Ethiopia is the second most populous country in Africa after Nigeria, with a growing population of over 110 million, approximately two-thirds of whom are under age 30. A reform-minded government, low-cost labor, a national airline with over 100 passenger connections, and growing consumer markets are key elements attracting foreign investment.
Ethiopia faced several economic challenges in 2021 related to the COVID-19 pandemic, a drought in the southern and eastern lowlands, political tension and unrest in parts of the country, and an ongoing conflict in the north. Ethiopia’s macroeconomic position was characterized by over 30 percent inflation, meager foreign exchange reserves, a large budget deficit, and plummeting credit ratings. The IMF estimated GDP growth at 2.0 percent in 2021, a significant drop from 6.0 percent in 2020 and double-digit growth for much of the past decade. During 2021, the Government of Ethiopia (GOE) made the first revisions in over 60 years to the commercial code, awarded a spectrum license to a private telecom operator, and took initial steps toward privatization of other state-owned sectors, including the telecom and sugar industries.
Ethiopia is a signatory of the Paris Agreement on Climate Change, and it has a climate resilience green economy strategy (CRGES) to build a green and resilient economy. Ethiopia has also formulated climate-resilient sectoral policies and strategies to provide specific strategic interventions in areas such as agriculture, forestry, transport, health, urban development, and housing.
In 2020-21, the GOE provided liquidity to private banks to mitigate the impact of COVID-19 on businesses, to facilitate debt restructuring and to prevent bankruptcies and it also injected liquidity into the hotel and tourism sector through commercial banks. The GOE planned to allocate roughly $1 billion U.S. dollars during the same period for medical equipment purchases, healthcare worker salaries, quarantine and isolation facilities, and the procurement of disinfectants and personal protective equipment.
The challenges of doing business in Ethiopia remain daunting. Companies often face long lead-times importing goods and dispatching exports due to logistical bottlenecks, corruption, high land-transportation costs, and bureaucratic delays. An acute foreign exchange shortage (the Ethiopian birr is not a freely convertible currency) impedes companies’ ability to repatriate profits and obtain investment inputs. The lack of a capital market hinders private sector growth. Export performance remains weak, as the country struggles to develop exports beyond primary commodities (coffee, gold, and oil seeds) and the Ethiopian birr remains overvalued. Ethiopia is not a signatory of major intellectual property rights treaties such as the Paris Convention for the Protection of Industrial Property and the Madrid System for the International Registration of Marks.
Insecurity and political instability associated with various ethnic conflicts – particularly the conflict in northern Ethiopia – have negatively impacted the investment climate and dissuaded foreign direct investment (FDI).
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Ethiopia needs significant inflows of FDI to meet its ambitious growth goals. Over the past year, to attract more foreign investment, the government passed a new investment law, acceded to the New York Convention on Arbitration, amended its 60-year-old commercial code, and digitized the commercial registration and business licensing processes. The government has also begun implementing the Public Private Partnership (PPP) Proclamation to allow for private investment in the power generation and road construction sectors.
The Ethiopian Investment Commission (EIC) has the mandate to promote and facilitate foreign investments in Ethiopia. To accomplish this task, the EIC is charged with 1) promoting the country’s investment opportunities to attract and retain investment; 2) issuing investment permits, business licenses, work permits, and construction permits; 3) issuing commercial registration certificates and renewals; 4) negotiating and signing bilateral investment agreements; and 5) registering technology transfer agreements. In addition, the EIC has the mandate to advise the government on policies to improve the investment climate and to hold regular and structured public-private dialogues with investors and their associations. At the local level, regional investment agencies facilitate regional investment.
The American Chamber of Commerce (AmCham) advances U.S. business interests in Ethiopia. AmCham provides a mechanism for coordination among American companies and facilitates regular meetings with government officials to discuss issues that hinder operations in Ethiopia. The Addis Ababa Chamber of Commerce organizes a monthly business forum that enables the business community to discuss issues related to the investment climate with government officials.
