Investment Climate Statements for 2016 - Ethiopia

Executive Summary

Ethiopia has one of the fastest growing economies in the world. The IMF estimates Ethiopia will have an average GDP growth rate of 7.4% from 2017 to 2020, although a drought caused by el-Nino could slow growth next year. After Nigeria, Ethiopia is the second most populous country in sub-Saharan Africa with a population of roughly 95 million.

The government of Ethiopia follows integrated 5-year plans to guide its state-led industrial development. The second of these Growth and Transformation Plans (GTP II), covering 2016–2020, is now being implemented. GTP II sets a target of an average growth of 11% in the next five years with the objective of middle income status by 2025. To realize these goals, the government continues to pursue consistent and prudent macroeconomic policies and to invest heavily in large-scale social, infrastructural and energy projects. Included in the GTP II are incentives for international investors, such as facilitation of repatriation of investment and profit, ease in hiring expatriate personnel, temporary income tax exemptions for investments in selected sectors, duty-free imports of capital goods, components and raw materials for exporting industries and manufacturers in priority sectors.

However, while public sector infrastructure projects can provide significant investment opportunities, the government limits the capital available to the private sector by requiring banks to deposit 28% of their loan portfolio in government bonds, reducing the overall volume available as credit. In addition, access to foreign exchange is controlled by the National Bank of Ethiopia, and companies can experience delays of more than six months in obtaining the forex needed for imports. The World Bank estimates that public infrastructure spending was approximately 19% of Ethiopia’s total GDP since fiscal year 2011-2012.

Key sectors targeted by the government in GTP II include renewable energy, construction, healthcare, tourism, textile and apparel, leather products, telecommunication infrastructure and value-added services, and aviation support services and products. Competitive labor, a strategic location on the African continent, an excellent national airline, competitive energy costs and the budding consumer markets are key elements attracting foreign direct investment (FDI).

The government of Ethiopia does not provide protection from currency risks, and while rapid devaluations have been rare in the recent past, with the last significant devaluation episode occurring in September 2010, the government performed a series of controlled step-downs, which caused a 97% depreciation of the birr against the U.S. dollar in the past seven years. Challenges include foreign exchange shortages and limited access to finance, long lead-times for importing goods and for dispatching exports due to logistic bottlenecks and high land-transportation costs, and bureaucratic delays. Ethiopia is not a signatory of major Intellectual Property Rights treaties. Banking, insurance and accounting/assurance services, retail, telecommunications and transportation are closed to foreign investments.

All land in Ethiopia belongs to “the people” and is administered by the government. Private ownership does not exist, but “land-use rights” have been registered in most populated areas. The government retains the right to expropriate land for the “common good,” which it defines to include expropriation for commercial farms, industrial zones and infrastructure development. While the government claims to allocate only sparsely settled or “empty” land to investors, some people have been resettled. In particular, traditional grazing land has often been expropriated, leading to resentment, protests and, in some cases, conflict.

Successful investors in Ethiopia counsel a thorough due diligence check on land title, including the attitude of local communities to the investor’s proposed use of the land, and a full understanding of the requirements put forward by the Ethiopian government at the federal and local levels.

The government of Ethiopia has expressed interest in accession to the World Trade Organization, and maintains its goal of attaining middle income country status by 2025. In 2015, Ethiopia became a full member of the Common Market for Eastern and Southern Africa (COMESA) and ratified the Free Trade Area (FTA) in 2014, heading towards full FTA in five phases, which gradually liberalize various industries depending on readiness to meet trade competition expected from similar industries of member states. Full FTA accession is expected by 2021. In addition, the COMESA - Eastern Africa Community (EAC) - Southern Africa Development Community (SADC) tripartite FTA was launched in June, 2015. Ethiopia is actively pursuing improving its investment climate by adopting more efficient processes to reduce bureaucracy in the areas of registration, logistics, and taxation. Key energy generation and distribution projects, as well as transportation infrastructure projects that were scheduled for completion by the end of 2015 are still ongoing.

Table 1

Measure	Year	Index or Rank	Website Address
TI Corruption Perceptions index	2015	103 of 168	transparency.org/cpi2015/results
World Bank’s Doing Business Report “Ease of Doing Business”	2016	^{146th of 189}	doingbusiness.org/rankings
Global Innovation Index	2015	127th of 141	globalinnovationindex.org/content/page/data-analysis
U.S. FDI in partner country ($M, stock positions)	March 2016	65.2	Data from Ethiopian Investment Commission
World Bank GNI per capita	2014	$550	data.worldbank.org/indicator/NY.GNP.PCAP.CD

Millennium Challenge Corporation Country Scorecard

The Millennium Challenge Corporation, a U.S. Government entity that provides development grants to countries that have demonstrated a commitment to reform, produced scorecards for countries with a per capita gross national income (GNI) of $4,125 or less. A list of countries/economies with MCC scorecards and links to those scorecards is available here. Details on each of the MCC’s indicators and a guide to reading the scorecards are available here.

