Ethiopia has faced repeated cycles of civil unrest, some of it violent, over the last two and a half years. In October 2016, the GOE declared a state of emergency (SOE), which lasted until August 2017. Despite the lifting of the SOE, discontent continued to simmer, leading to internal disagreements within the ruling Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) about how to address popular concerns. The Ethiopian Prime Minister Hailemariam Desalegn then unexpectedly resigned on February 15, 2018. The following day a state of emergency was re-imposed. After a lengthy process, the EPRDF then elected Dr. Abiy Ahmend Ali as prime minister (PM) and he took office on April 2, 2018. He acknowledged severe economic constraints and met with representatives of the private sector within his first two weeks in office. His reform agenda is still inchoate at this time, and the below text predominantly reflects developments under his predecessor.
Ethiopia has had one of the fastest growing economies in the world with GDP growth averaging 10 percent in the last decade according to the International Monetary Fund (IMF). In 2016/17 the Ethiopian economy grew at an estimated rate of 9 percent, as agriculture rebounded from severe drought conditions in 2015/16 and industrial activity continued to expand in response to investments in infrastructure and manufacturing. The IMF projects growth to remain high in 2017/18, estimating a growth rate 8.5 percent, supported by continued recovery from past droughts combined with export expansion as new manufacturing facilities and infrastructure come online. Ethiopia is the second most populous country in sub-Saharan Africa after Nigeria, with a population of roughly100 million.
The government of Ethiopia follows integrated five-year plans to guide its state-led industrial development. The second of these Growth and Transformation Plans (GTP II), covering 2016–2020, is now being implemented. GTP II targets an average growth rate of 11 percent in the next five years with the objective of achieving middle income status by 2025. To realize these ambitious goals, the government pursues consistent and prudent macroeconomic policies and continues to invest heavily in large-scale social, infrastructural and energy projects. GTP II includes incentives for international investors such as: 1) facilitation of profit; 2) ease in hiring expatriate personnel; 3) temporary income tax exemptions for investments in selected sectors; and, 4) duty-free imports of capital goods, components, and raw materials for exporting industries and manufacturers in priority sectors.
Nonetheless, while public sector infrastructure projects can provide significant investment opportunities, they also absorb the lion’s share of the available capital, creating a scarcity of capital for the private sector. The World Bank estimates that public infrastructure spending has accounted for approximately 19 percent of Ethiopia’s total GDP since fiscal year 2011-2012.
Priority sectors identified by GTP II include renewable energy, construction, healthcare, tourism, textile and apparel, leather products, telecommunications infrastructure and value-added services, and aviation support services and products. Low-cost labor, a strategic location on the African continent, an excellent national airline, the world’s cheapest energy, and growing consumer markets are key elements attracting foreign direct investment (FDI).
Significant devaluations occurred in September 2010 and October 2017, and in addition the government maintains a policy of slow but steady annual devaluation at a rate of five to six percent. Chronic and acute foreign exchange shortages are a far more serious challenge. Companies often face long lead-times importing goods and dispatching exports due to logistical bottlenecks, high land-transportation costs, and bureaucratic delays. Ethiopia is not a signatory of major intellectual property rights treaties. Banking, insurance and accounting services, retail, telecommunications and transportation are closed to foreign investors.
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. The government retains the right to expropriate land for the “common good,” which it defines to include 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 considered “empty” and expropriated, leading to resentment, protests and, in some cases, conflict. Confusion with respect to registration of urban land-use rights, particularly in Addis Ababa, is commonplace. Likewise, allegations of corruption in the allocation of urban land to private investors by government agencies are a root cause of popular discontent. Successful investors in Ethiopia conduct thorough due diligence on land title at both state and federal levels, and undertake consultations with local communities regarding the proposed use of the land.
Since applying for WTO accession in 2003, Ethiopia has conducted three rounds of discussions with the WTO working group in 2009, 2011 and 2012, but no progress has been made since then. Nevertheless, the national WTO steering committee has been restructured and is in the process of reviewing the services offer. The revised services offer is scheduled to be presented to the WTO working group at the end of 2018.
In 2016 Ethiopia revised its proclamations on commercial registration and business licensing, tax administration, and income tax to improve its investment climate by adopting more efficient processes to reduce red tape. The largest volume of foreign investment in Ethiopia comes from China followed by Saudi Arabia and Turkey. Investors that concentrate on sectors that are prioritized under GTPII get preferred treatment.
On February 16, 2018, the Government of Ethiopia re-imposed a State of Emergency (SOE) after lifting an earlier SOE in August 2017. Under the State of Emergency, law enforcement bodies are granted broad authority to arrest or search individuals without a court order for activities they may otherwise consider routine. These include, but are not limited to: possession or consumption of certain media, illicit communication, participation in protests or strikes, attendance at illegal gatherings, communication with foreign or international organizations, and violation of curfews. Additionally, landlords must provide the government of Ethiopia with passport copies of all foreign tenants. Complicating matters, the government does not routinely notify consular officers at the American Embassy when American citizens are arrested or detained.
|TI Corruption Perceptions Index||2017||107 of 180||https://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2018||161of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2017||110 of 127||https://www.globalinnovationindex.org/
|U.S. FDI in partner country (M USD, stock positions)||2017||USD 588||http://www.investethiopia.gov.et/|
|World Bank GNI per capita||2016||USD 660||http://data.worldbank.org/