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. The Investment Proclamation and associated regulations outline the areas of investment reserved for government and local investors. There is no private ownership of land in Ethiopia. All land is technically 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 to curb speculation by investors.
A foreign investor intending to buy an existing private enterprise or shares in an existing enterprise needs to obtain prior approval from the EIC. While foreign investors have complained about inconsistent interpretation of the regulations governing investment registration (particularly relating to accounting for in-kind investments), they generally do not face undue screening of FDI, unfavorable tax treatment, denial of licenses, discriminatory import or export policies, or inequitable tariff and non-tariff barriers.
Other Investment Policy Reviews
Over the past three years, the government has not undertaken any third-party investment policy review by a multilateral or non-governmental organization. The government has worked closely with some international stakeholders, such as the International Finance Corporation, in its attempt to modernize and streamline its investment regulations.
The EIC has attempted to establish itself as a “one-stop shop” for foreign investors by acting as a centralized location where investors can obtain the visas, permits, and paperwork they need, thereby reducing the time and cost of investing and acquiring business licenses. The EIC has worked with international consultants to modernize its operations and has adopted a customer management system to build lasting relationships and provide post-investment assistance to investors. Despite progress, the EIC admits that many bureaucratic barriers to investment remain. U.S. investors report that the EIC, as a federal organization, has little influence at regional and local levels.
Currently, more than 95 percent of Ethiopia’s trade passes through the Port of Djibouti, with residual trade passing through the Somaliland Port of Berbera or Port Sudan. Ethiopia concluded an agreement in March of 2018 with the Somaliland Ports Authority and DP World to acquire a 19 percent stake in the joint venture developing the Port of Berbera. The agreement will help Ethiopia secure an additional logistical gateway for its increasing import and export trade.
The GOE is working to improve business facilitation services by making the licensing and registration of businesses easier and faster. In February 2021, the Ministry of Trade and Regional Integration (MOTRI) launched an eTrade platform (etrade.gov.et) for business registration licensing to enable individuals to register their companies and acquire business licenses online. The amended commercial registration and licensing law eliminates the requirement to publicize business registrations in local newspapers, allows business registration without a physical address, and reduces some other paperwork burdens associated with business registration. U.S. companies can obtain detailed information for the registration of their business in Ethiopia from an online investment guide to Ethiopia: (https://www.theiguides.org/public-docs/guides/ethiopia) and the EIC’s website: (http://www.investethiopia.gov.et/index.php/investment-process/starting-a-business.html). MOTRI has target timeframes for the registration of new businesses, but it often fails to meet its deadlines.
There is no officially recorded outward investment by domestic investors from Ethiopia as citizens/local investors are not allowed to hold foreign accounts.
2. Bilateral Investment Agreements and Taxation Treaties
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.
There is no double taxation treaty between the United States and Ethiopia. Ethiopia has taxation treaties with fourteen countries, including Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel, South Africa, Sudan, and the United Kingdom.
3. Legal Regime
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 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.
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 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. In February 2019, the Ethiopian Parliament passed a bill entitled ‘Food and Medicine Administration Proclamation number 1112/2019’, which bans smoking in all indoor workplaces, public spaces, and means of public transport and prohibits alcohol promotion on broadcasting media.
In April 2020, Ethiopia published the Administrative Procedure Proclamation number 1183/2020 (APP). The APP’s 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 Ministry of Justice (MOJ); the Ethiopian Federal Police; the Ethiopian National Defense Force, and the intelligence agencies. To foster transparency, the APP obligates all government agencies’ regulations to be registered with MOJ (https://www.eag.gov.et/en-us/Home) and be widely accessible to the public. 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 GOE provides accurate, comprehensive, and detailed information on the enacted budget and overall government debt. However, fiscal transparency in Ethiopia continues to have several deficiencies, including the unavailability of executive budget proposals, a lack of publicly available information on state-owned enterprise (SOE) debt, poor legislative oversight of budget preparation and execution, and limited budget execution reports.