1. Openness To, and Restrictions Upon, Foreign Investment

Attitude toward Foreign Direct Investment

Ethiopia’s second five-year Growth and Transformation Plan (GTP II) covers the years 2016 to 2020 and was approved by the Ethiopian Parliament in December 2015. GTP II’s overarching goals are to transform Ethiopia’s subsistence agriculture-based economy to a manufacturing-led economy and achieve middle income status by 2025. To achieve these goals, the government has focused on improving the quantity and quality of infrastructure, encouraging intensive investment in industrial parks, and ensuring macro-economic stability with a sustained GDP growth of at least 11% and on enhancing productivity in agriculture and manufacturing.

Given the scale of public investment required to support GTP II targets, coupled with the negative domestic savings rate, Ethiopia requires significant inflows of foreign financial resources. Tax incentives for investment in the high priority sectors of heavy and light manufacturing, agribusiness, textiles, sugar, chemicals and pharmaceutical and mineral and metal processing underscore the government’s focus on and openness to FDI, while Ethiopia’s success in winning a higher credit rating from international rating agencies has given it access to commercial foreign loans.

In May 2015, Moody’s reaffirmed Ethiopia’s credit worthiness a ‘B+’, while S&P and Fitch maintained last year’s rating of a ‘B.’ The rating agencies underscored Ethiopia’s stable outlook and positive prospects for continued economic growth in the short and medium term. Key drivers of their ratings were the large investments in infrastructure and power generation and their likely effect in improving trade conditions.

Risks, according to the rating agencies, stem from external shocks, such as an economic slowdown of major export partners, constraints in financing Ethiopia's investment projects, and a protracted slump in commodity export prices, as well as weakness in the private sector as a result of its limited access to domestic credit.

In December 2014, Ethiopia issued its first Euro-bond, raising $1 billion at a rate of 6.625%. The 10-year bond was oversubscribed, indicating continued market interest in high – growth sub-Saharan African markets, but did cause the country to exceed the non-concessional borrowing threshold set by the World Bank, which could limit Ethiopia’s access to additional concessional lending. According to the Ministry of Finance and Economic Cooperation, the bond proceeds are being used to finance industrial parks, the sugar industry, and power transmission infrastructure.

Other Investment Policy Reviews

Over the past three years, the Ethiopian Investment Commission (EIC) has undertaken an independent review of its investor services in an effort to streamline the investment process. The EIC is in the process of developing a more efficient one-stop-shop to provide up to 29 licensing and registration services to foreign direct investors. According to EIC information, the Commission has already implemented at least 28 services pertaining to licensing and registration, customs duty free importation approval for capital goods of manufacturing investment projects. Additionally, in an effort to improve investor facilitation services, the EIC has recently appointed three Deputy Commissioners each responsible for three divisions of the EIC:

Investment Operations;
Industrial Parks Regulation;
Policy Research and Improvement.

Laws/Regulations on Foreign Direct Investment

The government of Ethiopia is revising its 1960 commercial code to facilitate investment and ease of operations. Areas of focus include clarifying regulations for potential investors, standardizing accounting practices to more accurately assess tax and other operating liabilities, increasing protection for shareholders and provisions for bankruptcy filings and modernized trade and registration processes. The draft revised code is under discussion. The government has drafted a policy document to support the review of the commercial code and circulated it within the wider private sector community and stakeholders, reflecting the need for in-depth review and expert advisory input to finalize the legislation.

The revised Investment Code of 1996 and the Investment Proclamation provide incentives for development-related Investments and have gradually removed most of the sectorial restrictions on investment. However, the Investment Code prohibits foreign investment in some sectors -- please refer to the 'Limits on Foreign Control' section.

The 2012 amendment to Ethiopia’s Investment Proclamation introduced provisions for the establishment of industrial development zones, both state-run and private, with favorable investment, tax, and infrastructure incentives. The amendment raised the minimum capital requirement to $200,000 per project for wholly-owned foreign investments and $150,000 for joint investments with domestic investors (or $100,000/$50,000 respectively in the areas of engineering, architectural, accounting and auditing services, business and management consultancy services and publishing). A foreign investor reinvesting profits or dividends may not be required to allocate minimum capital.

Business Registration

The 2015 World Bank report Doing Business in Ethiopia summarizes the business incorporation and registration process in eleven steps, estimating 19 days of average time required to complete the process. Typically companies need to register with the EIC, the Ethiopian Revenue and Custom Authority, the Commercial Register, the Documents Authentication and Registration Office and the Ministry of Trade. Online business registration is not available in Ethiopia but it is a long-term plan of the Ministry of Trade to migrate the paper-based registration process to a digital system. The EIC has the mandate to promote and facilitate investments in Ethiopia and its services are available to all foreign investors, independent from the company size.

The Ministry of Trade is working to revise the Commercial Registration and Business Licensing Proclamation in order to simplify and streamline business registration and licensing. The full Doing Business report is available here.

Industrial Strategy

Under GTP II, key priority industries are the textile and garment industry, leather and leather products, sugar and sugar-related products, cement, metal and engineering, chemical, pharmaceutical and agro-processing. Investments in those areas are accompanied by additional tax and duty incentives as established in proclamation 769/2012.

A 2014 amendment to the Investment Proclamation provides flexibility for the EIC to decide appeals submitted by foreign and domestic investors. The EIC Investment Board is empowered to authorize the granting of new or additional incentives other than those outlined under the regulations and authorize foreign investment in areas otherwise exclusively reserved for domestic investors, if the exception is in the national interest. The EIC's website, outlines the government's focus sectors, details, registration processes, and provides regulatory details for investors.

