary school to study in those fields.

Ethiopia has ratified all eight core International Labor Organization (ILO) conventions.  The Ethiopian Criminal Code outlaws work specified as hazardous by ILO conventions. There is no national minimum wage, and public sector employees – the largest group of wage earners – earned a monthly minimum wage of ETB 420 (approximately USD 19).

Labor unions and confederations are separate entities from the government, and are subject to a great deal of regulation and direct pressure/involvement from the government.  The Confederation of Ethiopian Trade Unions (CETU) comprises well over two hundred thousand members in enterprise-based unions in a variety of sectors, but there is no formal requirement for unions to join the CETU.  Much of the labor force remains in small scale agriculture/industry and thus is not covered by enterprise unions. The Ministry of Labor and Social Affairs’ Directorate of Harmonious Industrial Relations provides labor dispute resolution services, although the caseload and the directorate’s capacity are low.

The Constitution and other laws provide workers, except for civil servants and certain categories of workers primarily in the public sector, with the right to form and join unions, conduct legal strikes, and bargain collectively.  Other laws and regulations that explicitly or potentially infringe upon workers’ rights to associate freely and to organize include: the Civil Society and Organizations (CSO) law; Council of Ministers Regulation No. 168/2009 on Charities and Societies to reinforce the CSO law; and, Proclamation No. 652/2009 on Antiterrorism.  Parliament recently approved a revised CSO law and the antiterrorism law is in the revision process. Such laws and detailed requirements make legal strike actions difficult to carry out. In practice, labor strikes are rare, but there has been an uptick in the last year. Employers offering contracted employment are required to provide severance pay.  The vast majority of employees that work in small scale agriculture and textiles, however, do so without a contract. Large labor surpluses and lax labor law enforcement allow employers to retain employees without contracts that ensure strong worker protections.

The GOE drafted revisions to the Labor Code that will bring Ethiopian labor law into better conformity with international labor standards.  The draft law is currently before the Council of Ministers; once approved, it will proceed to the Parliament for approval. The Ministry of Labor and Social Affairs (MOLSA) claimed that the draft legislation includes language to form a tripartite council to set a national minimum wage and that the ILO has conducted a wage study to help inform the council’s decision.  It is unclear what, if any, language is included to address gaps related to the right to organize, bargain collectively, and associate freely.

Although the government actively engages with the international community to combat child labor and human trafficking, which includes forced/coerced labor, both remain widespread in Ethiopia.  The Ethiopian Parliament ratified ILO Convention 182 on the Worst Forms of Child Labor in May 2003. While not a pressing issue in the formal economy, child labor is common in the informal sector, including construction, agriculture, textiles, manufacturing, mining, and domestic work.  Child labor is present in both urban and rural areas. According to the ILO International Program for the Elimination of Child Labor, more than 50 percent of Ethiopia’s child laborers work in the agriculture sector. Ethiopian traditional woven textiles are included on the U.S. government’s Executive Order 13126 list of goods that have been known to be produced by forced or indentured child labor.  Both NGO and Ethiopian government sources concluded that goods produced (in the agricultural sector and traditional weaving industry in particular) via child labor are largely intended for domestic consumption, and not slated for export. Employers are prohibited from hiring children under the age of 14, and for certain types of hazardous work the minimum age is 18. Ethiopia has a National Action Plan (NAP) for the Elimination of the Worst Forms of Child Labor, which it is currently updating.  The Ministry of Labor and Social Affairs conducts tens of thousands of targeted inspections on occupation safety and standards, although they are not legally empowered to assess fines for infractions and they do not make this data publically available. Due to the shortage of labor inspectors and other enforcement resources, and the fact that inspectors do not inspect informal work sites, most child labor goes unreported.

In 2015, the Ethiopian Parliament ratified an overhaul to its Anti-Human Trafficking and Smuggling criminal code (covered in the 2016 Trafficking in Persons report published by the Department of State).  The government also passed an Overseas Labor Proclamation that legalizes and regulates the employment of Ethiopians in foreign countries. The Government of Ethiopia lifted the ban of overseas employment of domestic workers in the Gulf States in January 2018.  In 2018 preparations were underway to register employment agencies, develop pre-departure materials and centers, identify government and private vocational enters, and provide skills training for domestic workers. A year later, it is still unclear that lifting the ban will decrease the flow of irregular migration due largely to the lengthy and costly process required for regular migration.  Over the past few years, the government has become much more engaged in combatting trafficking in persons, and the number of arrests and prosecutions of traffickers has increased.

The Overseas Private Investment Corporation (OPIC) has offered risk insurance and loans to U.S. investors in Ethiopia in the past, but is not currently present in Ethiopia.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*National Bank of Ethiopia and Ethiopian Investment Commission

Table 3: Sources and Destination of FDI

Data regarding inward direct investment are not available for Ethiopia via IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS  ) so we have used data from Ethiopian investment Commission.