International Regulatory Considerations
In April 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, companies complain that these cases often face extended scheduling delays, and that contract enforcement remains weak. To address these issues, the federal Supreme Court issued a new court-led mediation directive, number 12/2021, which is expected to resolve disputes including commercial ones within a shortened period while reducing litigation costs for involved parties.
In March 2021, the parliament revised the Commercial Code for the first time in 60 years. The revised code modernizes and simplifies business regulations, develops regulations for new technologies not covered in the prior version, and seeks to implement greater transparency and accountability in commercial activities.
Laws and Regulations on Foreign Direct Investment
Investment Proclamation number 1180/2020 and its implementing regulation number 474/2020 are Ethiopia’s main legal regime related to 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 MOJ Trade Competition and Consumer Protection Adjudicative Bench is responsible for reviewing merger and acquisition transactions and monopolistic business practices. The bench’s decisions can be appealed to the federal Supreme Court. Post is not aware any significant competition cases during the reporting period.
Expropriation and Compensation
The 2020 Investment Proclamation stipulates that 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.
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. 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. In practice, investment dispute resolution can take years due to inadequate capacity in the court system.
International Commercial Arbitration and Foreign Courts
Arbitration has become a widely used means of dispute settlement within 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 Commercial Code (Book III) 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. However, there is limited application of bankruptcy procedures in Ethiopia as the process can take years to settle.
4. Industrial Policies
Investment Regulation 474/2020 retains the investment incentive provisions as outlined under the 2012 law. Accordingly, investors in manufacturing, agri-processing, and selected agricultural products are entitled to income tax exemptions ranging from two to five years, depending on the location of the investment. Additionally, investors in manufacturing; agriculture; ICT; electricity generation, transmission, and distribution; and producers who produce for export or supply to an exporter, or who export at least 60 percent of the products or services, are entitled to an additional two years of income tax exemption. Investors in renewable energy generation are eligible for 4-5 years of income tax exemptions. There are no special incentives for investments made by members of under-represented social groups such as women.
Foreign Trade Zones/Free Ports/Trade Facilitation
Industrial Park Proclamation 886/2015 mandates that the Ethiopian Industrial Parks Corporation develop and administer industrial parks under the auspices of government ownership. 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 of 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 GOE with Chinese financing. The list of operational industrial parks is available at https://ipdc.gov.et/service/parks.
Performance and Data Localization Requirements
Ethiopia does not impose official performance requirements on foreign investors, though foreign investors routinely encounter business visa delays and onerous paperwork requirements. In addition, foreign investors are required to comply with a $100,000 minimum capital investment requirement for architectural or engineering projects and a $200,000 requirement to projects in other sectors. For most joint investments with a domestic partner, the minimum capital investment requirement is $150,000.
The minimum capital requirement is waived if the foreign investor reinvests profits or dividends generated from an existing enterprise in any investment area open to foreign investors; and if a foreign investor purchases a portion or the entirety of an existing enterprise owned by another foreign investor. 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.
Proclamation 808/2013 mandates that the Information Network Security Agency (INSA) control the import and export of information technology, build an information technology testing and evaluation laboratory center, and regulate cryptographic products and their transactions.
5. Protection of Property Rights
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. The GOE retains the right to expropriate land for the “common good” – which it defines as expropriation for commercial farms, industrial zones, and infrastructure development – and offer replacement land or monetary compensation to the previous owner. While the government claims to allocate only sparsely settled or empty land to investors, it has in some cases forced people to resettle. 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 regional 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 the region of Oromia, where conflict between international investors and local communities has occurred.
Intellectual Property Rights
The Ethiopian Intellectual Property Office (EIPO) oversees intellectual property rights (IPR) issues. Ethiopia is not yet a signatory to several 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. In 2020 Ethiopia ratified the Marrakesh Treaty to facilitate access to published works for persons who are blind, visually impaired, or otherwise print disabled. The government has expressed its intention to accede to the Berne Convention, the Paris Convention, and the Madrid Protocol. Because Ethiopia’s accession to the WTO is incomplete, it is not a party to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).
