Investment in Ethiopia

Ethiopia follows a market-oriented economic development strategy. In order to encourage, promote and expand private investment, the Government has issued a liberalized investment code (Proclamation No. 37/1996) and established the Ethiopian Investment Authority (EIA) and regional Investment bureaus. The EIA is established as a one-stop shop to provide efficient and effective services for private investors, particularly foreign private investors. Hence, the EIA, in addition to the issuance of investment permits, provides one-stop investment services such as the provision of trade registration and operating licenses for private investors, granting of work permits to expatriate employees and facilitating the acquisition of land as well as utilities by private investors.

With the objective of promoting private investment and the inflow of foreign capital and technology into the Country, the investment code provides the following packages of fiscal incentives to both foreign and domestic investors engaged in new enterprises and expansions:

All investors investing in areas eligible for incentives are granted 100% exemption from the payment of import customs duties and other taxes levied on imports of all capital goods including plant machinery and equipment as well as spare parts worth up to 15% of the value of imported capital goods;

Depending on the location and type of investment, an income tax holiday ranging from 1 to 5 years is granted to investors engaged in new enterprises;

Business enterprises that incur losses during the tax holiday period will be allowed to carry forward such losses, following the expiry of the income tax holiday period, from 3 to 5 years depending on the location and type of investment;

Depending upon the choice of the investor, either a straight line or an accelerated method can be employed for the calculation of depreciation allowances;

Any investor, foreign or local, is entitled to have deduction of expenses incurred for research, improvement studies or training from his taxable income;

Any remittance made by a foreign investor from the proceeds of the sale or transfer of shares or assets upon liquidation or winding up of an enterprise is exempted from the payment of any tax; and

According to the Urban Land Lease holding Proclamation of 1993, "The Government may grant freely or without public tendering urban land which is to be utilized for investments that the Government encourages or for social services establishment or for other purposes which directly benefit the public."

Recently, the Ethiopian Government has further revised the investment code in order to open telecommunication services, power generation and defense industries to private foreign investment. The revised code has also granted additional incentives to investments in health and education sectors. Moreover, the code provides a provision for individuals who were Ethiopian by birth but changed their nationality to be treated, if they wish to, as domestic investors.

Joint Ventures

A foreign investor may team up with a domestic investor or company for a joint investment, usually in the form of a partnership, or private limited company or a share company. Nevertheless, under the Investment Proclamation No. 37/1996, a minimum equity capital of USD 300,000 is required from any foreign investor who intends to enter into a joint venture partnership with a domestic investor. The foreign partner is required to satisfy this minimum equity capital either in cash or in kind, in the form of capital goods such as machinery, equipment or other tangible assets, imported specially and exclusively to establish the enterprise or in both cash and in kind. The share of the domestic partner(s) cannot be less than 27% in a joint investment.

Wholly Foreign -Owned Investments

A foreign investor, who intends to invest on his own, except in engineering and other technical consultancy services, is required to invest not less than USD 500,000 in cash and/or in kind as an initial investment capital to start his business. The minimum capital required of a foreign investor investing in engineering or other technical consultancy services is USD 100,000 which may be in cash and/or in kind.

A foreign investor investing in wholly foreign owned enterprises or joint ventures is not allowed to invest in areas reserved for Ethiopian nationals and domestic investors.

Ethiopia provides the following guarantees to foreign investors.

Repatriation of Capital and Profits

Capital repatriation and remittance of dividends and interest is guaranteed to foreign investors under the Investment Proclamation. Any foreign investor has the right, in respect of an approved investment, to make the following remittances out of Ethiopia in convertible foreign currency at the prevailing rate of exchange on the date of remittance:

profit and dividends accruing from an investment;

principal and interest payment on external loans;

payments related to technology transfer or management agreements;

proceeds from sale or liquidation of an enterprise;

proceeds from the sale or transfer of shares or assets;

compensation paid to a foreign investor.