*The yearly average exchange rate is used for each year from 1992-2017 to convert the amount of FDI from domestic currency into USD.
** EU includes Netherlands, France, Ireland, Germany and UK.
*** Total Outward investment data are not available.

Table 4: Sources of Portfolio Investment

Data regarding the equity/debt breakdown of portfolio investment assets are not available for Ethiopia via the IMF’s Coordinated Portfolio Investment Survey (CPIS) and are not available for external publication from the Government of Ethiopia.

U.S. Embassy main number is +251 011 130 6000.

Economic Officer, USEmbassyPolEconExternal@state.gov

Policies Towards Foreign Direct Investment

As of April 2019, the government was actively seeking foreign direct investment, but had not undertaken meaningful steps to facilitate it.  Reported unfair practices have included effective expropriation of assets, inconsistent taxation policies, harassment by security services, extortion attempts, and a general perception that foreigners are not afforded fair results in court proceedings or labor disputes.

The country makes few investment facilitation efforts. The South Sudan Investment Authority (SSIA) has been established as has, in theory, a One Stop Shop Investment Center.  However, both organizations are poorly resourced and neither maintains an active web site. There is no business registration website. The ministries that handle company registration include the Ministry of Trade and Industry, Ministry of Finance, and Ministry of Justice. There is no single window registration process, and an investor must visit all the above mentioned agencies to complete the registration of a company.  It is estimated that the registration process could take several months.

In January 2018, South Sudan joined the African Trade and Insurance Agency (ATI), which provides export insurance and other assistance to foreign investors and traders.  Several local lawyers are willing to advise investors and guide them through the registration process, for a fee. The government has held investment conferences and organized an investment roadshow.  There is a private-sector Chamber of Commerce. There is no ombudsman.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity, as well as freely establish, acquire and dispose of interests in business enterprises.  Under the investment law, the government of South Sudan leases land to foreign investors for limited periods of time, generally not to exceed 30-60 years, with the possibility of renewal. In the case of leases for mining or quarrying, the lease shall not exceed the life of the mine or quarry.  Under the 2009 Land Act, non-citizens are not allowed to own land in South Sudan.

For investors who wish to start a business in South Sudan, there is a local shareholder requirement but the foreign investor can usually retain majority control.  For foreign-based companies who wish to establish a subsidiary in South Sudan, the local shareholder requirement does not apply. South Sudanese businesses are given priority in several areas, including micro-enterprises, postal services, car hire and taxi operations, public relations, retail, security services, and the cooperative services.  Exact details, and the extent of enforcement of these requirements, are sometimes unclear.

Subject to the Private Security Companies Rules and Regulations of 2013, registering and setting up a protection services security company in South Sudan requires a South Sudanese citizen to hold at least 51 percent of the company.  Companies in the extractives sector must also have a South Sudanese national as part owner, but the exact percentage of ownership required is not always clear.

According to the Investment Act, foreign investors must apply for an investment certificate from the South Sudan Investment Authority to ensure that the investment will be beneficial to the economy or general benefit of South Sudan.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews.

Business Facilitation

The Government’s fiscal and economic strategy sees government facilitating investment in economic priority sectors, particularly in agriculture, transport infrastructure, petroleum, mining, and energy, to unlock South Sudan’s economic potential and boost diversified growth.  Investment incentives exist but the exact procedures are somewhat opaque.

There is no business registration website.  The process to register a business is lengthy and complex, and involves visiting multiple offices at the national, state, and local levels.  The Chamber of Commerce recommends hiring a local lawyer to register a business.

Outward Investment

The Government of South Sudan does not have a policy for promoting or incentivizing outward investment.  The government does not have a policy restricting domestic investors from investing abroad.

South Sudan signed a Bilateral Investment Treaty (BIT) with Morocco in 2017 but it is not in force.

In November 2018 a South African government fund signed an agreement with South Sudan pledging USD 1 billion for oil exploration and construction of a refinery.  The agreement was made between two state-owned companies but is not a general BIT.

South Sudan does not have a bilateral taxation treaty with the United States and does not have a tax agreement with any other countries.  Contacts have reported that in practice, business owners can be subject to a range of unexpected taxes from a variety of levels of authority.

Transparency of the Regulatory System

Bureaucratic procedures for opening a business are long and cumbersome, particularly for foreigners trying to navigate the system without the assistance of a well-connected national.

The private sector is governed by a mix of laws from Sudan, the pre-independence semi-autonomous Government of Southern Sudan, and since 2011, the Government of South Sudan. The Transitional National Legislative Assembly (TNLA) passed laws to improve the transparency of the regulatory system, including the 2012 Companies Act and the 2012 Banking Act, however enforcement regulations are still lacking and there is little transparency. The government does not consult with the public about proposed regulations and information about regulations is not widely published.  Several key pieces of legislation governing customs, imports and exports, leasing and mortgaging, procurement, and labor have not been approved by the government and are needed to improve the business environment in South Sudan.