EIPO is primarily tasked with protecting Ethiopian patents and copyrights and fighting software piracy. Historically, however, the EIPO has struggled with a lack of qualified staff and small budgets; further, the institution 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.
Ethiopia has a limited and undeveloped financial sector, and investment is largely closed off to foreign firms. Liquidity at many banks is limited, and commercial banks often require 100 percent collateral, making access to credit one of the greatest hindrances to growth in the country. Ethiopia is the largest economy in Africa without a securities market, and sales/purchases of debt are heavily regulated.
Ethiopia’s concessional IMF Extended Credit Facility (ECF) program expired in September 2021. The program aimed to reduce public sector borrowing, rein in inflation, reform the exchange rate regime, and ensure external debt sustainability. The GOE has not yet launched formal talks with the IMF on a new program.
The GOE has announced, as part of its overall economic reform effort, its intention to liberalize the financial sector. The government has already made good progress by allowing non-financial Ethiopian firms to participate in mobile money activities, introducing Treasury-bill auctions with market pricing, and reducing forced lending to the government on the part of the commercial banks. The parliament approved the establishment of a capital market in June 2021, and activities are underway to set up a capital market regulatory body and the stock market.
The National Bank of Ethiopia (NBE, the central bank) began offering a limited number of 28-day and 91-day Treasury bills at market-determined interest rates in December 2019. Since then, more bond offerings of longer tenures have been included in the auctions. The move was part of an effort to expand the NBE’s monetary policy tools and finance the government in a more sustainable way. Previously, the NBE had only sold Treasury bills at below-market interest rates, and the only buyers were public sector enterprises, primarily the Public Social Security Agency and the Development Bank of Ethiopia.
Ethiopia issued its first 10-year Eurobond in December of 2014, raising 1 billion U.S. dollars at a rate of 6.625 percent. 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 its 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. As Ethiopia’s ability to service its external debts declined in the wake of the COVID-19 pandemic, Ethiopia participated in the World Bank Debt Service Suspension Initiative (DSSI), which suspended external debt payments from May 2020 through June of 2021. Ethiopia is seeking further debt treatment under the G20 Common Framework for Debt Treatments Beyond the DSSI.
Money and Banking System
Ethiopia has 23 commercial banks, two of which are state-owned. The Development Bank of Ethiopia, a state-owned bank, provides loans to investors in priority sectors, notably agriculture and manufacturing. By regional standards, the 21 private commercial banks are not large (either by total assets or total lending), and their service offerings are not sophisticated. Mobile money and digital finance, for instance, remain limited in Ethiopia. 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. Foreigners of Ethiopian origin are now allowed to both establish their own banks and hold shares in financial institutions.
The state-owned Commercial Bank of Ethiopia accounts for more than 50 percent of total bank deposits, bank loans, and foreign exchange in Ethiopia. The NBE controls banks’ 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 double digit annual inflation. Non-performing loans account for less than 3 percent of all loans.
Foreign Exchange and Remittances
All foreign currency transactions must be approved by the NBE. Ethiopia’s national currency (the Ethiopian birr) is not freely convertible. The GOE removed in September 2018 the limit on holding foreign currency accounts faced by non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin.
Foreign exchange reserves are at critically low levels. Fitch Ratings estimated Ethiopia’s gross foreign exchange reserves at about $3.5 billion in August 2021, covering approximately 1.8 months of imports. Heavy government infrastructure investment, increased military and food imports, increased debt servicing needs, and a large trade imbalance, all fuel a high demand for foreign exchange. Businesses encounter delays of six months to two years in obtaining foreign exchange, and they must deposit the full equivalent in Ethiopian birr in their accounts to initiate the conversion process. 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 raw material in a timely fashion. In January 2022, new NBE regulations required commercial banks to transfer 70 percent of foreign exchange earnings into NBE accounts. The GOE uses this foreign exchange for strategic purposes, including to import petroleum products, wheat, pharmaceuticals, and sugar.