In alignment with GTP II goals to develop medium- and large-scale industries, the government established the Ethiopian Industrial Parks Development Corporation (EIPDC) under the Ministry of Industry in 2012 to oversee construction and regulation of the parks. The proclamation requires the establishment of a branch of the Environment Protection Office in each park.

As of March 2016, Bole Lemi-I is the only operational industrial park developed by the government. Hawassa Industrial Park is under construction and Bole Lemi-II and Qilinto Industrial Park are at the design and evaluation stage, which the government performs with financial and technical support from the World Bank. Two additional industrial parks, the Eastern Industrial Park and George Shoe Factory, are under development by Chinese and Taiwanese private businesses. The GTP II contains plans to develop industrial zones in Dire Dawa, Bahir Dar, Mekele, Jimma, Debreberhan and Kombolcha.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign firms can supply goods and services to Ethiopian firms in closed sectors.

Both foreign and domestic private entities have the right to establish, acquire, own and dispose of most forms of business enterprises. There is no right of private ownership of land. All land is owned by the state and can be leased for up to 99 years. Small scale rural landholders have an indefinite period of use rights, but cannot lease out whole holdings for a longer period of time, except in Amhara Region. In November 2011, the government enacted a controversial urban land lease proclamation that allows the government to determine the value of land in transfers of leasehold rights, in an attempt to curb speculation by investors.

Ethiopia’s Investment Code prohibits foreign investment in banking, insurance, and financial services. Telecommunications, power transmission and distribution, and postal services with the exception of courier services, are closed to both the foreign and domestic private sector. Manufacture of weapons and ammunition can only be undertaken only as joint ventures with the government.

Other areas of investment reserved for Ethiopian nationals include: broadcasting; air transport services (below 50 seats capacity); travel agency services, forwarding and shipping agencies; retail trade and brokerage; wholesale trade (excluding supply of petroleum and its by-products as well as wholesale by foreign investors of their locally-produced products); most import trade; export trade of raw coffee, khat, oilseeds, pulses; live sheep, goats, and cattle not raised or fattened by the investor; construction companies excluding those designated as grade 1; tanning of hides and skins up to crust level; hotels (excluding star-designated hotels); restaurants and bars (excluding international and specialized restaurants); trade auxiliary and ticket selling services; transport services; bakery products and pastries for the domestic market; grinding mills; hair salons; clothing workshops (except garment factories); building and vehicle maintenance; saw milling and timber production; custom clearance services; museums, theaters and cinema hall operations; and printing industries. However, the government of Ethiopia has indicated an interest in opening some of the restricted sectors to foreign private sector expertise. Foreigners of Ethiopian origin can obtain a resident card from the Ministry of Foreign Affairs that allows them to invest in many sectors closed to other foreigners. Foreign firms cannot partner in a joint venture in these sectors but can supply goods and services to Ethiopian firms in the closed sectors.

Privatization Program

The government continues to privatize some government-owned entities, which were largely nationalized by the Derg military regime 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. Nearly all tenders issued by the Ethiopian government's Ministry of Public Enterprises are open to foreign participation. In some instances, the government prefers to engage in joint ventures with private companies rather than sell an entire entity. The government has sold 370 public enterprises since 1995. Most of these enterprises were small companies in the trade and service sectors. The Ministry privatized two enterprises in 2015 and planned to sell 10 enterprises in 2016. The Ministry still controls 26 public enterprises.

Screening of FDI

A foreign investor intending to buy an existing private enterprise or buy shares in an existing enterprise needs to obtain prior approval from the EIC.

While foreign investors have complained about different interpretations of the regulations governing investment registration policy (particularly relating to accounting for in-kind investments) from the EIC, 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.

The EIC is establishing a one-stop shop service that could cut the time and cost of acquiring investment and business licenses. However, bureaucratic hurdles continue to affect project implementation and some U.S. investors report that the EIC still lacks capacity to meet its own stringent deadlines. A business license can be obtained in one day if all requirements are met, though in practice this is uncommon.

Competition Law

There are no restrictions for foreign companies or foreign-owned subsidiaries in the areas open to foreign investments. The EIC reviews investment transactions for compliance with FDI requirements and restrictions as outlined by the Investment Proclamation and its amendments. However, companies have complained that state-owned enterprises receive favorable treatment in the government tender process. As the public sector is heavily involved in economic development, this translates into a sizeable portion of the open tenders on the market.

Ethiopia’s Trade Practice and Consumers Protection Authority (TPCPA), under the Ministry of Trade, is tasked with promoting a competitive business environment by regulating anti-competitive, unethical, and unfair trade practices to enhance economic efficiency and social welfare. The Commission's powers include: investigating complaints by aggrieved parties; compelling witnesses to appear and testify at hearings; and searching the premises of accused parties. The Federal Trade Competition and Consumer Protection Appellate Tribunal, under TPCPA, saw dozens of consumer protection and unfair trade cases in the last three years. In addition the Authority provided market information on some goods to the public using print and electronic media.

2. Conversion and Transfer Policies

Foreign Exchange

All foreign currency transactions must be approved by Ethiopia's central bank, the National Bank of Ethiopia (NBE). Ethiopia’s national currency (birr) is not freely convertible. A 2004 NBE directive allows non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin to establish and operate foreign currency accounts up to $50,000.