The oil sector is the major industry that attracts FDI, but transparency in the oil sector is absent, despite it being mandated by South Sudanese law.  The Ministry of Petroleum does not share data at an institutional level with the Bank of South Sudan, and does not release it to the public. The Ministry of Petroleum does not publish oil production data on their website. The contracts process for oil companies that are planning to bid and invest in South Sudan is controlled by the Ministry of Petroleum. This information is not publicly available on the Ministry’s website.

There are no known informal regulatory processes managed by nongovernmental organizations or private sector associations that would affect U.S. investors.  National and state bodies are the main source of regulation, but county and sub-county level officials also impose regulations. In 2018 and 2019, international non-governmental organizations regularly reported that local officials demanded taxes and fees that differed with those set out in national policy.  An opaque Presidential Decree issued in late 2018, for example, resulted in weeks of customs clearance disruptions at the country’s main land border in Nimule. NGOs report regular discrepancies between tax and labor rules issued by the national government and those enforced by local authorities. At some state levels, private contractors moving goods earmarked for humanitarian relief have been prevented entry at state borders.

There are no publicly listed companies.  Government accounting is non-transparent.  In 2018 the legislative assembly held public budget hearings, but in general, most bills and regulations are passed without public comment, and are poorly disseminated.  There is no centralized online location where key regulatory actions are published. There is no ombudsman. Parliament has not been able to provide effective oversight of government ministers. There were no significant corruption cases prosecuted in 2018.

No enforcement reforms have been announced or implemented.  The establishment of the National Revenue Authority may provide a stronger foundation for development and implementation of accounting and regulatory standards.  South Sudan is working to develop sources of non-oil revenue, including more centralized and effective enforcement of personal income tax. If transparently collected and managed, these funds could assist in development of the country’s infrastructure.

South Sudan’s parliament is responsible for developing laws, but bodies such as the National Revenue Authority have also been influential in developing tax procedures, for example.  There is no indication that regulations are informed by quantitative analysis and public comments received by regulators are not made public.

Laws and regulations are randomly enforced and are not well-publicized, creating uncertainty among domestic and foreign investors.  The Ministry of Labor, for example, rarely if ever conducts inspections, but NGOs and foreign investors have reported that employees have colluded with labor inspectors to extort fines from business managers.

South Sudan’s public finances are extremely opaque.  The government released some debt obligation information during budget hearings in 2018 regarding certain infrastructure loans, but to date has not disclosed the amount of forward-sold oil (the country’s main source of revenue).  The Ministry of Petroleum particularly lacks transparency, as does the Ministry of Finance. Allegations of corruption plague both ministries. The state-owned oil company Nilepet has consistently refused public auditing.

International Regulatory Considerations

South Sudan is a member of the African Union and the East African Community (since April 2016) and is making progress in adapting its national regulatory system to regional standards.

With the establishment of the National Revenue Authority, South Sudan has begun to implement EAC customs regulations and procedures.  South Sudan is not a member of the WTO.

Legal System and Judicial Independence

South’s Sudan’s legal system is a combination of statutory and customary laws.  There are no dedicated commercial courts and no effective arbitration act for handling business disputes. The only official means of settling disputes between private parties in South Sudan is civil court, but enforcement of court decisions is weak or nonexistent.  The lack of official channels for businesses to resolve land or other contractual disagreements has led businesses to seek informal mediation, including through private lawyers, tribal elders, law enforcement officials, and business organizations.

The executive regularly interferes in judiciary matters.  Parties to business disputes have been arrested by state security forces and held at length without charges.  High-level government and military officials are often immune from prosecution in practice, and frequently interfere with court decisions. Parties in contract disputes are sometimes arrested by authorities and imprisoned until the party agrees to pay a sum of money, often without going to court and sometimes without formal charges.

The lack of a unified, formal system encourages ‘forum shopping’ by businesses that are motivated to find the venue in which they can achieve an outcome most favorable to their interests. Many disputes are resolved informally.  U.S. companies seeking to invest in South Sudan face a complex commercial environment with extraordinarily weak enforcement of the law. While major U.S. and multinational companies may have enough leverage to extricate themselves from business disputes, medium-sized enterprises that are more natural counterparts to South Sudan’s fledgling business community will find themselves held to local rules.

Laws and Regulations on Foreign Direct Investment

Despite some improvements to the taxation system, the opacity and lack of capacity in the country’s legal system poses high risk to foreign investors.  South Sudan’s National Revenue Authority has centralized and standardized collection of Personal Income Tax and customs duties.  A One-Stop Shop Investment Centre (OSSIC) was established in 2012 but there is no website or advertised physical office. In practice, someone who wishes to register a business must rely on a local lawyer to register the business with the registrar at the Ministry of Justice and with other relevant authorities such as tax authorities.

Competition and Anti-Trust Laws

South Sudan does not review transactions for competition-related concerns.  There were no significant developments in 2018.