Due to chronic foreign exchange shortages, 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 several other ways. It drives contraband trade through Somaliland because the Ethiopian birr is an unofficial currency there. Exporters with priority access to foreign exchange sometimes sell their allocations of hard currency to importers at inflated rates, creating a black-market for U.S. dollars that is roughly 30 to 40 percent over the official rate. Other exporters use their foreign exchange earnings to import consumer goods or industrial inputs with high margins, rather than re-investing profits in their core businesses. Meanwhile, the lack of access to foreign exchange impacts the ability of American citizens living in Ethiopia to pay their taxes and students to pay school fees abroad.
The Ethiopian birr has depreciated significantly against the U.S. dollar over the past ten years, primarily through a series of controlled steps, including a 20 percent devaluation in September 2010 and a 15 percent devaluation in October 2017. The NBE increased the devaluation rate of the Ethiopian birr starting in November of 2019, and the NBE has continued to devalue the currency at a more rapid rate in accordance with the since expired IMF program. The official exchange rate was approximately 50.80 Ethiopian birr to the U.S. dollar as of March 2022, while the illegal parallel market exchange rate for the same time was approximately 65 Ethiopian birr to the U.S. dollar.
Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding 200,000 Ethiopian birr (roughly equivalent to U.S. reporting requirements for currency transfers exceeding $10,000). Ethiopian citizens are not allowed to hold or open a foreign exchange account. Ethiopian residents entering the country from abroad are required to declare foreign currency in excess of $1,000, and non-residents in excess of $3,000. Residents are not allowed to hold foreign currency for more than 30 days after acquisition. A maximum of 1,000 Ethiopian birr in cash can be carried out of the country.
The Investment Proclamation allows all registered foreign investors 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. In practice, however, foreign companies and individuals have experienced difficulties obtaining foreign currency to remit dividends, profits, or salaries due to the critical shortage of foreign currency the country currently faces.
Sovereign Wealth Funds
Ethiopia’s Council of Ministers approved in December 2021 the creation of Ethiopian Investment Holdings (EIH) – Ethiopia’s Sovereign Wealth Fund. EIH is currently under formation and expects to manage assets worth about $2 billion across several sectors, including telecoms, mining, banking, aviation, and logistics.
7. State-Owned Enterprises
Ethiopia’s roughly 40 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, and petroleum importing. SOEs have considerable advantages over private firms, including priority access to credit, foreign exchange, land, and quick 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 of the Organization 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.
In July 2018, the GOE announced plans to fully or partially privatize several state-owned enterprises and sectors. In 2020, Ethiopia enacted Public Enterprises Privatization Proclamation number 1206/2020 regulate and encourage transparency and private sector participation in privatization processes. The GOE will implement privatizations through public tenders open to local and foreign investors. In September 2021, the GOE tendered a 40 percent stake of state-owned Ethio telecom but later postponed the process indefinitely due in part to muted investor interest. The government has sold more than 370 public enterprises since 1995, mainly small companies in the trade and service sectors, most of which were nationalized by the Derg military regime in the 1970s.
8. Responsible Business Conduct
Some larger international companies in Ethiopia have introduced corporate social responsibility (CSR) programs. Most Ethiopian companies, however, do not officially practice CSR, though individual entrepreneurs engage in charity, sometimes on a large scale. There are efforts to develop CSR programs by MOTRI 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. The Addis Ababa Chamber of Commerce also has a corporate governance institute, which promotes responsible business conduct among private business enterprises.
The GOE does not publish data on the number of children who are victims of forced labor. The Ethiopian Central Statistics Agency’s 2015 National Child Labor Survey and 2021 Labor Force and Migration Survey did not assess forced labor.
On January 1, 2022, the U.S. Trade Representative (USTR) announced that due to human rights concerns related to the conflict in northern Ethiopia, Ethiopia no longer met the eligibility criteria for African Growth and Opportunity Act (AGOA) trade preferences. Ethiopia will continue to undergo AGOA’s annual review process and may regain eligibility once it meets the criteria.