Remittance Policies

Ethiopia's Investment Proclamation allows all registered foreign investors, whether or not they receive incentives, 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 service or other international payments. The right of expatriate employees to remit their salaries is granted by NBE foreign exchange regulations.

Forex reserves were heavily depleted during 2012 and remain at low levels. By the end of FY15, gross reserves were $3.2 billion, covering approximately 2 months of imports. According to the IMF, heavy government infrastructure investment has fueled the need for forex. In addition, the forex reserve decrease is exacerbated by weaker-than-expected exports of coffee and weak commodity prices, such as gold and oil seeds in the international market. This trend had begun to reverse itself by mid-2014 and continues in 2016. Businesses usually expect delays of foreign exchange supply of six weeks to three months. Slow-downs in manufacturing due to foreign exchange shortages are common. Delays of repatriation for high dollar sales amounts of up to 2 years have been reported. Local sourcing of inputs and partnering with export-oriented partners are strategies employed by the private sector to address the foreign exchange shortage, but Forex access remains a problem that can impact investments in terms of growth potential, maintenance and spare parts replacement, and raw material availability in the case of textile and construction industries.

According to data from the National Bank of Ethiopia, the birr depreciated approximately 97% against the U.S. dollar between January 2009 and January 2016, through a series of controlled step-downs, including a 20% devaluation in September 2010. As of March 2015, the official exchange rate was approximately 21.25 birr per dollar. The illegal parallel market exchange rate for the same period was approximately 24.20 per dollar, a premium of 14% over the official rate.

Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding 200,000 birr (roughly equivalent to U.S. reporting requirements for currency transfers exceeding $10,000).

3. Expropriation and Compensation

Per the 1996 Investment Proclamation and subsequent amendments, assets of a domestic investor or a foreign investor, enterprise or expansion cannot be nationalized wholly or partly, except when required by public interest and in compliance with the law and with payment of adequate compensation. Such assets may not be seized, impounded, or disposed of except under a court order.

The 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 lawful owners or their heirs through a lengthy bureaucratic process. Claimants are required to pay for improvements made by the government during the time of its control over the property. Ethiopia's Privatization and Public Enterprises Supervising Agency (PPESA) stopped accepting requests from owners for return of these formerly expropriated properties in July 2008.

4. Dispute Settlement

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

According to the Investment Proclamation, disputes that involve a foreign investor or the state may be settled by means agreeable to both parties. A dispute that cannot be settled amicably may be submitted to a competent Ethiopian court or to international arbitration within the framework of bilateral or multilateral agreements to which the government and the investor's state of origin are contracting parties.

Bankruptcy

The Ethiopian Commercial Code (Book V) outlines bankruptcy provisions and proceedings and confirms that the Ethiopian court system has jurisdiction over bankruptcy filings and proceedings subject to international conventions. The primary purpose of the law is to protect creditors, equity shareholders and other contractors. Bankruptcy is not criminalized. In practice, there is limited application of the bankruptcy procedures due to lack of knowledge of the procedures by the private sector.

The 2015 World Bank Ease of Doing Business index sub-category 'Resolving Insolvency' outlines some average expectations for insolvency proceedings in Ethiopia.

Investment Disputes

Ethiopia is a complex market and has presented some challenges to U.S. investors related to land, government procurement and taxation.

International Arbitration

While disputes can be resolved in international arbitration at the agreement of both parties, enforcement is contingent on the Ethiopian court system.

Both foreign and domestic investors involved in disputes have expressed lack of confidence in the judiciary to objectively assess and resolve investment disputes. Ethiopia's judicial system is overburdened, poorly-staffed and inexperienced in commercial matters, although efforts are underway to strengthen its capacity. While property and contractual rights are recognized and there are commercial and bankruptcy laws, judges often lack understanding of commercial matters and case scheduling suffers from extended delays. The Addis Ababa Chamber of Commerce has an Arbitration Center to assist with the arbitration process. There is no guarantee that the award of an international arbitral tribunal will be fully accepted and implemented by Ethiopian authorities.

ICSID Convention and New York Convention

Since 1965, Ethiopia has been a member state to the International Centre for Settlement of Disputes (ICSID Convention), but has not ratified the convention on The Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Duration of Dispute Resolution – Local Courts

Due to an overloaded court system, dispute resolution can last for several years. According to the World Bank’s Ease of Doing Business report, the average for enforcing contracts is 530 days.

5. Performance Requirements and Investment Incentives

WTO/TRIMS

Ethiopia is an observer of the World Trade Organization (WTO) and is in the process of developing its services offer and revising its goods offer. Ethiopia’s trade policies are inconsistent with Trade Related Investment Measures requirements.

Ethiopian and foreign investors have asserted that informal priority for foreign exchange has been given to export-oriented businesses and/or those that provide a higher Ethiopian input content.

Investment Incentives

The 2003 amendment to the Investment Proclamation outlines incentives for investors. New investors in manufacturing, agro-processing, or production of certain agricultural products, who export at least 50% of their products or supply at least 75% of their product to an exporter as production inputs, are exempt from income tax for five years. An investor who exports less than 50% or supplies product only to the domestic market is income tax exempt for two years.

