2023 Investment Climate Statements: Ethiopia

Policies Towards Foreign Direct Investment

Ethiopia needs significant inflows of FDI to meet its ambitious growth goals. The government passed an investment law in 2020 to attract more foreign investment, 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 Amhara regional state. 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 five years, the government has not undertaken any third-party investment policy review by a multilateral or non-governmental organization. It has worked closely with some international stakeholders, such as the International Finance Corporation, in its attempt to modernize and streamline its investment regulations.

Business Facilitation

The EIC has attempted to establish itself as a “one-stop shop” for foreign investors by acting as a centralized location where investors can obtain the visas, permits, and paperwork they need, thereby reducing the time and cost of investing and acquiring business licenses. The EIC has worked with international consultants to modernize its operations and 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 first phase of port construction was finalized in fiscal year 2021-22, and a road from the port to the Ethiopian border is under construction. In 2022, five percent of Ethiopia’s imports passed through the Port of Berbera. The Somaliland government and government of Ethiopia are working jointly to establish one border post for customs clearance.

The government 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 Amharic language 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.

Outward Investment

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

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.

Ethiopia’s 1994 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 facto 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 are available online: http://www.hopr.gov.et/web/guest/122  and https://www.lawethiopia.com/.

Legal matters relating to the federal government are addressed by Federal Courts, while state matters go to regional 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 relating to human health and environmental pollution are often enforced. 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, the government 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 required government institutions to set up offices to handle such complaints but those offices are not yet established. 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’ directives to be registered with the 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 government 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’s WTO accession process originally began in 2003, languished, and then resumed in 2018. Since 2020 the process has stagnated due to COVID, but the government was again reviewing the goods and services offer in 2022 in the context of its economic reform program.

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. Ethiopia has a mixed legal system with a predominantly civilian legal system and less emphasis on legal precedent determined by the Supreme Court’s cassation bench. According to the contractual law, a contract agreement is binding between contracting parties. Contracts can be registered at the Agency for Document Registration and Authentication. Disputes between the parties can be taken to court. In October 2022, the Federal First Instance Court established a Trade and Investment Division Court for handling solely commercial, construction, banking, and insurance cases. The setup of this court aims to improve the ease of doing business and attract FDI.

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 May 2022 the Federal Instance Court also set up a Trade and Investment bench that deals exclusively on commercial and investment dispute matters.

In March 2021, Ethiopia’s 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 2020 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.

Competition and Antitrust Laws

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 proclamation stipulates compensation be non-discriminatory and based on a current market value. However, compensation of expropriatied land only includes the value of the buildings or infrastructure and excludes the land’s other economic benefits such as its monetary value.

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 verbal 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.

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 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. The investment law stipulates that investment disputes between the state and a 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 a 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 business enterprises with arbitration. Following Ethiopia’s accession to the New York Convention, local courts 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.

Bankruptcy Regulations

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. The new commercial code introduced insolvency procedures other than bankruptcy including preventive restructuring proceedings, reorganization procedures, and simplified re-organization proceedings to revive companies in distress. The commercial code also allows simplified bankruptcy proceedings for small and medium enterprises.

Investment Incentives

Investment Regulation 474/2020 retains the investment incentive provisions as outlined under the 2012 law. Accordingly, investors in manufacturing, agro-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 government with Chinese financing. The list of operational industrial parks is available at https://ipdc.gov.et/service/parks. In August 2022 the Council of Ministers adopted a National Speical Economic Zones Policy, which aimed at improving the national trade system to attract foreign direct investment. The same month, the government inaugurated the Dire Dawa Free Trade Zone, which has 15 factory sheds rented to foreign investors specializing in garment, apparel, and textile production.

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 for 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.

Real Property

While the constitution recognizes and protects ownership of private property, 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 government 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. In 2022, the state-owned Federal Land Bank and Development Corporation inventoried all land under the ownership of public institutions and made 630 hectares available in Addis Ababa for joint investment with government in sectors seach as housing, health, hospitality, information communication technology, and education.

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. Successful investors in Ethiopia conduct thorough due diligence on land titles at both the regional and federal levels and conduct consultations with local communities regarding the proposed use of the land before investing.

Intellectual Property Rights

Ethiopia is not on USTR’s Special 301 List. Ethiopia is not yet a signatory to several major intellectual property rights (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).