Expropriation and Compensation

The Investment Promotion Act of 2009 prohibits nationalization of private enterprises unless the expropriation is in the national interest for a public purpose.  However, the current law does not define the terms “national interest” or “public purpose.” According to the law expropriation must be in accordance with due process and provide for fair and adequate compensation, which is ultimately determined by the local domestic courts.

Government officials have pressured development partners to hand over assets at the end of programs. While some donor agreements call for the government to receive goods at the close-out of a project, assets have been seized by local government officials even in instances where they were not included in a formal agreement.

Although officially denied, credible reports from humanitarian aid agencies indicate that money is routinely extorted at checkpoints manned by both government and opposition forces to allow the delivery of humanitarian aid throughout the country.

In practice, the government has not offered compensation for expropriated property.  For example, in October 2018 the Government expropriated the assets of Kerbino Wol Agok, a high profile prisoner of the National Security Service, with no apparent judicial process.  His companies and their bank accounts were seized and all employees fired.

Due to the insufficiencies in the legal system, investors should not expect to receive due process.  Investors face a complex commercial environment with relatively weak enforcement of the law.

Dispute Settlement

ICSID Convention and New York Convention

South Sudan signed and ratified the ISCID Convention on April 18, 2012 and it entered into force on May 18, 2012.  Currently South Sudan is not a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

There is no specific domestic legislation that enforces awards under the ICSID convention.

Investor-State Dispute Settlement

South Sudan does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States.

In recent years South Sudan has reportedly failed to pay for some services provided to it by private companies. For example, in November 2017 South Sudan stopped issuing and renewing passports and other travel documents after its production system was shut down for two weeks by the country’s German supplier, due to the government’s failure to pay an annual software license fee of around USD 500,000.  In addition, numerous private companies, including at least one U.S. company, claim the government has reneged on or delayed payment for work under contract.

In March 2018, the government suddenly suspended Lebanese-owned cell phone service provider Vivacell, which had previously been South Sudan’s largest telecommunications company with a 51 percent market share and equipment installed throughout the country, due to an alleged failure to pay taxes.

There is a history of extrajudicial action against foreign investors.  Parties in contract disputes are sometimes arrested and imprisoned until the party agrees to pay a sum of money, often without going to court and sometimes without formal charges.

International Commercial Arbitration and Foreign Courts

There are no official arbitration bodies in South Sudan.  South Sudan lacks any dedicated legal framework for rendering enforceable court judgments from foreign courts.

Bankruptcy Regulations

The 2011 Insolvency Act provides for both personal and corporate bankruptcies.  Given the lack of commercial courts, there is little information available about the rights of creditors in practice.  South Sudan is tied for last place in the World Bank’s 2019 Doing Business Report ranking for “resolving insolvency.”

Investment Incentives

The Investment Promotion Act provides for various tax incentives, including capital allowances ranging from 20 to 100 percent of eligible expenditures, deductible annual allowances ranging from 20 to 40 percent, and depreciation allowances ranging from 8 to 10 percent.  A foreign tax credit is granted to any resident company paying foreign taxes on income from business activities outside South Sudan. In practice, the exact incentive structure is somewhat unclear.

Applications for fiscal incentives are made to the Ministry of Finance, Commerce, Investment and Economic Planning through the One Stop Shop Investment Centre (OSSIC).  Tax exemptions and concessions on machinery, equipment, capital and net profits are approved for stated periods by the Ministry of Finance, at its discretion. Fiscal incentives also include capital allowances, deductible annual allowances and annual depreciation allowances.

The government has been known to guarantee foreign direct investment projects with oil deliveries.  However, due to a lack of transparency at the Ministry of Petroleum, it is unclear to what extent the country’s oil production has been leveraged and thus it is impossible to ascertain the likelihood of the country being able to honor such commitments.

Foreign Trade Zones/Free Ports/Trade Facilitation

South Sudan has not established any free trade zones. On June 22, 2013 the government of South Sudan announced the construction of Juba Specialized Economic Zone (SEZ) near the capital.  It was intended to be an industrial area for business and investment activities but development of the area has not progressed.

Performance and Data Localization Requirements

South Sudan’s 2017 Labor Act dictates that 80 percent of staff at all levels of management must be South Sudanese nationals.  Additionally, authorities in some areas of the country have demanded that NGOs employ people local to a specific area, or from a specific ethnic group, although there is no basis for this practice in South Sudanese law.  The law makes no specific mention of senior management and boards of directors. The government requires work permit fees for foreign nationals. These are typically several thousand dollars per employee, but the exact amounts change regularly.  Foreigners are also subject to a variety of registration requirements, which also change regularly and unpredictably.

In consideration of entitlement to an investment certificate, the Investment Act encourages, but does not require, technology transfer, increase in foreign exchange through exports or import substitution, production and use of local raw materials and supplies, and contributions to the local community.  For entitlement to an investment certificate, the Investment Authority is required by law to assess if the investment will create employment for South Sudanese, acquire new skills of technology for South Sudanese, and contribute to tax revenues. The use of domestic content in goods or technology is encouraged, but not required.