Investors who expand or upgrade existing enterprises and export at least 50% of their output or increase production by 25% are eligible for income tax exemption for two years. An investor who invests in the developing regions of Gambella, Benishangul Gumuz, South Omo, Afar or Somali will be eligible for an additional one-year income tax exemption. An investor who exports hides and skins after processing only up to crust level will not be entitled to the income tax incentive.

Research and Development

The Ethiopian government encourages technology and knowledge transfer to develop the Ethiopian workforce via corporate-financed corporate social responsibility programs and/or training programs incorporated into investment proposals.

Performance Requirements

Ethiopia does not formally impose performance requirements on foreign investors. However, investors in Ethiopia routinely encounter business visa delays and onerous paperwork.

Data Storage

There are no forced localization or data storage requirements for private investors. Local content in terms of hiring, products and services is encouraged but not required. However, in the case of joint ventures with SOE's, investors have reported requirements of up to 30% domestic content in goods and/or technology.

6. Protection of Property Rights

Real 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. The government retains the right to expropriate land for the “common good,” which it defines to include expropriation for commercial farm, industrial zones and infrastructure development. While the government claims to allocate only sparsely settled or “empty” land to investors, some people have been resettled. In particular, traditional grazing land has often been expropriated, leading to resentment, protests and, in some cases, conflict.

Experienced investors counsel prospective investors to do a thorough due diligence check on issues regarding land provided for their facilities, and to fully understand the requirements put forward by the Ethiopian government at the federal and local levels. They also encourage potential investors to make sure that their needs are communicated well to the host government. It is important for investors to understand who had land-use rights preceding them, and to fully research the attitude of local communities to an investor’s use of that land, particularly in regional states such as Oromia, where conflict between international investors and local communities has occurred.

Land leasehold regulations vary in form and practice by region. As land is a public property, the law does not allow mortgages.

Intellectual Property Rights

The Ethiopian Intellectual Property Office (EIPO) oversees IPR issues. Ethiopia has not signed a number of major international 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; and the Patent Cooperation Treaty. The government expressed its intention to accede to the Berne Convention and Madrid Protocol by 2015, but no action was taken. The Ethiopian Intellectual Property Rights Office (EIPO) has been tasked primarily to protect Ethiopian copyrighted materials and pirated software. Generally, EIPO has weak capacity in terms of manpower and none in terms of law enforcement. A number of businesses, mainly in the service and tourism industries, particularly in the hospitality sector operate in Ethiopia freely using well-known trademarked names or symbols without permission. The government does not publicly track counterfeit goods seizures, and no estimates are available.

Resources for Rights Holders

EIPO contact and office information is available at http://www.eipo.gov.et/

For additional information about treaty obligations and points of contact at IP offices, please see WIPO’s country profiles.

Embassy POC: Economic Officer, Helena Schrader, SchraderHP@state.gov

7. 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.

In 2011, the central bank issued a directive for all banks and insurance companies to adhere to International Financial Reporting Standards (IFRS).

Foreign investors have complained about the abrupt cancellation of some government tenders, a perception of favoritism toward vendors who provide concessional financing, and a general lack of transparency in the procurement system. In September 2009, the government established the Public Procurement and Property Administration Agency. This agency is an autonomous government organ, has its own judicial arm, and is accountable to the Ministry of Finance and Economic Development. Ethiopia participates in the Global Procurement Initiative, which aims to provide capacity for improving the government procurement system.

Ethiopia is a member of UNCTAD’s international network of transparent investment procedures. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures.

8. Efficient Capital Markets and Portfolio Investment

Access to finance impedes domestic private investment. While credit is available to investors on market terms, a 100% collateral requirement limits the ability to take advantage of business opportunities. An April 2011 measure forcing non-government banks to invest the equivalent of 27% of each loan in National Bank of Ethiopia (NBE) bonds has contributed to liquidity shortages that further reduced the ability of banks to lend to the private sector.

Ethiopia does not have a securities market, and sales/purchases of debt are heavily regulated. The government is drafting legislation to regulate the over-the-counter market for private share companies. Moody’s rated Ethiopia’s credit worthiness a ‘B+’, while S&P and Fitch gave it a ‘B’.

The government offers a limited number of 28-day, 3-month, and 6-month Treasury bills, but prohibits the interest rate from exceeding the bank deposit rate. The government began to offer a one-year Treasury bill in November 2011. Yields are below 2%. This market remains unattractive to the private sector and over 95% of the T-bills are held by the state-owned Commercial Bank of Ethiopia and public enterprises.

The Ethiopia Commodity Exchange (ECX), launched in 2008, trades commodities such as coffee, sesame seeds, maize, wheat, mung beans, haricot beans. The government launched ECX to increase transparency in commodity pricing, alleviate food shortages, and encourage the commercialization of agriculture. However, critics allege that ECX policies and pricing structures are inefficient compared to direct sales at prevailing international rates.

Money and Banking System, Hostile Takeovers

Ethiopia has nineteen banks--three state-owned, and sixteen privately-owned. In September 2011, the NBE raised the minimum paid-up capital required to establish a new bank from birr 75 million to 500 million, which effectively stopped the entry of most new banks. Foreign banks are not permitted to provide financial services in Ethiopia, but since April 2007 Ethiopia allows some foreign banks to open liaison offices in Addis, in order to facilitate credit to companies from their countries of origins. Chinese, German, Kenyan, Turkish, South African banks have already started the process to open liaison offices in Ethiopia, but the market remains completely closed to foreign retail banks.