The 2020 Investment Law requires all investors to give due regard to social and environmental sustainability values including environmental protection standards and social inclusion objectives. The 2002 Environmental Impact Assessment Proclamation number 299/2002 mandates any government agency issuing business licenses or permits for investment projects ensure that federal or relevant regional environmental agencies authorize the project’s implementation. In practice, environmental laws and regulations are not fully enforced due to limited capacity at government regulatory bodies.
In 2014, the Extractive Industry Transparency Initiative (EITI) admitted Ethiopia as a candidate-member. In 2019, EITI found Ethiopia made meaningful progress in implementing EITI standards. The Commercial Code requires extractive industries and other businesses to conduct statuary audits of their financial statements at the end of each financial year.
Ethiopia is a signatory of the Paris Agreement on Climate Change and endorsed the Climate Resilience and Green Economy Strategy (CRGE). Ethiopia has formulated climate resilient sectoral policies and strategies to carry out environmental interventions in areas such as agriculture, forestry, transport, health, urban development, and housing. According to its Nationally Determined Contribution (NDC) towards the Paris Agreement goals, Ethiopia aims to reduce its carbon emissions by 68 percent by 2030 (2018 base year). The GOE Green Legacy Initiative, launched in 2019, is a tree planting campaign aimed at curbing the impact of climate change and deforestation.
The 2002 Environment Impact Assessment law authorizes pertinent environmental regulatory offices to provide technical and financial incentives to projects focused on environmental rehabilitation or pollution prevention.
The Federal Ethics and Anticorruption Proclamation number 1236/2020 aims to combat corruption involving government officials and organizations, religious organizations, political parties, and international organizations. The Federal Ethics and Anti-Corruption Commission (FEACC) is accountable to parliament and charged with preventing corruption among government officials by providing ethics training and education. MOJ is responsible for investigating corruption crimes and prosecutions. The Office of the Ombudsman is responsible for ensuring good governance and preventing administrative abuses by public offices.
Transparency International’s 2022 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 39 (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 2021 was 87 out of 180 countries, a seven-point improvement from its 2020 rank. In 2020 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. Allegations of corruption in the allocation of urban land to private investors by government agencies are a major source of popular discontent in Ethiopia.
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.Ethiopia signed the UN Anticorruption Convention in 2003, which was eventually 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 a government agency responsible for combating corruption:
Federal Police Commission
+251 11 861-9595
Ethnic conflict – often sparked by historical grievances or resource competition, including land disputes – has resulted in varying levels of violence across Ethiopia. According to the 2022 Global Humanitarian Overview, there were an estimated 4.2 million Internally Displaced Persons (IDPs) in Ethiopia at the end of 2021, with high levels of need also identified among non-displaced people living in conflict-affected areas. The primary cause of displacements was conflict and insecurity, followed by drought and seasonal floods and flash flooding.
Most significantly, in early November 2020, a conflict broke out between a regional political party in the Tigray Region and the federal government. The conflict quickly enlarged, with Eritrean troops present in parts of Tigray Region, and Amhara Region forces controlling much of Western Tigray. The conflict in northern Ethiopia has led to many deaths, widespread displacements, extensive destruction of infrastructure, widespread gross human rights violations, gender-based violence, a vast reduction in public services, and widespread hunger.
Insecurity, often driven by ethnic tensions, persists in many other areas, notably in the southern and western Oromia Region; eastern Southern Nations, Nationalities, and People’s Region; and in the Hararges on the border of the Somali Region. In western Oromia, the Oromo Liberation Army-Shane and other unidentified armed groups have intensified attacks against public and local government officials; this violence has spilled over into other parts of Oromia. In far western Ethiopia, ethnic violence and clashes in Benishangul-Gumuz Region have continued throughout 2021 and into early 2022, leaving hundreds dead and hundreds of thousands displaced. Amhara has experienced altercations in 2022 between regional security forces and youth militias.