The Investment Authority may revoke an investment certificate due to breach of performance requirements, with 30 days notice.  There are no provisions regarding maintenance, increase, or decrease of performance requirements.  The Investment Act applies these requirements equally to domestic and foreign investors.

There are no known requirements for foreign IT providers to turn over source code or provide access to encryption.  No measures are known to exist to prevent companies from transferring customer or other business data outside the country.  There are no known rules on maintaining data storage within the country.

Real Property

There was no progress in 2018 towards comprehensive land reform. Laws on mortgages, valuation, and the registration of titles have not been drafted.  While the 2009 Land Act and the 2009 Investment Promotion Act both state that non-citizens can access land for investment purposes, by leasing the land but not owning it, clear regulations governing how a business acquires land were not available in 2018.

Currently, some businesses lease land from the government, while others lease land directly from local communities and/or individuals. Under the Land Act, investment in land acquired from local communities must contribute economically and socially to the development of the local community.  Businesses will often sign a memorandum of understanding with the local communities in which they agree to employ locals or invest in social services in exchange for use of the land. Land negotiations with communities often require several months or longer to complete. South Sudan ranked 179 out of 185 countries for ease of registering property in the World Bank’s 2019 Doing Business Report.

Ownership of land is often unclear, with communities and government both claiming the same property. In some cases, multiple individuals hold registration certificates demonstrating sole ownership of the same piece of land.

As of April 2019, over 4 million South Sudanese were still displaced from their homes due to conflict.  During the five-year civil war, many of their houses were illegally occupied and likely remain so. Property owners or public authorities may file for an order to evict unauthorized occupants under the Land Act.  While the rightful owners may hold clear land titles, it is unclear if the legal system is equipped to handle their claims and it is likely that land ownership will be regularly disputed throughout large parts of the country in the foreseeable future.

Intellectual Property Rights

The legal structure for intellectual property rights (IPR) is weak and enforcement is lax.  Recorded instances of intellectual property theft are rare. While the Investment Act of 2009 includes an article on the protection of IPR, implementing legislation on trademarks, copyrights, and patents has not yet been passed.  To date, the only intellectual property law which has been put forward to the legislature is the Trade Marks Bill of 2013. No new IP-related laws or regulations were enacted in 2018.

South Sudan does not track or seize counterfeit goods.  There has been no known prosecution of IPR violations and there are no estimates available for traffic of counterfeit goods. There was one report of an unauthorized public screening of a U.S. film in 2018.

South Sudan is not included in the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Capital Markets and Portfolio Investment

The Investment Act mentions portfolio investment, but South Sudan does not have a functioning market for financial assets.  South Sudan does not have a stock market or related regulatory system. There are no known policies for promotion of investment into product and factor markets.

South Sudan’s formal financial system offers few financial products. It is difficult for foreign investors to get credit on the local market due to the shortage of hard currency, the lack of accurate means of obtaining reliable figures or audited accounts, the absence of a credit reference bureau, and South Sudan’s failure to document land ownership properly.  According to the World Bank, 50 percent of all South Sudanese firms cite access to finance as a constraint.

Banks are often unwilling to lend due to the lack of adequate laws to protect lenders and difficulties related to personal identification.  After the Bank of South Sudan confiscated commercial banks’ reserves on deposit at the central bank in 2015, diverting them to the use of the government, companies and individuals had difficulty accessing their funds.  This made depositors reluctant to trust their funds to the banking system.

The Bank of South Sudan launched treasury bills on August 18, 2016 for purchase by members of the public, companies and commercial banks.  This lasted until April 2017, when people stopped investing in the bills due to high inflation and a lack of a secondary market for them. The bank had previously issued treasury bills in 2012 without success.

Money and Banking System

Activity in the banking system grew after independence for a period until it deteriorated in 2014 due to civil conflict and the reduction of oil exports. The economy of South Sudan is cash-based, with limited use of demand deposits. The IMF has categorized South Sudan’s financial sector as small and undeveloped.  South Sudan has recently introduced mobile money. Informal unauthorized transfer services already exist, but mobile money services should allow for greater access to domestic banking services.

There is limited information to assess the health of this sector and figures are unreliable.  The Bank of South Sudan, the country’s central bank, has limited assets. There are a total of nine foreign-owned banks.  There are no known additional regulations for foreign banks. There are no known restrictions on a foreigner’s ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Foreign investors cannot remit funds through the parallel market. They are required by law to remit through banks or foreign exchange bureaus at an exchange rate that is far below the market rate.

The 2009 Investment Promotion Act guarantees unconditional transferability in and out of South Sudan “in freely convertible currency of capital for investment; payments in respect of loan servicing where foreign loans have been obtained; and the remittance of proceeds, net of all taxes and other statutory obligations, in the event of sale or liquidation of the enterprise.” In reality, the ability to exchange local currency for foreign currency is severely restricted.