Based on the most recently available data, the state-owned Commercial Bank of Ethiopia mobilizes about two-thirds of total bank deposits and half of total bank loans. The NBE controls the bank minimum deposit rate, which now stands at 5%, while loan interest rates are allowed to float. Real interest rates have been negative in recent years mainly due to high inflation.

There are no restrictions on foreign ownership of local bank accounts.

9. Competition from State-Owned Enterprises

State-owned enterprises and ruling party-owned entities dominate major sectors of the economy. There is a state monopoly or state dominance in telecommunications, power, banking, insurance, air transport, shipping, and sugar. Ruling-party-affiliated endowment companies have a strong presence in the ground transport, fertilizer, and textile sectors. State-owned enterprises have considerable advantages over private firms, including access to credit and customs clearance. Ethiopian business owners and foreign investors complain of the lack of a level playing field when it comes to state-owned and party-owned businesses. 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 publishes aggregate financial data of state-owned enterprises, but detailed information is not included in the national budget, and few state-owned enterprises outside of Ethiopian Airlines release detailed financial statements.

The Public-Private Dialogue Forum (PPDF), a consultative forum between the private sector and the government, has held seven workshops focusing on issues such as company registration, business licensing, legal structures, access to finance, procurement, manufacturing, protecting property rights, and empowering women in business. The private sector was represented by the Ethiopian Chamber of Commerce and Sectorial Associations (ECCSA) and the government by the Ministry of Trade (MOT). Additionally, Prime Minister Hailemariam Desalegn, with the full Council of Ministers, meets with representatives of the private sector annually to discuss their commercial concerns.

OECD Guidelines on Corporate Governance of SOEs

Ethiopia is not a member to the Organization for Economic Cooperation and Development (OECD) and does not adhere to the guidelines on corporate governance of SOEs. Corporate governance of state-owned enterprises is structured and monitored by a board of directors composed of senior government officials and politically-affiliated individuals, but there is a general lack of transparency in the structure of SOEs.

Sovereign Wealth Funds

Ethiopia has no sovereign wealth funds.

10. Responsible Business Conduct

Some larger international companies have introduced corporate social responsibility (CSR) programs; however, most Ethiopian companies do not practice CSR. There are efforts to develop CSR programs by the Ministry of Industry in collaboration with the World Bank, U.S. Agency for International Development, and others.

CSR programs supporting workforce capacity-building and services, community-building and infrastructure investment programs by foreign corporation can serve to further align company objectives with the government of Ethiopia’s overall GTP II development goals.

The host government does encourage 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. In early 2015, the Ethiopian Chamber of Commerce & Sectorial Associations published a 'Model Code of Ethics for Ethiopian Businesses’ that was endorsed by Ethiopia’s President Mulatu Teshomme as the model for the business community.

11. Political Violence

Ethiopia has been relatively stable and secure for investors. Occasional attacks by armed groups in the Somali region of Ethiopia have disrupted travel in the region, and in the past armed groups have warned investors against exploring for oil or natural gas resources in this area. Some elements of the government-designated terrorist group, the Ogaden National Liberation Front (ONLF), continue to operate in parts of the Somali Region and there are reports of sporadic clashes with security forces.

Ahead of the May 2015 election, the opposition across the country alleged widespread intimidation of its supporters by the ruling party. Political violence against opposition groups on election-day and in the aftermath of the vote resulted in the deaths of six opposition party members, observers and one candidate. There were election related protests in Oromia, Amhara and the Southern Nations and Nationalities regions that resulted in deaths.

Following student demonstrations in the Oromia region in 2014, the government has retained tight control on university campuses out of concern for the possibility of repeated unrest. Recent violent and widespread protests in Oromia between mid-November 2015 to date has disrupted businesses and schools in towns throughout Oromia and security forces were deployed to quell the unrest.

In February 2016, Human Rights Watch claimed the death toll is over 200, and the government has not provided credible figures. However, the Ethiopian Human Rights Council estimated the loss of life, including security officials, to be 102 deaths in 18 woredas from November 2015 to February, 2016.

In January, the government of Ethiopia stated it was halting implementation of the economic integration of the City of Addis Ababa with the surrounding special zones of Oromia—a trigger for the protests—until the government carries out further consultation with Oromo communities. The Department of State has issued two statements, voicing deep concern over the continuing violence and lack of dialogue between the government and protesters.

Ethnic conflict—often sparked by resource competition or land disputes—occurs at times and occasionally becomes violent.

In January and February of this year, deadly violence between the Nuer and the Anuak ethnic groups in Gambella region took place, resulting in the loss of lives, revenge killings, destruction of property and general insecurity in the region. In April, Murle tribesmen, reportedly from neighboring South Sudan, killed more than 100 Nuer in Gambella region.

Five European tourists were killed and two were kidnapped in January 2012 by the Afar Revolutionary Democratic Unit Front (ARDUF), an armed opposition group backed by Eritrea. In retaliation, the Ethiopian military made incursions into Eritrea in March 2012 targeting the ARDUF and the Eritrean military. An attack on a farm operated by Saudi Star Development in the Gambella region in April 2013 left five people dead, and was blamed on disgruntled citizens. The Ethiopian government regards these incidents as terrorist attacks.