The constitution of the Federal Democratic Republic of Ethiopia gives protection to private property. The investment proclamation also provides investment guarantees against measures of expropriation and nationalization. Expropriation or nationalization may only occur either in the public interest and in compliance with the requirement of the law. Where such expropriation are made, the government guarantees to provide adequate compensation corresponding to the prevailing market value of the property and such payment shall be effected promptly.

Ethiopia is a member of the World Bank - affiliated Multilateral Investment Guarantee Agency (MIGA) which issues guarantees against non-commercial risks to enterprises which invest in signatory countries. Ethiopia is at any time ready to conclude bilateral investment promotion and protection treaties with any country and is in fact currently concluding such agreements with a number of developed countries.

Ethiopia has also signed the World Bank treaty "the convention on settlement of investment disputes between states and nationals of other states (ICSID)".

Agriculture is the backbone of the economy, providing employment to 85 percent of the population. The sector contributes about half of the GDP and three-fourths of total exports, with coffee alone accounting for up to 65 percent of total exports. Furthermore, agriculture plays a crucial role in providing raw material inputs for industry.

Ethiopia is endowed with wide-ranging agro-ecological zones and diversified resources. Nearly all types of cereals, fiber crops, oil- seeds, coffee, tea, fruits and vegetables are grown. The potential for irrigated agriculture is estimated at 3.5 million ha. Ethiopia has the largest livestock resources in Africa. Fishery and forestry resources are also significant. Considerable opportunities exist for new private investment in the production and processing of the above agricultural crops and resources.

The major food crops grown include teff, wheat, barley, sorghum, maize, beans, peas, lentils, soybeans, chickpeas, etc.. In 1993 Ethiopia managed to produce only 7.8 million tons of these food crops on about 5.2 million hectares of land. This is far short of the country's needs for these crops, and great opportunities exist for commercial production and processing of food crops. Some pulses can also be produced or processed for the export market.

Oil crops such as rape-seed, linseed, groundnuts, sunflower seed, niger seed and cotton seed serve as raw material inputs for the edible oil industry. Some oilseeds, including sesame, are important export crops. Favorable agro-climatic conditions also exist in the south western parts of the country for introducing coconut for the production and processing of palm oil and ghee.

Coffee remains the single most important export cash crop, with over 400 thousand hectares under cultivation. The volume of coffee export has steadily increased from 58 thousand tons in 1990/91 to just over 100 thousand tons in 1995/96. The potential for private production and processing of coffee is significant. Diversification into tea production and processing, which began with 3 tons in 1974, had reached 3,657 tons in 1993. The favorable agro-climatic conditions existing in the south-western parts of the country offer excellent opportunities for the production and processing of tea, especially for export.

These crops hold significant opportunities for export. Existing textile industries demand approximately 50,000 tons of lint cotton annually. However, only a portion of this demand is met from domestic production, with the remaining need being met through import. In addition, there are good prospects for exporting lint. Therefore, opportunities for production and processing of cotton in Ethiopia are significant. Considerable opportunities also exist for the production of sugar for the domestic as well as the export market, especially in view of acute domestic shortages.

Ethiopia is endowed with agro-climatic conditions that are suitable for the production of a broad range of fruits and vegetables, including temperate, tropical and sub-tropical crops. Horticultural crops currently being produced include citrus, banana, mango, papaya, avocado, guava, grapes, pineapple, passion fruit, apples, potatoes, cabbages, cauliflower, okra, egg plant, tomato, celery, cucumbers, pepper, onion, asparagus, water melon, sweet melon, carrots, green beans and cut flowers. The largest citrus plantation in East Africa is found in Ethiopia. Cut flower production is a fast growing export business with about 26 thousand tons of flowers and vegetables exported in the 1993/94 production year. The agro-processing of fruits and vegetables can be vertically integrated with production. There are already some integrated agro-industrial processing plants run by a state enterprise. The horticulture sub-sector in general holds great potential for private investment.

Despite the large livestock resources of the country, which include 32 million cattle and 42 million sheep and goats, the contribution of the sector to the national economy leaves much to be desired. In view of the traditional methods of animal husbandry, the current output per unit of domestic breed of livestock is low. Therefore, investment opportunities are potentially attractive in the areas of modern commercial livestock breeding, production and processing of meat, milk and eggs. New investment areas of potential significance are also available in ostrich, civet cat and crocodile farming.