South Sudan maintained a fixed exchange rate for the South Sudanese Pound until December 2015 when it moved to a managed floating exchange rate regime.  Since then, the local currency has depreciated significantly due to deficit spending by the government, printing of money, and a lack of hard currency. The current official exchange rate can be found from the Bank of South Sudan or from commercial banks in Juba.  There is a large spread between this rate and the unofficial parallel market rate.

Remittance Policies

There have been no recent changes to investment remittance policies, and no known waiting periods on remittances.

Sovereign Wealth Funds

The Petroleum Revenue Management Act of 2013 created a sovereign wealth fund (SWF) to set aside surplus profits from oil sales.  The law established the Oil Revenue Stabilization Account to act as a buffer against volatility in oil prices and the Future Generations Fund to set aside some funds for future generations.  The SWF is supposed to distribute 10 percent of oil profits into the Oil Revenue Stabilization Account and 15 percent to the Future Generations Fund. To date, however, neither has received any financing.  The Comprehensive Peace Agreement (CPA) that ended the civil war with Sudan set a 2 percent share of oil revenue that is supposed to be given to the oil producing states along with 3 percent revenue allocation to the local communities.  However, in August 2017, the government announced that it would stop giving the 3 percent and 2 percent share to states. The September 2018 peace agreement calls for the accounts to be funded. The SWF does not follow any good practices and being unfunded, does not invest domestically (although it is intended to).

The national oil company – Nile Petroleum Corporation, or Nilepet – remains the primary fully State-owned enterprise (SOE) in South Sudan.  The government owns stakes in construction and trade companies and in several banks. Limited data is available on number, total income, and employment figures of SOEs.  There is no published list of SOEs.

Nilepet is the technical and operational branch of the Ministry of Petroleum. Nilepet took over Sudan’s national oil company’s shares in six exploration and petroleum sharing agreements in South Sudan at the time of the country’s independence in 2011.  Nilepet also distributes petroleum products in South Sudan. The government, through Nilepet, holds minority stakes in other oil companies operating in South Sudan

The Petroleum Revenue Management Bill, which governs how Nilepet’s profits are invested, was enacted into law in 2013; however, the company has yet to release any information on its activities, even though the law states that comprehensive, audited reports on the company’s finances must be made publicly available.

The government is not transparent about how it exercises ownership or control of Nilepet.  Its director reports to the Minister of Petroleum and Mining. Nilepet’s revenues and expenditures are not disclosed in the central government budget.  No audited accounts of Nilepet are publicly available. After the January 2012 oil production shutdown, oil production recovered to more than 235,000 barrels per day at end of 2013, only to fall to about 160,000 barrels per day in early 2014 as a result of the conflict that started in December 2013. The ongoing conflict has reduced daily oil production currently to about 140,000 barrels per day (bpd) as of April 2019, and the collapse of international oil prices plus the drop in oil production has cut state revenues.

In March 2018, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce amended the Export Administration Regulations (EAR) to add Nilepet and several related companies to the Entity List, along with the Ministry of Petroleum and the Ministry of Mining, due to their role in worsening the conflict in South Sudan.

The Entity List identifies entities, including corporations, private or government organizations, and natural persons, and other persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States.

The U.S. Government assesses the 15 entities BIS has added to the Entity List as contributing to the ongoing crisis in South Sudan because they are a source of substantial revenue that, through public corruption, is used to fund the purchase of weapons and other material that undermine the peace, security, and stability of South Sudan rather than support the welfare of the South Sudanese people. Adding these entities to the Entity List is intended to ensure that items subject to the EAR are not used to generate revenue to finance the continuing violence in South Sudan.

The following 15 entities are the first South Sudanese entities added to the Entity List: Ascom Sudd Operating Company; Dar Petroleum Operating Company; DietsmannNile; Greater Pioneer Operating Co. Ltd; Juba Petrotech Technical Services Ltd; Nile Delta Petroleum Company; Nile Drilling and Services Company; Nile Petroleum Corporation; Nyakek and Sons; Oranto Petroleum; Safinat Group; SIPET Engineering and Consultancy Services; South Sudan Ministry of Mining; South Sudan Ministry of Petroleum; and Sudd Petroleum Operating Co.

These 15 entities are subject to a license requirement for all exports and reexports destined for any of the entities and transfers (in-country) to them of all items subject to the EAR with a licensing review policy of a presumption of denial. This license requirement also applies to any transaction involving any of these entities in which such entities act as a purchaser, intermediate consignee, ultimate consignee or end-user.  Additionally, no license exceptions are available to these entities.