In February 2012, the Ethiopian government announced that it had arrested al-Qaida operatives with links to Kenya, Sudan, the Philippines, Saudi Arabia, and South Africa in the Bale area of Oromia Region in December 2011. In October 2013, in Addis Ababa, two suspected al-Shabbab operatives died in an explosion described as a failed terrorist attack and were thought to have been targeting a crowded sports event occurring near the explosion.

12. Corruption

Transparency International’s 2015 Corruption Perceptions Index, which measures perceived levels of public sector corruption, ranked Ethiopia as 33 (with 0 indicating highly corrupt and 100 indicating very clean). Ethiopia's rank on the corruption perception index was 103 out of 168 in 2015 compared to 110 out of 175 countries in 2014.

The Federal Ethics and Anti-Corruption Commission (FEACC) is charged with combating corruption and is accountable to the Office of the Prime Minister. The Commission is mandated to provide ethics training and education, prevent corruption and detect, investigate and prosecute corruption crimes on its own. It is solely charged with the task of combatting corruption. It cooperates with other organs like the Ministry of Justice on issues of common interest but the primary task of combating corruption rests with the commission. Since its establishment, the Commission has arrested dozens of officials on charges of corruption, including managers of the Privatization Agency, Ethiopian Telecommunications Corporation, National Bank of Ethiopia, Ethiopian Geological Survey, the state-owned Commercial Bank of Ethiopia, Ethiopian Revenue and Customs Authority, and private businessmen. The government of Ethiopia established a committee to address corrupt practices and on occasion halted contracts and projects due to corruption allegations.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

In 2003, Ethiopia signed the UN Anticorruption Convention which was later ratified in November 2007. It is a criminal offense to give or receive bribes, and bribes are not tax deductible.

Ethiopia is not 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.

13. Bilateral Investment Agreements

Ethiopia has bilateral investment and protection agreements with Algeria, Austria, China, Denmark, Egypt, Germany, Finland, France, Iran, Israel, Italy, Kuwait, Libya, Malaysia, the Netherlands, Russia, Sudan, Sweden, Switzerland, Tunisia, Turkey and Yemen. Other bilateral investment agreements have been signed but are not in force with Belgium/Luxemburg, Equatorial Guinea, India, Nigeria, South Africa, Spain, United Kingdom. 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.

Bilateral Taxation Treaties

There is no double taxation treaty between the United States and Ethiopia. Ethiopia has such taxation treaties with fourteen countries, including Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel, South Africa, Sudan and the United Kingdom.

14. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) has offered risk insurance and loans to U.S. investors in Ethiopia. While it has not done so recently, it has begun to initial reviews for qualifying investment opportunities.

15. Labor

Approximately 85% of Ethiopia's 100 million people work in agriculture. The Ethiopian government is the most important employer outside of agriculture. According to the Central Statistical Agency’s urban employment and unemployment survey results, urban unemployment was estimated to be 17.5% as of 2012 (24.9% of people between the ages of 15-24 are unemployed).

Labor unions and confederations are separate entities from the government, although they are subject to a great deal of regulation and direct pressure/involvement from the government. The Confederation of Ethiopian Trade Unions (CETU) comprises well over two hundred thousand members in a variety of sectors, however there is no formal requirement for unions to join the CETU. Much of the labor force remains in small scale agriculture/industry and thus is uncovered by the confederation’s coverage.

The Ministry of Labor and Social Affairs’ Directorate of Harmonious Industrial Relations provides labor dispute resolution services, although the caseload and the directorate’s capacity is low.

Ethiopia has ratified all eight core ILO conventions. The Ethiopian Penal Code outlaws work specified as hazardous by ILO conventions. The Ethiopian Parliament ratified ILO Convention 182 on the Worst Forms of Child Labor in May 2003. The U.S. government produces an annual report on labor conditions in Ethiopia, including an assessment of child labor.

The constitution and law provide workers, except for civil servants and certain categories of workers primarily in the public sector, with the right to form and join unions, conduct legal strikes, and bargain collectively. Other laws and regulations that explicitly or potentially infringe upon workers’ rights to associate freely and to organize include the CSO law, Council of Ministers Regulation No. 168/2009 on Charities and Societies to reinforce the CSO law, and Proclamation No. 652/2009 on Antiterrorism. Such laws and detailed requirements make legal strike actions difficult to carry out. In practice, labor strikes are rare and no strikes occurred in the last year. Employers offering contracted employment are required to provide severance pay. The vast majority of employees that work in small scale agriculture and textiles do so without a contract. Large labor surpluses and lax labor law enforcement allow employers to retain employees without contracts that ensure strong worker protections.

Ethiopia boasts a rather robust set of worker protections, but the country’s federal and regional enforcement mechanisms struggle with low resources and capacity. Despite the government’s effort in collaboration with the international community to combat the worst forms of child labor, it remains widespread in Ethiopia, particularly in the southern regions. Child labor exists in some rural areas, mostly in domestic service and small-scale, domestically-funded textiles, agriculture, and retail.

