Ethiopia's Economic Climate

Investment Climate

The Government of the Federal Democratic Republic of Ethiopia (GFDRE) is committed to ensuring that private capital plays a significant role in the economy. To this end, it has eliminated discriminatory tax, credit, and foreign trade treatment of the private sector, simplified administrative procedures, and established a clear and consistent set of rules regulating business activities. In June 1996, the Ethiopian Government issued a reverse investment code which, among other things, provided incentives for development-related investments; reduced capital entry requirements for joint ventures and technical consultancy services; created incentives in the education and health sectors; permitted the duty free entry of capital goods (except computers and vehicles); opened the real estate sector to expatriate investors; extended the losses carried forward provision; cut the capital gains tax from 40 to 10 percent; and gave priority to investors in obtaining land for lease.

The investment code prohibits foreign firm participation in the domestic banking or insurance services. Other areas of investment reserved for Ethiopian nationals include air transport services for more than 20 passengers or for cargo above 2700 kilograms, forwarding and shipping agency services, rail transport services, and non-courier postal services. Professional service providers must be licensed by the government to practice in Ethiopia.

Amendments to Ethiopia's investment proclamation issued in September 1998 allow Ethiopian expatriates and permanent residents to participate in areas formerly reserved for Ethiopian nationals.

These areas included the following: radio and television broadcasting services; retail and wholesale trade (except for locally produced goods); import trade; export of raw coffee, oil seeds, pulses, hides and skins, and live sheep, goats, and cattle not raised or fattened on the investor's farm; small and medium-scale construction; tanning of hides and skins up to "crust" level; non-rated hotels, pension houses, bars, nightclubs, tea rooms, coffee houses, and restaurants, excluding international and specialized restaurants; tour operation, travel agency, commission agency, and ticket offices; car hire and taxi transport services; commercial road transport and inland water transport services; bakery products and pastries for the domestic market; grinding mills for grains; barber shops, beauty salons, goldsmith shops, and tailoring services, excluding garment factories; building maintenance services; repair and maintenance of vehicles; saw milling, processing of logs, and the manufacturing of wood products for the domestic market; customs clearance services; museums, theaters, and cinema hall operation; and printing industries.

Although the investment code amendments maintained the exclusion on foreign participation in financial services (banking and insurance) and the other services noted above, they opened several formerly prohibited sectors to foreign investment: telecommunications, hydro-electric power generation (below 25 megawatts), and defense. Investment in telecommunications and defense, however, must be "in partnership with the Ethiopian government." Another provision expands the list of services open to foreign investment to include engineering, architecture, accounting, auditing, and business consultant services.

The Ethiopian government reviews investment proposals in a non-discriminatory manner; the screening process is not regarded as an impediment to investment, a limit to competition, or a means of protecting domestic interests. Foreign firms are welcome to invest in privatization efforts of the Ethiopian government, although in some instances the government promotes joint ventures with Ethiopian private concerns rather than outright sales. Foreign firms participate through consultant services preparatory to privatization or through tendering on advertised privatization opportunities. Ethiopia is progressing slowly toward its stated goal of relinquishing most, if not all, of its state-owned firms. To date, Ethiopia has privatized approximately 180 properties, mostly small enterprises in trade and other service sectors. In November 1998, the Ethiopian privatization agency published a list of 114 other firms to be divested in the near future, including breweries, hotels, textile and garment factories, construction and building materials industries, food factories, tanneries, and cotton, tea, and cereal farms. None of Ethiopia's utilities have been privatized to date, though the government is looking for foreign investor partners in telecommunications.

There are no discriminatory or excessively onerous visa, residence, or work permit requirements regarding foreign investors. Foreign investors do not face unfavorable tax treatment, denial of licenses, discriminatory import or export policies, or inequitable tariff and non-tariff barriers.

THE ETHIOPIAN INVESTMENT AUTHORITY

The Ethiopian Investment Authority (EIA) serves as a one-stop shop for foreign investors securing investment certificates, company registration certificates, and operating licenses. The EIA has a proven track record of assisting both domestic and foreign investors identify potential investments and then facilitating swift and smooth implementation. Reflecting the great importance the government attaches to investment activities, the Prime Minister is the Chairman of the Board of EIA.

FOREIGN DIRECT INVESTMENT STATISTICS

From its inception in July 1992 through August 1998, the Ethiopian Investment Authority has approved 163 foreign investment projects with total projected capital investment of 9.0 billion birr ($1.2 billion). Of these projects, 90 are wholly foreign-owned and 73 are joint ventures with local partners U.S. investors are responsible for 11 of these new projects, with a total future expected investment of 244 million birr ($30 million). Current U.S. direct investment in Ethiopia is estimated at about $9 million. Ethiopia's major foreign investors include Saudi Arabia, South Korea, Kuwait, and Italy.

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