If any person participates in a transaction described above involving any of these 15 entities without first obtaining the required license from BIS, that person would be in violation of the EAR and could be subject to civil or criminal enforcement proceedings. Civil enforcement could result in the imposition of monetary penalties or the denial of the person’s export privileges. Additionally, a person’s supplying or procuring items subject to the EAR or engaging in other activity involving an entity on the Entity List could result in a determination to add that person to the Entity List consistent with the procedures set forth in the EAR.

The regulation can be viewed on the Federal Register at https://www.gpo.gov/fdsys/pkg/FR-2018-03-22/pdf/2018-05789.pdf .

The country does not adhere to the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

South Sudan does not have a privatization program. So far, the government has no plans for privatization, and there are few government-owned entities that provide services to individuals.

The idea of responsible business conduct is new in South Sudan, and there is little awareness of standards in this area.  The few large international firms operating in South Sudan sometimes offer some basic benefits to local communities, but on an irregular basis. The 2009 Land Act requires investment activities carried out on land acquired from local communities to “reflect an important interest for the community or people living in the locality,” and to contribute economically and socially. There are complaints in the media about the number of foreign-owned companies and the lack of hiring of South Sudanese employees.  International observers have argued that many of the oil producing companies do not practice responsible behavior in regard to environmental damage in the oil fields.

The government has taken no steps towards RBC.  The recently signed peace agreement and some national laws (such as the Petroleum Act) contain RBC provisions but they are unenforced.  The environmental and human rights impact of oil pollution has been severe but the government has not responded to widespread damage to the environment and displacement of people.  The government has demonstrated little capacity or will to enforce laws on human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impact.  The government has not put in place corporate governance, accounting, and executive compensation standards to protect shareholders.

NGOs have promoted RBC, particularly in the environmental domain, but activists and reporters in this field have reported that they are subject to government harassment.

The government does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and there are no functioning domestic measures related to such due diligence.  South Sudan is a source of minerals originating from conflict-affected areas and there is little oversight to the extractive industries such as gold.

The government does not participate in the Extractive Industries Transparency Initiative (EITI) and while the law requires the disclosure of payments made to the government in regard to oil sales, in reality disclosure is weak or nonexistent.

South Sudan has laws, regulations, and penalties to combat corruption, but there is a near total lack of enforcement and considerable gaps exist in legislation.  As a result, corruption is pervasive.

Companies are reportedly asked to pay extralegal taxes and fees.  Security officials have been reported to impose business conditions including payment of fees, salaries, and logistical support to their operations.  In practice, politically connected people are immune to prosecution. There are no laws that prevent conflict of interest in government procurement.

The government does not encourage or require private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.  There is no indication that private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

The South Sudan Anti-Corruption Committee (SSACC) was established in accordance with the 2005 Constitution and the 2009 SSACC Act. The five commission members and chairperson are appointed by the President with approval by a simple majority in the parliament. The commission is tasked with protecting public property, investigating corruption, and submitting evidence to the Ministry of Justice for necessary action.  In addition, the commission is tasked with combatting administrative malpractice in public institutions, such as nepotism, favoritism, tribalism, sectionalism, gender discrimination, bribery, embezzlement, and sexual harassment.

In reality, the SSACC lacks the resources or political capital to investigate corruption.  It has no capacity to address state corruption as it can only relay its findings to the Ministry of Justice for prosecution.  There were no significant anti-corruption cases investigated or prosecuted in 2018.

South Sudan acceded to the United Nations Convention against Corruption on January 23, 2015 but has not yet ratified it.  The country is not a party to the OECD Anti-Bribery Convention and is not reported to be a participant in regional anti-corruption initiatives.

The country provides no protection to NGOs involved in investigating corruption.  NGOs of all types are routinely subject to government harassment.

All major sectors including the extractive sector, hotels, airlines, banking, and security sectors are subject to interference from the security sector including recruitment interference, and payment of fees and salaries.

Corruption appears to be pervasive at all levels of government and society. The regulatory system is poor or non-existent, and dispute settlement is weak and subject to influence.

Resources to Report Corruption

National Audit Chamber
P.O. Box 210
Juba, South Sudan
Tel: +211 (0) 955 481 021
info@auditchamber-ss.org

Honorable Ngor Kulong Ngor
Chairperson
South Sudan Anti-Corruption Commission
P.O Box 312
Juba, South Sudan
anticorruptioncommission@yahoo.co.uk

Honorable Awad Masha Zigizo
Commissioner
South Sudan Anti-Corruption Commission
P.O Box 312
Juba, South Sudan
anticorruptioncommission@yahoo.co.uk

Contact at “watchdog” organizations:

UN Panel of Experts on South Sudan
Mr. David Biggs (Senior Committee Secretary)
Tel: (212) 963-5598
sc-2206-committee@un.org

Transparency International
Alt-Moabit 96
10559 Berlin
Germany
Telephone: +49 30 3438 200
Fax: +49 30 3470 3912
ti@transparency.org

The Sentry
c/o The Enough Project
1420 K Street, NW, Suite 200
Washington, DC 20005
info@thesentry.org

There is a long history of politically motivated violence in South Sudan.  The warring parties concluded a peace agreement in September 2018 to stop the civil war that has wrought the country since 2013.  Limited fighting continues in some parts of the country as of April 2019, but in general, the ceasefire has held. The effects of the war on the economy and investment will be evident for some time.