While not a pressing issue in the formal economy, child labor is common in rural agrarian areas and the informal economy in urban areas. Ethiopian traditional woven textiles are included on the U.S. government's Executive Order 13126 list of goods that have been known to be produced by forced or indentured child labor. Both NGO and Ethiopian government sources concluded that goods produced (in the agricultural sector and traditional weaving industry in particular) via child labor are largely intended for domestic consumption, and not slated for export. Employers are statutorily prohibited from hiring children under the age of 14. In 2013, Ethiopia produced a list of Activities Prohibited for Young Workers and launched its National Action Plan (NAP) on the Elimination of the Worst Forms of Child Labor. The laws defining what sectors may hire young workers, defined as workers aged 14 to 18 are infrequently enforced due to the lack of capacity of labor inspectors within the country.

The Ministry of Labor and Social Affairs conducts tens of thousands of targeted inspections on occupation safety and standards, although they are not legally empowered to assess fines for infractions and they do not make this data publically available.

In 2015 the Ethiopian Parliament ratified an overhaul to its Anti-Human Trafficking and Smuggling criminal code (covered in the TIP report). The government also passed an overseas labor proclamation that legalizes and regulates the employment of Ethiopians in foreign countries.

Labor remains readily available and inexpensive in Ethiopia. Skilled manpower, however, is scarce in many fields. Approximately 60% of Ethiopians over the age of 15 are illiterate (defined by UNESCO as “[in]ability to identify, understand, interpret, create, communicate and compute, using printed and written materials associated with varying contexts”). There is no national minimum wage standard.

To increase the skilled labor force, the government of Ethiopia has undertaken a rapid expansion of the university system in the last 20 years, increasing the number of higher public education institutions from 3 to 33. It has adopted an education policy that 70% of the annual student intake in public universities must focus on science, engineering and technology.

16. Foreign Trade Zones/Free Ports/Trade Facilitation

There are no areas designated as foreign trade zones and/or free ports in Ethiopia. Trade through Assab has been prohibited since the 1998-2000 Ethiopian-Eritrean war. Ethiopia conducts almost all of its trade through the port of Djibouti with some trade via the Somaliland port of Berbera and Sudan's Port Sudan. Unregulated exports of coffee, live animals, khat, fruit and vegetables, and imports of cigarettes, alcohol, textiles, electronics and other consumer goods continues, despite Ethiopia's efforts to clamp down on small-scale trade of contraband.

17. 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
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP) ($M)	2014/15	61,539	2014	55,610	www.worldbank.org/en/country/ethiopia
Foreign Direct Investment	Host Country Statistical source*		USG or international statistical source		USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M, stock positions)	March 2016	65.2	2015	N/A	Ethiopian Investment Commission
Host country’s FDI in the United States ($M, stock positions)	2014/15	0	2014	0	http://bea.gov/international/factsheet/ factsheet.cfm?Area=411
Total inbound stock of FDI as % host GDP	March 2016	13.1%	2014	13.9%	http://unctad.org/sections/dite_dir/ docs/wir2015/wir15_fs_et_en.pdf

*Source: Ethiopian Investment Commission (EIC). The EIC previously reported FDI in projects under implementation/development as well as in operation. EIC’s reporting methodology includes only the FDI projects in operation. This can create data discrepancy between Ethiopian and international sources.

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)*
Inward Direct Investment ( under operation)			Outward Direct Investment
Total Inward	4,508.7	100%	Total Outward	NA	100%
China**	754.6	16.7%	NA	NA	NA
Saudi Arabia**	730.4	16.2%	NA	NA	NA
Turkey**	381.6	8.5%	NA	NA	NA
India**	288.5	6.4%	NA	NA	NA
France**	97.6	2.6%	NA	NA	NA

Source: Ethiopian Investment Commission, March 2016

* Exchange rate of 20.10 Birr per $1 (the average for 2014/15) is used to convert Domestic Currency into $.

** Data reflects EIC information on investments originated from individual countries. Joint venture and partnerships where the origin is recorded from two or more countries are included in the total but not under the specific country data.

Table 4: Sources of Portfolio Investment

Data regarding the equity/debt breakdown of portfolio investment assets is not available for Ethiopia via the IMF's Coordinated Portfolio Investment Survey (CPIS) and is not available for external publication by the government of Ethiopia.

18. Contact for More Information

U.S. Embassy main number is +251 011 130 6000.
Senior Foreign Commercial Service Officer, Tanya Cole, Tanya.Cole@trade.gov
Trade and Investment Officer, Gaia Self, SelfGS@state.gov
Economic Officer, Helena Schrader, SchraderHP@state.gov
Trade and Investment Specialist, Abdulkader Hussen, HussenAM@state.gov

ecoi.net-Beschreibung:: Jahresbericht zum Investitionsklima, inkl. Informationen zum Rechtssystem, zu politischer Gewalt, Korruption, Wirtschaftslage, etc. (Stand März 2016)

Land:: Äthiopien
Quelle:: USDOS – US Department of State (Autor)
Veröffentlicht:: 5. Juli 2016
Originallink:: http://www.state.gov/e/eb/rls/othr/ics/2016/af/254197.htm
Dokumentart:: Periodischer Bericht
Sprache:: Englisch
Dokument-ID:: 1185301 (frühere ID 332413)