In November 2021, the government restructured the Ethiopian Intellectual Property Office as the Ethiopian Intellectual Property Authority (EIPA) to strengthen its enforcement capacity. This included granting the EIPA a mandate to establish an Intellectual Property Tribunal to arbitrate intellectual property disputes and appeals, which previously could be decided only in courts. EIPA is primarily tasked with protecting Ethiopian patents and copyrights and fighting software piracy. Historically, however, the EIPA has struggled with a lack of qualified staff and small budgets. 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’s Federal High Court is part of the African Regional Intellectual Property bench book working group, which was established to prepare a bench book on IP crimes for judges in Africa. The working group is financed by United States Department of Justice. EIPA contact and office information is available at http://www.eipa.gov.et/ 

For additional information about the national law and for a local WIPO point of contact, please see WIPO’s country profile at http://www.wipo.int/directory/en/ .
Embassy POC: Economic Officer, USEmbassyPolEconExternal@state.gov

Capital Markets and Portfolio Investment

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. In Ethiopia, the sales/purchases of debt are heavily regulated. The parliament approved the establishment of a capital market in June 2021, and the government set up the Capital Market Authority in December 2022. Activities are underway to put the necessary legal directives, institutions, policies, and market infrastructure in place.

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. In March 2023, the government launched formal talks with the IMF on a new program.

The government 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 and introducing Treasury-bill auctions with market pricing
The National Bank of Ethiopia (NBE – 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. To finance the government’s growing budget deficit, the NBE announced a directive in November 2022 that obliges commercial banks to invest 20 percent of their monthly new loan volume in five-year government bonds at a 9 percent interest rate.

Ethiopia issued its first 10-year Eurobond in December 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 – predominantly to the PRC as the largest bilateral creditor – the government has refrained from non-concessional financing for new projects and shifted 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 (CF) for Debt Treatments Beyond the DSSI, and Ethiopia’s creditor committee under the CF is chaired by the PRC and France.

Money and Banking System

Ethiopia has 30 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 28 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. In September the Council of Ministers approved a policy to open up the banking sector for foreign competition and the NBE is working on revising the banking business proclamation. 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. Some commercial banks in Ethiopia face challenges related to non-performing loans (NPLs), low liquidity, cybercrime, and state-owned enterprise (SOE) debt.  NPLs associated with COVID-19 and the conflict in northern Ethiopia have crept up from 3 percent of total loans in 2018-19 to 5.6 percent in 2021-22.

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 government removed the $50,000 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. 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 October, the NBE announced a ban on imports of 38 “luxury” items, including basic commodities like salt, sugar, and soap due to foreign currency shortage. In January 2022, new NBE regulations required commercial banks to transfer 70 percent of foreign exchange earnings into NBE accounts. The government uses this foreign exchange for strategic purposes, including to import petroleum products, 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 parallel market for U.S. dollars that is roughly 80 to 90 percent over the official rate. The official exchange rate was approximately 53.8 Ethiopian birr to the U.S. dollar as of March 2023, while the illegal parallel market exchange rate for the same time was approximately 102 Ethiopian birr to the U.S. dollar. 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.

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 $4,000 and non-residents in excess of $10,000. Residents are not allowed to hold foreign currency for more than 30 days after acquisition. A maximum of 3,000 Ethiopian birr in cash can be carried out of the country.

Remittance Policies

The 2020 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 manages assets worth about $2 billion across several sectors, including telecoms, mining, banking, aviation, and logistics.

Privatization Program

In July 2018, the government announced plans to fully or partially privatize several state-owned enterprises and sectors. In 2020, Ethiopia enacted Public Enterprises Privatization Proclamation number 1206/2020 to regulate and encourage transparency and private sector participation in privatization processes. The government will implement privatizations through public tenders open to local and foreign investors. In September 2021, the government re-tendered a 40 percent stake of state-owned Ethio Telecom but later postponed the process due in part to muted investor interest. In February 2023 the government retendered a 45 percent stake in Ethio Telecom stake with 40 percent designed to be allocated to a single international invetor and five percent allocated to local invesors. Again, there were no expressions of 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.

Climate Issues

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 but none have been fully implemented. 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 government 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 2010 Federal Public Procurement Directive ordered public procuring entities to be environment friendly.