When Prime Minister Abiy came to power in 2018, political space opened significantly, although it has since regressed especially after the government declared a State of Emergency in November 2021. While the State of Emergency was lifted in February 2022, during its implementation thousands of people, mostly of Tigrayan ethnicity, were arbitrarily detained and freedom of the press was significantly curtailed. Constitutional rights, including freedoms of assembly and expression, are generally supported at the level of the federal government, though the protection of these rights remains uneven, especially at regional and local levels. While opposition parties mostly operate freely, authorities, especially at the sub-national level, have employed politically motivated procedural roadblocks to hinder opposition parties’ efforts to hold meetings or other party activities; this was especially true in the run-up to the June 2021 general election.
The space for media and civil society groups has generally become freer following reforms instituted by Prime Minister Abiy. Still, journalism in the country remains undeveloped, social media is often rife with unfounded rumors, and government officials occasionally react with heavy-handedness, especially to news they feel might spur social unrest, resulting in self-censorship. Civil society reforms have spurred an expansion of the sector, though many civil society groups continue to struggle with capacity and resource issues.
11. Labor Policies and Practices
The national unemployment rate in February 2021 was 8 percent according to the 2021 Labor Force and Migration Survey. The unemployment rates for men and women were 5 and 11.7 percent, respectively. The law only gives refugees and asylum seekers the opportunity to work on a development project supported by the international community that economically benefits both refugees and citizens or to earn wages through self-employment. The law prohibits discrimination with respect to employment and occupations. However, there are legal restrictions on women’s employment, including limitations on occupations deemed dangerous and in industries, such as mining and agriculture. Women have fewer employment opportunities than men. Around 46.3 percent of people were working in the informal sector nationally according to the 2021 Labor Force and Migration Survey.
According to a 2020 International Labor Organization labor market assessment across all sectors, there was a generally higher demand for highly skilled workers, followed by medium-skilled workers; low-skilled workers had the lowest demand, especially in construction and manufacturing sectors. In terms of supply, there was generally an oversupply of low- and medium-skilled workers across major sectors such as agriculture, construction, and manufacturing. The Ministry of Labor and Skills, in collaboration with other international and national stakeholders, provides trainings for technical and vocational trainers.
The investment law gives employment priority for nationals and provides that any investor may employ duly qualified expatriate experts in the positions of “higher management, supervision, trainers and other technical professions” required for the operation of business only when it is ascertained that Ethiopians possessing similar qualifications or experiences are not available.
There is no restriction on employers adjusting employment to respond to fluctuating market conditions. The labor law allows employers to terminate employment contracts with notice when demand falls for the employer’s products or services and reduces the volume of work or profit. The law differentiates between firing and layoffs.
The national labor law recognizes the right to collective bargaining, but this right was severely restricted under the law. Negotiations aimed at amending or replacing a collectively bargained agreement must take place within three months of its expiration; otherwise, the prior provisions on wages and other benefits cease to apply. The constitution and the labor law recognize the right of association for workers.
Labor divisions are established at the federal and regional level. Employers and workers may also introduce social dialogue to prevent and resolve labor disputes amicably. The Ministry of Labor and Skills assigns councilors or arbitrators when a dispute is brought to the attention of the Ministry or the appropriate authority by either of the parties to the dispute.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
The Development Finance Corporation (DFC) is exploring insurance and investment opportunities in Ethiopia but is currently unable to advance any projects due to policy implications relating to a temporary U.S. government pause on most bilateral assistance and cooperation with Ethiopia.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
*National Bank of Ethiopia and Ethiopian Investment Commission
**Ethiopian Fiscal Year 2020-21, which begins on July 8, 2020.
Table 3: Sources and Destination of FDI Data regarding inward direct investment are not available for Ethiopia via the IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS).
14. Contact for More Information
The U.S. Embassy’s main number is +251 011 130 6000.