Opportunities exist for fresh water fish production and processing using artificial ponds. In addition, the country's fresh water bodies have an estimated annual fish production potential of 53 thousand tons, of which less than ten percent is presently being exploited.

An estimated 3.5 million hectares of natural forest presently remains in 58 areas designated as National Forest Priority Areas (NFPA). Of these, 13 are managed under integrated forest management systems, with about 80,000 hectares of industrial forest having been established for limited sustainable exploitation. Investors are welcome to invest in integrated commercial production of structural timber, pulpwood, match wood or even fuel wood. Production of rubber and natural gum also offers exciting opportunities for private investment.

Possessing some seven million bee colonies, Ethiopia happens to be the leading honey and bee wax producing and exporting nation in Africa, and provides excellent prospects for private investment in apiculture.

Considerable scope exists for investment in the provision of agricultural support services such as pest and disease control, technical consultancy, agricultural machinery, cold storage, transport and marketing services.

The manufacturing sector is at an early stage of development, currently accounting for about 11 percent of GDP and 9.5 percent of employment. There are about 130 state-owned and 7,000 private manufacturing industries of all sizes, are mainly engaged in the production of consumer goods for the domestic market. The availability of cheap, hard working and skilled labour provides comparative advantages and enhanced competitiveness for labour-intensive industries producing both for domestic and export markets. These advantages offer opportunities for investments in areas such as textiles, garments, leather goods, footwear, and light engineering and assembly industries.

Ethiopia's industrial policy is based on Agricultural Development- Led Industrialization (ADLI) strategy, whose main objective is the gradual structural transformation of the economy from agricultural to industrial development using the country's human and natural resources.

Major manufacturing opportunities offering attractive potential benefits to prospective investors are hereby outlined in the food and beverage, leather and textile, chemical and paper, electrical and electronic, building materials, and non-metallic mineral and metallic industrial sub-sectors. Nearly all of these investment opportunities are based upon the needs and/or resources of the country.

Processing and preserving of meat products; integrated production, processing and preserving of fish and fish products; processing and preserving of fruits and vegetables; integrated production and processing of dairy products; manufacture of starch and starch products; processing of animal feed; manufacture of sugar; manufacture of brewery, mineral water, winery, soft drinks, etc.

Integrated tanning up to finishing; manufacture of luggage, handbags, saddles, harness, footwear and garment.

Textile:

Preparation and spinning of textile fibers, weaving of textile fabrics, and made-up textile articles.

Glass and Ceramics:

Table-ware and sanitary-ware, sheet-glass, and manufacturing of containers based on raw materials.

Chemicals and Chemical Products:

Manufacture of basic chemicals based on local raw materials, including PVC granules from ethyl alcohol, formal dehyde from methanol, manufacture of caustic soda and chlorine based chemicals, carbon black; activated carbon; precipitated calcium carbonate; textile dyes; ball-point ink; and tallow for soap.

Drugs and Pharmaceuticals:

Manufacture of pharmaceutical, medicinal, chemical and botanical products in the form of tablets, capsules, syrups and injectables.

Paper and Paper Products:

Pulp from indigenous raw materials, paper and paper products.

Plastic Products:

High pressure pipes, pipe fittings, shower hoods, wash basins, insulating fittings, lighting fittings, office and school supplies and fittings for furniture.

Manufacture of cement, lime, gypsum, marble, granite, limestone, ceramics, roofing tiles, corrugated sheets, tubes, pipes and fittings.

Manufacture of office, accounting and computing machinery; manufacture of electric motors, generators, transformers, capacitors, resistors, switch-gears, electrical fittings and integrated circuit boards; manufacture of radio, television, VCRs, printers, floppy disc drives, communication and other equipment and apparatus for the domestic and export market.

Manufacture of basic iron and steel; operation of blast furnaces, steel converters, rolling and finishing mills.

Manufacture of metal structures, fabricated steel structures, bridges, towers and recycling of metal and non-metal waste and scrap.