Previous violence during conflict with Sudan resulted in damage to installations in one of the major oil producing areas in the country, shutting down production in that region.  Repairs to these facilities began in 2018, allowing for an increase in oil production.

The environment remains insecure but hopes of peace have been rekindled with signing of a new peace agreement in September 2018.  The parties, however, remain behind in implementation as of April 2019.

There were 1.9 million Internally Displaced Persons (IDPs) in South Sudan, and an additional 2.3 million South Sudanese refugees in neighboring countries as of April 2019.  The government has not yet developed the conditions that would allow the IDPs and refugees to safely return home. Political opposition leaders faced illegal detention and travel restrictions in 2018.  The government has temporarily shut down several newspapers and detained journalists it accused of printing articles opposing policies or actions undertaken by the government.

The conflict severely disrupted trade, markets, and agricultural activities, claimed thousands of lives and spurred one of the world’s most serious humanitarian crises. The conflict was marked by grave human rights abuses, especially pervasive gender-based violence.  Out of a population of approximately 12 million, some 6.5 million people are in need of food assistance in South Sudan. During 2018, the bulk of U.S. and the international community’s support efforts were directed at the immediate needs of the ongoing humanitarian crisis brought on by the civil conflict.  Other development assistance has been significantly reduced.

NGOs complain of harassment, and aid convoys have come under attack in 2018.  South Sudan was named the most dangerous country in the world for aid workers in 2018.  Armed cattle raids claimed hundreds of lives in 2018, and several ambushes and kidnappings have taken place on the country’s main highway, the Juba-Nimule road.  The Department of State currently warns against travel to South Sudan due to the critically high risk of crime, kidnapping, and armed conflict.

South Sudan has a shortage of both skilled and unskilled workers across most areas in the formal sector.  According to the 2008 census, 84 percent of those employed are in non-wage work. Unskilled labor in the service and construction sectors is often performed by immigrants from neighboring countries.  This is in large part due to a lack of basic skills training. South Sudan has one of the worst adult literacy rates in the world: about 27 percent.

The five-year civil war has resulted in large swaths of people displaced from their homes (over 4 million are displaced or refugees as of April 2019) and has devastated the economy.

Government enforcement of existing labor laws has been absent. Most small South Sudanese businesses operate in the informal economy, where labor laws and regulations are widely ignored.

The Labor Act of 2017 requires that 80 percent of staff hired by foreign employers at all levels of management be nationals of South Sudan.  Government security offices have been reported to interfere with hiring in some cases. The Ministry of Labor thoroughly reviews all work permit applications in an attempt to determine whether a position could be filled by a South Sudanese national.  Some foreign-owned companies reported long delays in receiving work permits for expatriate staff, and many expatriates are issued work permits for just one to three months, rather than the standard one year. State and local authorities have also been reported to charge additional fees and attempt to restrict employment to people from a certain place or of a certain ethnic group.

The Labor Act establishes an “employment exchange” scheme for unemployed people that reserves vending, hawking, driving, office support staffing and other manual labor for nationals only.  No social safety net programs exist in practice. The Labor Act allows for Termination for Redundancy “due to changes in the operational requirements of the employer” with certain conditions, and requires severance pay.  The law differentiates between this and several other forms of termination.

There are no special labor provisions in order to attract or retain investment.  No formal functioning collective bargaining systems exist. Disputes are handled by the Ministry of Labor, by courts, and informally/extrajudicially.  Foreign employers have reported being at a significant disadvantage in such disputes.

In July 2018, a mob of hundreds described as local youths attacked NGO facilities causing millions of dollars in damages in Maban.  The government was slow to respond or investigate, and ultimately released the attack’s ringleaders shortly after arresting them. In 2018, some international organizations reported labor strikes from day wage-earners.  Some international organizations reported strikes or blockages where locals protested against the employment of South Sudanese from different ethnic groups perceived to be receiving favored treatment.

Child labor is rampant and the government does not enforce child labor laws through inspections or fines.

The most recent change to labor law was the Labor Act signed by the South Sudanese President in December 2017.

There is a potential for successful OPIC operations in South Sudan if the security environment continues to improve.  The Overseas Private Investment Corporation (OPIC) has been open to business in South Sudan since 2012. South Sudan ratified its Investment Incentive Agreement (IIA) with OPIC in 2013.  South Sudan is a member country of the Multilateral Investment Guarantee Agency.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Data not available.

Table 4: Sources of Portfolio Investment

Data not available.

Economic/Commercial Officer
U.S. Embassy, Kololo Road, Juba, South Sudan
(U.S.) +1 (202) 216-6279, ext 215
jubacommercial@state.gov