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 increasingly 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 assessments 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. There is no requirement to periodically review regulations to determine whether they are still relevant 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 to promote predictability of the 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 of 2019, the Oromia Region’s Environment, Forest, and Climate Change Commission shut down three tanneries in the Oromia Region for what was said to be repeated environmental pollution offenses. The federal government also suspended the business license of MIDROC Gold Mining in May 2018 following weeks of protests by local communities who accused the company of causing health and environmental hazards in the Oromia Region. The Ethiopian Parliament in February of 2019 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.
On April 7, 2020, Ethiopia published the Administrative Procedure Proclamation (APP) in the federal gazette, the final step for a law to come into force. The APP’s main aim is to allow ordinary citizens who seek administrative redress to file suits in federal courts against government institutions. Potential redress includes financial restitution. The APP’s passage will require government institutions to set up offices that will handle such complaints. Complainants are required to follow an administrative appeal process, and only after exhausting administrative remedies will a person be allowed to file a suit in federal court. Four government institutions are exempt from the APP: the Federal Attorney General’s Office; the Ethiopian Federal Police; the Ethiopian National Defense Force and the intelligence agencies. The enactment of the APP is widely viewed as a positive step in increasing confidence in the public sector and addressing the need for governmental institutions to adhere to the rule of law.
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’s website ( https://www.invest-ethiopia.com/ ) on administrative procedures applicable to investing in Ethiopia.
The government released its five-year public finance administration strategic plan (2018 – 2022) in March of 2018, mapping out reforms in government revenue and expenditure forecasting, government accounts management, internal auditing, 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 of 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 publicly 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. The government makes public its annual budget as well as the external and domestic debt position of the county on the MoF’s website ( https://www.mofed.gov.et/en/resources/bulletin/ )
International Regulatory Considerations
In April of 2020 Ethiopia became a member of the African Continental Free Trade Area (AfCFTA). The AfCFTA aims to create a single, continental market for goods and services, with free movement of businesspersons and investments. Ethiopia is also a member of the 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. Ethiopia has not yet joined the COMESA free trade area, however. Ethiopia resumed its WTO accession process in 2018, which it originally began in 2003, but which later stagnated.
Ethiopian standards 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 court. There are, however, no specialized courts for commercial law cases, though there are specialized benches at both 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 widespread interference in purely commercial disputes. The country has a procedural code for both civil and criminal court. 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.
In March of 2021 the parliament approved an amendment to the sixty-two-year-old commercial code. The revised legislation modernizes and simplifies business regulations, develops regulations for new technologies not covered in the prior version of the code, and seeks to implement greater transparency and accountability in commercial activities.
Laws and Regulations on Foreign Direct Investment
The Investment Proclamation 1180/2020 and Regulation 474/2020 are Ethiopia’s main legal regime related to Foreign Direct Investment (FDI). These laws instituted the opening of new economic sectors to foreign investment, enumerated the requirements for FDI registration, and outlined the incentives that are available to investors.
The investment law allows foreign investors to invest in any investment area except those that are clearly reserved for domestic investors. A few specified investment areas are possible for foreign investors only as part of a joint venture with domestic investors or the government. The Investment Proclamation has introduced an Investment Council, chaired by the Prime Minister, to accelerate implementation of the new law and to address coordination challenges investors face at the federal and regional levels. Further, the new law expanded the mandate of the EIC by allowing it to provide approvals to foreign investors proposing to buy existing enterprises. The EIC now also delivers “one stop shop” services by consolidating investor services provided by other ministries and agencies. Still, the EIC delegates licensing of investments in some areas: air transport services (the Ethiopian Civil Aviation Authority), energy generation and transmission (the Ethiopian Energy Authority), and telecommunication services (the Ethiopian Communications Authority).
The EIC’s website ( https://www.invest-ethiopia.com/ ) provides information on the government’s policy and priorities, registration processes, and regulatory details. In addition, the Business Negarit website ( http://businessnegarit.com/a/resources1/ ) provides relevant laws, rules, procedures, and reporting requirements for investors.
Competition and Antitrust 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.
The EIC reviews investment transactions for compliance with FDI requirements and restrictions as outlined by the Investment Proclamation. Nonetheless, companies have complained that SOEs receive favorable treatment in the government tender process.
Expropriation and Compensation
Per the 2020 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 provided adequate compensatory payment.
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) remains 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. The Public Enterprises Holding and Administration Agency 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 incidents threatening investors in that region. Various pretexts have been used to close 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, some investors who have invested heavily in government and community relations and actively engaged local and regional officials have prospered. The experience of investors is uneven and clear trends are not evident.
- ICSID Convention and New York Convention
Since 1965, Ethiopia has been a non-signatory member state to the International Centre for Settlement of Investment Disputes (ICSID) Convention. In November 2020, Ethiopia acceded to the UN Convention on The Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention).
- Investor-State Dispute Settlement
The constitution and the investment law both guarantee the right of any investor to lodge complaints related to their investment with the appropriate investment agency. If the investor has a grievance against a legal or regulatory decision, they can appeal to the investment board or to the respective regional agency, as appropriate. According to the new investment law, the investment dispute between the state and foreign investor can be resolved either through the courts or via arbitration, with the precondition of government agreement for resolution via the latter. Additionally, a dispute that arises between a foreign investor and the state may be settled based on the relevant bilateral investment treaty.
Due to an overloaded court system, dispute resolution can last for years. According to the 2020 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 the Ethiopian civil code recognizes Alternative Dispute Resolution (ADR) mechanisms as a means of dispute resolution. The Addis Ababa Chamber of Commerce has an Arbitration Center to assist with arbitration. Following Ethiopia’s accession to the New York Convention, local courts now must automatically recognize and enforce foreign arbitral awards from a New York Convention member state country. There are no publicly available statistics that indicate a bias in the courts towards state-owned enterprises (SOEs) as pertains to investment/commercial disputes.
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 a lack of knowledge on the part of the private sector.
According to the 2020 World Bank Doing Business Report, Ethiopia stands at 149 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.)