Assembly and manufacture of agricultural machinery and equipment, industrial, transport and mining machinery and parts, construction machinery, machine tools and accessories, miscellaneous light engineering products, components and parts.

Ethiopia offers very good prospects for mineral prospecting and development. According to recent studies, "Ethiopia's green stone belts offer one of the finest prospects for gold mineralization anywhere in the world", and already more than 500 metric tons of gold deposits have been identified by Government exploration efforts. Additional gold reserves are expected to be identified in at least seven regions of the country. In addition to gold, Ethiopia is blessed with good prospects for tantalum, platinum, nickel, potash and soda ash. Included in the construction and industrial minerals are marble, granite, limestone, clay, gypsum, gemstone, iron-ore, coal, copper, silica, diatomite, bentonite, etc. With regard to fossil energy resources, there are significant opportunities for oil and natural gas in the four major sedimentary basins of the country, namely the Ogaden, the Gambella, the Blue Nile and Southern Rift Valley.

The details of the mineral resources of the country have been published by the Ministry of Mines and Energy in a two-volume prospectus. (Fax: 251-1-614574 / 251-1-515788)

The sedimentary regions of the Country cover nearly half of its area and comprise five distinct sedimentary basins which possess high prospects for petroleum and natural gas development. The largest discovery to date is the Calub natural gas field with proven reserves of 73 billion cubic meters. A part of this reserve is currently under development for commercial production.

Ethiopia is endowed with huge hydropower energy resources. Available data suggest that the Country’s hydropower potential is around 30,000 Megawatts. The current hydropower generation capacity of the Country is slightly over one percent of this potential. Hence, vast opportunities exist for foreign investors to participate in the generation of hydroelectricity whose domestic demand is growing rapidly and the prospect for export to neighboring countries appears to be most promising.

With a population of about 60 million, Ethiopia offers one of the largest domestic markets in Africa. Its proximity to the Middle Eastern and European Markets provides good opportunities for investments in the production of exportable goods. Ethiopia is also a member of the Common Market for Eastern and Southern Africa (COMESA) embracing 23 countries, with a population of about 300 million. Exports and imports with member countries enjoy preferential tariffs. As Ethiopia is a signatory of the Lomé Convention, its products to European Union Market are entitled to duty reductions or exemptions and freedom from all quota restrictions. Under Generalized System of Preference (GSP), a wide range of Ethiopia’s manufactured products are also entitled to preferential duty treatment in the United States of America, Canada, Switzerland, Norway, Sweden, Austria, Japan, as well as most European Union markets. Besides, no quota restrictions are applicable to Ethiopian exports on any of the 3,000 - plus currently eligible goods for GSP treatment.

The Government’s privatization programme also offers attractive options for investments in the Country. Up until now, 81 retail trade shops and stores, 24 factories, 11 agro-industries and state farms and 10 hotels and restaurants have been privatized on tender basis while 44 enterprises were privatized on employee buy-out schemes. Currently, 15 textile factories, 11 engineering industries, 11 food and agro-related enterprises (including tanneries), 13 state farms, 6 beverage factories, 19 construction related enterprises and 27 enterprises in the areas of hotel and tourism, pharmaceuticals, mining, transport, agri-services and chemicals are marked for privatization. Those who are interested to obtain further information in this area can contact the Ethiopian Privatization Agency or Ethiopian Diplomatic Missions.

Given its unique cultural heritage, magnificent scenery, pleasant climate, rich flora and fauna, important archaeological sites and friendly and hospitable people, Ethiopia has the potential to be one of the leading tourist destinations in Africa.

Despite the enormous tourist attractions, the tourism industry has not yet developed sufficiently. Nevertheless, the more enabling environment of recent years has resulted in a steady increase in tourist arrivals that reached 120 thousand in 1995/96.

Opportunities exist for private investment in the following services:

exporting the country's various products by way of undertaking market promotion, quality improvement or packaging;

construction, comprising first-grade contracting and rental of construction machinery as well as real estate development;

social services, such as health, education and sports facilities;

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